IPO update: India Pesticides

India Pesticides came out with its IPO around 10 weeks ago. You can find Value Research's IPO analysis here. In this article, we focus on the IPO's performance, post-IPO events and changes in valuations since then.

Our analysis of the IPO
We gave a score of 17 out of 27 to this agrochemical manufacturer when it came out with the IPO. The score was based on the company's growth capacity, R&D capabilities and industry tailwinds. In FY21, 56.7 per cent of the company's revenue came from exports, which showcases the company's strong international exposure. The company is the sole manufacturer of five technicals that are pure active ingredients used to manufacture formulations and a global leader in the manufacturing of some herbicides and fungicides.

The company operates two business verticals - technicals and formulations. While the technicals vertical manufactures fungicides, herbicides and active pharma ingredients for dermatological products, the formulation vertical manufactures growth regulators (used to modify the growth of plants), herbicides and acaricides (used to kill ticks). In FY21, the technicals vertical contributed 80 per cent to the total revenues, while the formulation business accounted for the remaining 20 per cent.

The crop-protection market in India is expected to reach $5.7 billion in 2024 from $4.2 billion in 2021, with exports likely to account for 55 per cent of the market share. Being a market leader in some technicals, India Pesticides can gain from this momentum.

Our rating of the company was based on the following:

• Out of 10 business metrics, the company did well on four.
• Out of six management-quality-related metrics, it did well on five.
• Out of eight financial-strength metrics, it did well on six.
• Out of three valuation-related metrics, it did well on two.

Stock performance since listing
The Rs 800 crore IPO was subscribed by 29 times. The retail-investor portion was subscribed by 11.3 times, the non-institutional investor category was oversubscribed by 51.9 times and the Qualified Institutional Bidder (QIB) portion was subscribed by 42.9 times. The stock made a solid debut at a 22 per cent premium, listing at Rs 360 as compared to the issue price of Rs 296. The stock price went up to Rs 368 but started to tumble from there and has not yet reached the level again. At Rs 321, the stock is currently trading 10.8 per cent below its listing price. The company's valuation is still a tad bit cheaper than those of its competitors, including Astec LifeSciences, Bharat Rasayan, Rallis India and Sumitomo Chemical.

Business performance
The company's latest results gave investors much-needed confidence. It reported its results for the June quarter with revenue growth of 46.3 per cent YoY and profit growth of 72.2 per cent YoY. Interestingly, the company also managed to post a sequential growth of 27.6 per cent in revenue and 57.1 per cent in profits. In the current quarter, the EBITDA margin stood at 34.7 per cent, which is higher than that of the previous quarter, as well as the year-ago period.

The management has attributed these robust numbers to increased operational efficiency, new special-grade products and better market pricing. Owing to its stellar performance, the share price climbed up to Rs 358 on the day after the announcement of results but slowly tumbled down and closed at Rs 321 as on September 6, 2021.

What to do now?
Although the company made a good debut in the market and posted strong results, the share price fell owing to profit-booking by investors. The Indian crop-protection market has good potential and the company has a solid presence overseas. It has been able to generate 24 per cent revenue CAGR and 75 per cent profit CAGR in the last three years, which shows its capacity to grow. The management, too, is confident about maintaining the same level of margin in the future.

Some concerns that investors may have are the competitive landscape it operates in and the rise of biopesticides. Although the company has the potential, we have to see whether it can sustain itself amid the competition. Investors with strong convictions about the company can consider it, as the stock is trading at a P/E of 27.5, just 8 per cent more than its IPO valuation and still cheaper as compared to the median P/E of its competitors.

Disclaimer: This analysis is not meant to serve as a recommendation. Do your own research before investing in the company. If you are interested in our stock recommendations, please visit www.valueresearchstocks.com