India Pesticides Limited IPO: Will it give a bumper listing?

At the upper end of the price band of Rs 296, the IPO price is valued at P/E multiple of 25 times compared to industry average of 35 times

Staff Writer   /   June 24, 2021

India Pesticides Limited (IPL) has hit the primary market with its maiden public issue of shares worth Rs 800 crore. A majority of stock brokers are recommending ‘subscribe’ to this IPO amid the midst of China +1 (global supply chain reducing reliance on China) based rally in chemical company stocks and the enthusiasm around such companies. Let us have a detailed look.

About the company

IPL was incorporated on December 13, 1984. It is an R&D driven agro‐chemical manufacturer of technicals (active pharmaceutical ingredients) with a growing formulations business. Around 78 per cent of its revenues come from technicals. Exports account for around 57 per cent of the company’s revenues.  

IPL is the fastest growing agro‐chemical companies in India in terms of volume of technicals manufactured. The company has witnessed 37.17% year‐on‐year growth in technicals manufacturing (by volume) between Fiscal 2020 and Fiscal 2021. The company is the sole Indian manufacturer of 5 technicals and among the leading manufacturers globally for Captan, Folpet and Thiocarbamate Herbicide, in terms of production capacity. IPL also diversified into manufacturing herbicide and fungicide technicals, active pharmaceutical ingredients for dermatological products.

IPL currently has 2 manufacturing facilities located at Lucknow and Hardoi in Uttar Pradesh.

About the IPO offering

India Pesticides Limited IPO consists of ₹100 crore fund raise via fresh issue of shares. There is also a ₹700 crore fund-raise through offer for sale. While the pre issue share holding of promoter is 82.68 per cent, the post issue share holding will be 72 per cent.

The IPO has a price band of ₹290–296 per share, valuing it at ₹3,400 crore or 24.5 times its FY21 earnings. IPL has low debt but working capital investments are higher and fresh proceeds from IPO will be utilised for working capital purposes.

The share face value is Re. 1. The minimum IPO lot size is 50 shares. This means retail investor can apply for minimum Rs ₹14,800 investment and maximum of Rs 1.92 lakh.

IPO factbox

CompanyIndia Pesticides Limited
Open dateJun. 23
Close dateJun. 25
Allotment dateJun. 30
Listing dateJul. 5
IPO band₹290 to ₹296 per share
Bid lot50 shares

Comparison with peers

India Pesticides Limited has a price to earnings (PE) valuation of 25 times based on FY21 financials. This is quite cheap compared to Bharat Rasayan, Rallis India, PI Industries, Atul etc.

Chemical stocks are market darling due to Indian companies expected to benefit from the ‘China plus one’ strategy, whereby global consumers will avoid overinvesting in one country, i.e., China, and promote diversification of business in other countries.

Many multinational giants are taking proactive steps to reduce dependence on China for their manufacturing operations and looking at India as an alternative option.

Broker views

Anand Rathi: We believe that due to the lower valuations as compared to its peers, India Pesticides is placed at an attractive valuation. Going forward with the planned expansion and lowering debt, we are also confident that company will maintain the growth levels which is mirroring in the pricing of the IPO.

Angel Broking: The company having one of the best ROE & ROCE of 34 per cent and 45 per cent respectively. The company having a very healthy balance sheet with negative
Net Debt to Equity. We expect the upcoming expansion plan and higher capacity utilisation will be the growth drivers for the company in future.

ICICI Direct: At Rs 296, the stock is available at 25.3 times FY21. Since the company caters to a few large formulators globally, the upcoming capacity expansion is likely to
improve the economies of scale. Further, technicals being a higher margin segment compared to formulations, increase in revenue share bodes well for return ratios and thereby valuations.

Motilal Oswal: We like IPL given its presence in fast-growing agrochemical space, diversified product portfolio and robust financials. Strong R&D, long-term relations with MNCs, cost competitiveness and extensive distribution network are some of the other key positives. Expanding product portfolio, growing customer base and increasing wallet
share of existing customers can help IPL maintain its growth momentum.

Reliance Securities: Notably, despite reporting better return ratios compared to peers like PI Industries and Rallis India, IPL is valued at a significant discount to peers, which offers comfort. IPL’s growth prospects look promising, considering the strong emerging opportunity for domestic agrochemical companies in global markets and its established presence in export markets.

Key risks

* Delay in granting of product approvals

* Client concentration risk (largest client contribute 19 per cent to revenue)

* Lack of market acceptance of new products

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