IIL is a small-cap company with market capitalisation of Rs 975.48 crore and is engaged in the production of formulation and technical agro chemicals and pesticides. It has a portfolio of 99 formulation and 18 technical products
Being in the agrochemical space, monsoon plays a vital role in driving demand for the sector. While there has been a forecast of weak monsoon in 2015, there has not been an instance of two consecutive years of deficient rainfall in the past (2014 monsoon was deficient at 88 per cent of LPA).
The management has given a guidance of a strong revenue growth of around 25 per cent for the ongoing financial year in case of a good monsoon, and around 15 per cent if it were to be weak. With an aim to improve its market share (currently at around 7 per cent), it has been expanding its brand portfolio through in-house research and development, acquisitions and technical collaborations.
The company has entered into a marketing tie up with Nissan Chemical Industries, Japan and technical collaboration with AMVAC, USA for their popular brands. Further, Insecticides (India) also formed a joint venture with OAT Agrio Co, Japan to build a R&D facility in India.
For the year ended March 2015, the company reported net profit of Rs 54.85 crore, up 37.33 per cent against Rs 39.94 crore last year. Net sales of the company jumped 11.58 per cent year-on-year to Rs 964.18 crore at the end of March 2015. According to Centrum Broking, revenue of the company is likely to grow at CAGR of 18 per cent during FY 15-17E.
According to Motilal Oswal, launch of new molecules, scale up of technical business, and strong room to improve capacity utilisation from 65 per cent currently, the company can post 18 per cent revenue CAGR and 36 per cent PAT CAGR over FY15-17 along with significant improvement in return ratios (RoCE and RoE to improve from 17.8 per cent and 20.3 per cent to 24.9 per cent and 24.7 per cent, respectively, over FY15-17). The brokerage house initiate coverage with a 'Buy' rating with a target price of Rs 800.
IIL has five formulations and two technical facilities at Chopanki (Rajasthan), Samba (J&K), Udhampur (J&K) and Dahej (Gujarat). It incurred a capital expenditure of around Rs 200 crore in the last few years for capacity expansion at Dahej, which was mostly funded via debt.
"The facility is likely to aid margins going ahead. It has reached 65 per cent utilisation and is expected to improve to 85 per cent over the next couple of years," Centrum Broking said in a research report. The brokerage house believes at 14x P/E, shares of IIL are trading at 30 per cent discount to industry average of 20x for FY 2017. Shares can touch Rs 736 in next few quarters.
"With the Dahej facility scaling up, we anticipate operating profit margins to expand from 11.5 per cent in 2014-15 to 12.8 per cent in 2016-17E. Further, with no major capex planned, we expect free cash flow generation going ahead. Debt to equity is likely to improve from 1 in FY2015 to 0.6 in FY2017E," Centrum said in a research report.
However, weak monsoon, any increase in working capital, forex volatility and delay in launches of new products are some of the key risks for the company.
On June 16, share price of IIL was at Rs 524.25.
No comments:
Post a Comment