Should you subscribe to India Pesticides IPO? Here’s what analysts say

India Pesticides’ Rs 800 crore initial public offer (IPO) will open for subscription on Wednesday. The IPO by one of the leading Indian agrochemical manufactures is priced in the range of Rs 290-296 per share, wherein the firm is looking to raise Rs 100 crore by fresh issue of shares of Rs 700 crore by the way of offer for sale (OFS).

The IPO, analysts say, is priced at 25.3 times FY21 earnings, which looks to be attractive compared to the industry’s average multiple of 47 times. Its listed peers like Dhanuka Agritech, Bharat Rasayan and Rallis India are currently trading at a PE of 31.7 times, 36.2 times and 32.9 times respectively.

Vikas Jain, senior research analyst at Reliance Securities said, despite reporting better return ratios compared to peers like PI Industries and Rallis India, India Pesticides is valued at a significant discount to peers, which offers comfort.

Analysts have largely assigned ‘Subscribe’ rating to the issue on the back of positive growth prospects, strong financials and reasonable valuations.

In the grey market, the stock is commanding a premium of over 20 per cent, and analysts expect the firm to do well on the listing. “Fundamentals of the company look very attractive. It has a high ROCE and ROE and a constantly growing EBITDA margins of 29.2 per cent. With strong fundamentals, the asking price of Rs 296 per share looks very reasonable. The combination of growth and reasonable valuations should prove to be the catalyst for the IPO,” said grey market watcher Manan Doshi, co-founder of UnlistedArena.com.

The company’s financial performance has been quite impressive on all counts. While its revenue and EBITDA recorded 37 per cent and 48 per cent CAGR, respectively through FY18-FY21, its net profit recorded a stellar 60 per cent CAGR over the same period.

Further, its balance sheet has been comfortable with least leveraging and it has become a net cash company in FY21. The OCF and FCF generation have been steady with cumulative OCF and FCF of Rs 170 crore and Rs 80 crore, respectively over FY18-FY21.

“The company has a robust track record of performance and has been generating positive cash flow. We are positive on the long-term prospects of the company. 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,” said brokerage Anand Rathi in an IPO note while assigning ‘Subscribe’ rating to the issue.

The company operates in two business verticals, viz. technicals and formulations. It is the sole Indian manufacturer of the technicals which are exported to over 25 countries and the revenue generated from exports contributed to 56.71 per cent of the revenue from operations in FY21. The company has a diverse customer base and strong R&D and product development capabilities.

Nineteen technicals are expected to go off-patent between 2019 and 2026 and an opportunity size of over $4.2 billion is expected due to this by 2026, which the company is well poised to cater to, noted Hem Securities.

“India Pesticides’ growth prospects look promising, considering the strong emerging opportunity for domestic agrochemical companies in global markets and its established presence in export markets. Further, its industry-leading return ratio (RoE at 35 per cent in FY21) and strong balance sheet augur well. Hence, we recommend Subscribe to the IPO,” Jain said.

Astha Jain of Hem Securities and Ajit Mishra of Religare Broking too held bullish views on the IPO. Jain said the IPO with its healthy balance sheet status, strong R&D capabilities and positive growth prospects is a good IPO candidate both from a listing gain perspective and for the long term.

Slowdown in global agrochemical industry and any loss of its key customers pose risks for the company, analysts noted.

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