CRISIL Research Ier Report Insecticides

Insecticides (India) Ltd
Initiating coverage
Enhancing investment decisions
Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).
CRISIL Fundamental Grade

5/5 4/5 3/5 2/5 1/5
Assessment
Excellent fundamentals Superior fundamentals Good fundamentals Moderate fundamentals Poor fundamentals
CRISIL Valuation Grade

5/5 4/5 3/5 2/5 1/5
Assessment
Strong upside (>25% from CMP) Upside (10-25% from CMP) Align (+-10% from CMP) Downside (negative 10-25% from CMP) Strong downside (<-25% from CMP)
Analyst Disclosure
Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company.
Disclaimer:
This Company-commissioned Report (Report) is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. The Data / Report are subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this Report. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information only of the authorized recipient in India only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person especially outside India or published or copied in whole or in part, for any purpose.
CRISIL Limited. All Rights Reserved.
Polaris Software Limited Insecticides (India) Ltd Business momentum remains intact
Brand power
Fundamental Grade Valuation Grade Industry 4/5 (Strong fundamentals) 3/5 (Good fundamentals) 5/5 (CMP has strong upside) 3/5 is aligned) Information technology Chemicals
July 08, 2011

Fair Value Rs 338 CMP Rs 335
CFV MATRIX
Excellent Fundamentals
Insecticides (India) Ltd (IIL) manufactures pesticide formulations for crop new product launches have led to strong revenue growth. However, IILs product mix is skewed towards generic formulations, which has resulted in lower profitability. We assign IIL a fundamental grade of 3/5, indicating that its fundamentals are good relative to other listed securities in India. Effective branding strategies have aided growth in the past IIL has been successful in doubling its markets share in the pesticide industry from 1.2% in FY05 to 2.4% in FY10 amidst intensifying competition. The company has launched new products on a sustained basis, acquired off-shelf brands and turned them around through aggressive marketing strategies. It has also entered into a strategic collaboration with Vanguard USA for the marketing of Thimet, a popular pesticide brand worldwide. These branding strategies have aided the growth of the company in the past. Moderately placed amongst its peers IIL is moderately placed compared to its peers in the industry. It compares well in terms of size and geographic reach. However, its margins are relatively lower compared to peers primarily on account of its business model that involves higher advertising and branding expenses to aggressively market selfowned and acquired brands. Further, its product mix is skewed towards generic formulations and technicals, in which the margins are lower than in specialty molecules. Expect two-year revenue CAGR of 37% We expect revenues to register a two-year CAGR of 37% to Rs 8.4 bn in FY13 largely driven by the commencement of commercial production in three new units. PAT margin is expected to expand to 7.9% in FY13 in line with improvement in EBITDA margins. Valuations: Aligned valuations CRISIL Equities has used the discounted cash flow method to value IIL and arrived at a fair value of Rs 338 per share. This fair value implies P/E multiples of 8.5x FY12E and 6.4x FY13E earnings.
Fundamental Grade
protection. Strategic brand acquisitions, aggressive marketing strategies and
5 4 3 2 1
Poor Fundamentals
Valuation Grade
Strong Downside Strong Upside
KEY STOCK STATISTICS

NIFTY/SENSEX NSE/BSE ticker Face value (Rs per share) Shares outstanding (mn) Market cap (Rs mn)/(US$ mn) Enterprise value (Rs mn)/(US$ mn) 52-week range (Rs) (H/L) Beta Free float (%) Avg daily volumes (30-days) Avg daily value (30-days) (Rs mn) 5729/19078 INSECTICID/ INSECTCID 10 12.7 4,255/96 4,598/104 355/209 1.1 25.3% 197924 66
SHAREHOLDING PATTERN
100% 90% 80% 70% 60% 50% 40%
74.7% 74.7% 74.7% 74.7% 74.7% 25.3% 20.2% 5.1% 21.8% 0.5% 3.0% 21.2% 0.2% 3.9% 6.0% 19.3%
KEY FORECAST
(Rs mn) Operating income EBITDA Adj net income Adj EPS-Rs EPS growth (%) Dividend yield RoCE (%) RoE (%) PE (x) P/Bv (x) EV/EBITDA (x) FY09 2,634 281 208 16.4 45.3 5.6 26.3 23.6 2.5 0.5 1.6 FY10 3,775 340 282 22.3 35.7 3.2 25.7 25.7 3.3 0.8 3.0 FY11 4,501 438 323 25.5 14.4 1.3 25.3 23.6 8.6 1.8 7.1 FY12E 6,768 685 501 39.5 55.1 1.5 28.8 29.0 5.5 1.4 5.1 FY13E 8,441 906 664 52.4 32.6 2.1 29.6 29.6 4.2 1.1 3.7
30% 20% 10% 0% Mar-10 Promoter Jun-10 FII Sep-10 DII Dec-10 Mar-11 Others
PERFORMANCE VIS--VIS MARKET

Returns 1-m INSECTICIDES NIFTY 6% 3% 3-m 8% -3% 6-m 54% -3% 12-m 39% 9%
ANALYTICAL CONTACT
Sudhir Nair (Head) Neeta Khilnani Arun Vasu Client servicing desk +91 22 3342 3561 clientservicing@crisil.com snair@crisil.com nkhilnani@crisil.com avasu@crisil.com
NM: Not meaningful; CMP: Current Market Price Source: Company, CRISIL Equities
CRISIL EQUITIES | 1

Table 1: IIL Business environment
Product / Segment Revenue contribution (FY11) Revenue contribution (FY13) Product / service offering Geographic presence powder Home pesticides Manufacturing facility: Chopanki (Rajasthan) and Samba (Jammu) Earns 99.8% of revenues from the domestic market Manufacturing facility: Chopanki (Rajasthan) Pesticides formulations 90.0% 84.0% Formulations - liquid, granules and formulations Technicals 10.0% 16.0% Technicals are an input for manufacturing of
Market position Sales growth (FY08-FY11 3-yr CAGR) Sales forecast (FY11-FY13 2-yr CAGR) Key competitors
Has a market share of 2.4% in the domestic pesticides market as of FY10 (Source: CMIE) 24.0% 30.0% 272% (two-year CAGR - started in FY08) 57% United Phosphorous, Meghmani Organics, and Excel Crop Care
United Phosphorous, Meghmani Organics, Excel Crop Care, Rallis India, Bayer Crop Science, PI Industries and Syngenta India
Demand drivers
The yield per hectare in India is among the lowest in the world - 2.9 mn tonnes per hectare as compared to 7.8 mn tonnes in the US, 6.2 mn tonnes in Japan, and world average of 4.0 mn tonnes per hectare. The government is taking sustained efforts to improve per hectare yield which in turn will result in an increased usage of pesticides
Rising population coupled with declining rate in crop production across the world is expected to put continued thrust on arresting crop losses and, therefore, on increasing usage of pesticides
Despite a rise in pesticide prices due to increased raw material costs, consistent increase in MSP (minimum support price) of major crops has kept use of pesticides affordable for farmers
Industry outlook
The pesticide industry is expected to grow at a CAGR of 12% from 2010 to 2015
Key challenges
Adverse crop conditions due to irregularities in weather will affect the demand for pesticides The increasing use of genetically modified and biotech seeds will reduce the consumption of pesticides Delay in increase of MSP Regulatory risks with regards to development in environmental and safety norms Lack of diversification in IILs revenues, on account of its dependency on the domestic market
Source: Company, CRISIL Equities
CRISIL EQUITIES | 2

Grading Rationale
IIL has grown faster than the industry
Pesticide manufacturer IIL, though relatively small, has been successful in creating an established position for itself in the industry. It has grown faster than the industry and consequently managed to increase its market share amidst intensifying competition. New product launches, aggressive marketing strategies, strategic brand acquisitions, and strong distribution network of dealers and traders are the key reasons for IILs strong growth in the highly fragmented pesticides segment. IIL is also one of the few domestic players to have successfully forayed into the technicals (input for formulations) segment.
IIL
has
steadily
increased market share from 1.2% in FY05 to 2.4% in FY10
Table 2 : IILs sales growth has been higher than the industrys
% Growth FY07 Insecticides India sales growth Industry sales growth Source: CMIE 41.0% 3.8% FY08 20.3% 12.7% FY09 32.9% 32.3% FY10 34.8% 7.5%
Table 3: IIL is gaining market share amidst competition

Company Overall market share (%) FY07 United Phosphorus Syngenta Bayer Cropscience Rallis Gharda Chemicals Dhanuka Agritech Insecticides India Source: CMIE 9.4 6.5 7.1 6.2 6.0 2.2 1.8 FY08 9.2 6.8 6.5 6.0 6.0 2.4 1.9 FY09 11.8 7.2 7.4 5.7 5.3 2.4 1.9 FY10 11.4 8.5 7.6 5.5 5.2 2.5 2.4 1 2 3 4 5 15 16 Rank (FY10)
IIL is placed in the second layer of the industry structure

The Indian pesticide market can be demarcated into three tiers: a) MNC players form the top layer. They have higher profitability on account of a large chunk of patented products in their portfolio. b) The second tier consists of large Indian players with strong distribution reach. IIL has rapidly expanded to create a position for itself in Tier II of the pesticides industry. c) The third tier comprises small regional players with a concentrated product mix.
CRISIL EQUITIES | 3
Figure 1: Pesticides industry structure

-Few MNCs dominate the top tier- they constitute ~20% of the total industry. -Major players include Bayer Corp Sciance, Syngenta, Monsanto, BASF, etc. -They have strong, well-established brands and a diversified product base. Few of them have presence in the technical segment.
-Large Indian companies with strong distribution reach, limited R&D capability but good process chemistry skills to develop off-patent products. -Few of them have presence in the technical segment as well. -Major players include United Phosphorous, Dhanuka Agritech, Rallis India, Bilag Industries, PI Industries, Gharda Chemicals, Insecticides India Ltd. -They form 50-60% of the total industry. -They form the remaining proportion of the total industry. -Small regional players with limited distribution reach. -They also include spurious product manufacturers.
IIL's presence
-Low capital intensive nature has led to fragmentation in the formulations segmentthere are around 400-500 formulators along with 35 large players in the industry.
Source: CRISIL Research The domestic pesticide segment is moderately organised, with the top six players accounting for 45% market share (March 2010). Players such as Bayer, UPL and Rallis have a presence in both technicals and formulations. IIL is one of the few domestic players to be present in both the segments. The technicals segment forms the basis of formulations, which are manufactured through a batch-mixing process.
Focus on productivity improvement in agri produce to drive growth of domestic pesticide industry
Rising population, coupled with declining growth in crop production, is expected to provide a continued thrust on arresting crop losses, and therefore, on increasing usage of pesticides. Crop losses in India - due to insects, rodents, diseases and weeds - range from 10-30% annually depending on the severity of attack, and climatic and environmental conditions. Consumption of pesticides in India is close to 0.57 kg/ha while in countries like Taiwan it is 17 kg/ ha; in the US it is 3 kg/ha, in the EU it is 3 kg/ha and in Japan it is 12 kg/ha. The domestic pesticide industry has shown healthy growth in the past four years, at 15.4% CAGR over FY07-10. At present, the domestic pesticide industry is worth ~Rs 84 bn and is expected to grow by at least 12% per annum till 2015.
We by at
expect least
domestic 12% per
pesticide industry to grow annum until 2015
CRISIL EQUITIES | 4
Figure 2: Domestic pesticide industry growth

(Rs bn) 90 80 70 60 50 40 30 20 10 0 FY06 FY07 Market Size FY08 FY09 FY10 52.225 54.883 63.753 73.59 84.352 5.1% 16.2% 18% 15.4% 14.6% 16% 14% 12% 10% 8% 6% 4% 2% 0%
Growth (RHS)
Source: CMIE, CRISIL Equities Based on application, the crop protection market can be segmented into insecticides, herbicides and fungicides. In India, a tropical country, the consumption pattern of pesticides is tilted towards insecticides, which account for around 70% of the crop protection through chemicals market. It is followed by herbicides and fungicides at around 15% each. IILs own product portfolio is geared towards sales of insecticides which account for 70% of pesticide sales.
Rise in MSP of major crops increases pesticide industrys ability to pass through raw material costs
More than 50% of the raw materials used for manufacturing of pesticides are derived from various products which have linkages with crude oil and natural gas. While the cost of raw material for pesticide players has increased over the years, they have been able to pass on the cost escalation to end consumers (farmers) due to the governments policy with regards to MSP for major crops.
Figure 3: Increase in MSP of major crops

225 200 175 150 125 100 75
Figure 4: Crop-wise share of pesticide usage

Others, 16% Cotton, 37%
Wheat/ Cereals, 10%
2004
2005
2006
2007
2008
2009
2010
2011
Plantations/ Pulses, 17% Paddy, 20%
Cotton
Paddy
Wheat
- indexed to 100 Source: Ministry of Agriculture, CRISIL Equities Source: Industry, CRISIL Equities
CRISIL EQUITIES | 5

Cotton and paddy account for more than 50% of Indias pesticide consumption. As a result, pesticide consumption is largely driven by the production trend in these two crops.
Table 4: Porters five forces for Indian pesticide industry

Degree Buyer power Medium Comments Dependent on the prospects of the agriculture industry and ability of the company to push its products to farmers. IILs pan-India presence helps to mitigate this risk to a certain extent through diversification of customer base. Supplier power Threat of new entrants Threat of substitutes Medium Low Low Low supplier concentration, reduces the bargaining power of suppliers. Product registrations, extensive data submission to regulatory authorities, compliance with strict environment laws and other regulations serve as entry barriers for new players. Threat of substitutes is low as product development is an expensive and time-consuming process, which can only be afforded by large players. A formulator with popular brands is, therefore, well placed as it can leverage its existing sales network to market products that are in vogue. Rivalry High Industry rivalry is high, especially in case of formulators like IIL. The Indian pesticide industry is fragmented, with the five largest players accounting for only 38% of the market share.
Diversified product base and effective branding strategies have aided growth
Over time, IIL has built its product portfolio to include around 106 products including insecticides (which constituted ~70% of revenues in FY10), fungicides, herbicides and household pesticides. The rice crop insecticides constituted ~40% of revenues; cotton, wheat and other vegetable crops account for the rest. The wide basket of products with various applications not only ensures risk diversification but also provides a complete one-stop-shop solution to the farmers. This enables IIL to easily push its products in the small retail farm outlets, in contrast to an MNC player who will be able to provide the retailer only few crop-specific usage pesticides.
IIL has 106 products in its portfolio: 90 generic products, molecules product 15 specialty one patent and
(fungicide), which is in the application stage
Branding strategies
Launching own brands: IIL has been active in launching its own products and positioning them as quality value-for-money brands. Some of its leading brands are Victor, Indan 4g, and Kaiser. Victor has registered a CAGR of 22% over the past four years to report Rs 286 mn sales in FY11. IIL specifically scouts for opportunities to launch products in markets where MNCs product is expected to go off-patent, resulting in a supply gap in that market. It has set up an R&D centre in Rajasthan to enable continuous development of new formulations.
CRISIL EQUITIES | 6

Figure 5: New product launches
9 8 7 6 5 4 7 3 5 2 3 1 0 FY07 FY08 FY09 New product launches FY10 FY11 5 8
Source: Company
Acquiring high recall, but off-shelf brands and turning them into cash cows: IIL has three major brands in its product portfolio, viz. Victor, Lethal and Thimet, which together along with their variants account for ~35% of revenues. In the initial years of operations, IIL did not receive the expected response from the farmers for its products and recognised the need for strong brands. Consequently, it acquired several popular brands, including Lethal from Montari Industries Ltd in 2003. Montari Industries, a player in the agro-chemicals space, ceased operations in 2004 and was reported as a BIFR case. However, its brands had high-recall value amongst the farmers in spite of being off-shelf for three-four years. Initially, IIL acquired three brands from Montari Industries on lease and tested the response to these products. Good response resulted in IIL acquiring all the brands of Montari Industries for ~Rs 5-6 mn. After acquisition, IIL spent heavily on advertising to revive the brands and leverage on their high brand power. Lethal has grown at a CAGR of 20% over the past four years to report revenues of Rs 390 mn in FY11E and is one of the largest brands in its segment (Chlorpyrifos) currently. IIL has introduced 11 variants under this brand, as it is easier to market a new product under an established brand name. Other successful brands acquired from Montari Industries are Tractor and Milchlor. IIL has also acquired a popular generic brand Monocil from Mumbai-based Nocil Ltd in March 2011. Monocil is a systemic insecticide which controls a broad spectrum of pests in a wide range of crops and is one of the largest selling molecules (monocrotophos). This brand too was off-shelf during the past five-six years as the product did not fit into the broad strategy of Nocils product mix. However, Monocil continued to have a high brand recall, which is evident from the fact that IIL has booked 1 mn litres of order (worth Rs 350 mn) in a span of one month. The monocrotophos segment is estimated to be 10 mn litres annually (Source: Industry), thereby implying that Monocil has acquired a 10% market share in a short span of time.
CRISIL EQUITIES | 7
Entered into technical collaboration with Vanguard USA: In 2006, IIL entered into a technical and marketing MoU with Vanguard USA, under which IIL is permitted to manufacture and market products under the brand Thimet, a popular brand in the generic pesticide segment category worldwide. Thimet was previously acquired by Vanguard from BASF and was the top brand in its category (phorate CG) at the time IIL entered into collaboration with Vanguard. IIL managed to bag the rights to market this brand on account of its marketing expertise and past experience of turning around non-performing brands. Thimet, the largest selling brand of IIL, has grown at a CAGR of 14% in the past four years to clock sales of Rs 416 mn in FY11. Under this agreement, the company has to pay US$175,000 or 5% of Thimets sales, whichever is lower, as royalty expenses to Vanguard USA. The agreement was valid till 2011 and has been renewed for another five years.
Brand performance
Figure 6: Victor - revenues and revenue growth*
(Rs mn) 350 300 250 200 20% 150 100 50 0 FY07 FY08 Total Revenue FY09 129.5 232.6 163.6 0% -5.0% FY10 FY11P -10% 221.0 285.8 10% 26.4% 29.4% 30% 42.2% 50% 40%
Figure 7: Lethal - revenues and revenue growth*

(Rs mn) 450 400 350 300 250 200 150 100 50 0 FY07 FY08 Total Revenue FY09 FY10 FY11P 191.9 275.4 333.8 21.2% 8.6% 8.3% 43.5% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
362.7
392.7
y-o-y growth (RHS)
y-o-y growth (RHS)
Figure 8: Thimet - revenues and revenue growth*

(Rs mn) 450 400 350 300 250 15% 200 150 100 50 0 FY07 FY08 Total Revenue FY09 250.5 266.4 322.6 6.3% 3.2% 332.9 FY10 416.8 0% FY11P 10% 21.1% 25.2% 30%
Victor Lethal and Thimet,

25%
along
with
its
brand
20%
variants, constituted ~35% of the total revenues in FY11
5%
y-o-y growth (RHS)
Source: CRISIL Equities * Does not include revenues from brand variants We believe that the companys ability to launch new products on a sustained
CRISIL EQUITIES | 8

basis, acquire off-shelf brands and turn them around through aggressive marketing strategies has been the key for IIL in establishing its position in the pesticides industry. Further, the company is looking at more collaborations in the future; it is in the process of finalising a collaboration with a Japanese player. The company has also recently entered into an agreement with National Research Development Corporation, Government of India for providing
technological support for research & development of a specific formulation. We feel that the managements well thought-out approach in brand acquisitions and collaborations will continue to drive the future prospects of the company. IIL is looking to grow slow and steady in the household pesticides segment, which currently forms an insignificant portion of total revenues (~4% in FY10). We believe that this is a good strategy since the household pesticide segment involves huge selling and marketing expenses during the brand-building exercise.
Pan-India distribution network has also helped

The nature of the Indian crop protection market makes it necessary to be in close proximity to the end-users - farmers. IIL has a presence across all major farming states of Uttar Pradesh, Haryana and West Bengal, where the pesticide consumption is the highest. Prior to the incorporation of IIL, the management was involved in the trading of pesticides for around three decades. This experience has enabled IIL to establish a strong dealer network and relationship with farmers, a pre-requisite for success in the pesticides segment. It has more than 50,000 distributors and 29 depots across India. It also undertakes initiatives to encourage and promote new agricultural techniques through crop seminars, farmer meetings, demonstrations and various educational literatures.
CRISIL EQUITIES | 9

Figure 9: Geographically diversified revenues
West India, 15%
Pan-India eliminates uncertain

North India, 35%
presence the risk of weather
conditions in any one part of the country
East India, 10%
South India, 40%
Capacity expansion to keep growth momentum intact

The company currently has two plants for manufacturing technicals and formulations in Chopanki (Rajasthan), and one formulations plant in Samba (Jammu). It is in the process of commencing commercial production in three new units: two in Dahej, (Gujarat) for formulations and technicals, and one in Udhampur (Jammu). IILs rapid revenue growth can be attributed to consistent increase in capacities. With three additional units coming up, the growth momentum is expected to continue over the next two-three years.
Table 5: Continuous build-up of capacity in the past

Plant Chopanki unit-formulations Capacity EC (lakh litres) Granules (tonnes) WDP (tonnes) Chopanki unit-technicals Technicals (tonnes) Samba unit-formulations EC (lakh litres) Granules (tonnes) WDP (tonnes) FY06 FY07 FY08 FY09 FY10
30 4,500 1,800 0 30 6,000 1,100
30 6,500 2,300 0 30 6,000 1,800
35 6,500 3,200 350 40 6,000 2,100
40 7,500 3,500 1,100 40 6,100 2,100
60 7,500 4,500 3,800 55 6,100 2,100
Table 6: Capacity in the new units

Plant Dahej unit-formulations Capacity EC (lakh litres) Granules (tonnes) WDP (tonnes) Dahej unit-technicals Technicals (tonnes) Udhampur unit-formulations EC (lakh litres) Granules (tonnes) WDP (tonnes) Source: Company CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 10 FY12
40 12000 2500 9000 30 2000 600

Table 7: Capex details
Stage of Plant Dahej unitformulations completion The plant is completed. Operations have commenced from 31st March 2011. Total investment/source of funding Total investment of Rs 100 mn. IIL had raised Rs 369 mn through an IPO in 2007. At that time, the plan was to set up the formulations and technicals plant in Rajasthan. However, the location was revised as the company was unable to acquire land at reasonable prices in Rajasthan. The funding for this plant has been met by IPO proceeds. Dahej unittechnicals Majority of the work is completed. The expected date of commissioning is Q2FY12. Udhampurformulations The plant is completed. Operations have commenced from May 2011. Total investment of Rs 60 mn financed from IPO proceeds. The remaining IPO proceeds have been utilised in setting up a R&D facility and a technicals plant at Chopanki and meeting other corporate expenses. The IPO proceeds are now fully utilised. The company enjoys certain benefits in its units situated in J&K as per the J&K Industrial Policy 2004. This unit will enjoy 100% excise duty refund and 100% tax exemption for five years. Given these benefits, IIL plans to manufacture most of the higher profitable specialty molecules in this plant. As the Samba unit has completed five years of operations, the benefits in this unit have been reduced to 70% of excise duty redemption. 30% of PBT will continue to receive the benefit of tax exemption. Source: Company, CRISIL Equities Total investment of Rs 550 mn financed from internal accruals. Strategy It is a multi-purpose plant which can make up to four molecules simultaneously. Dahej is closer to the port. This will enable the company to save on freight cost as certain chemicals have to be imported from China and other countries. Further, Rallis India and United Phosphorous, major technicals manufacturers, have plants in Gujarat. This will further enable reduction in transportation costs. Monocil will be manufactured in this plant. IIL is expected to use 50% of the total technicals capacity in-house for its formulations unit. This will result in savings in raw material costs.
Backward integration enhances business prospects

In 2007, IIL backward integrated to the production of technicals, the major input for formulations. Foray into the technicals segment involves complex chemical processes, technological superiority, and higher initial investment funding. As a result, this segment is not as fragmented as formulations. In this backdrop, IILs successful foray into the technicals segment is reflective of its strong and experienced R&D team. Raw material expenses form ~80% of IILs total operating expenses. It is currently utilising 60% of its technical production in-house, which meets ~40% of its total technicals requirement. The entire production is not used in-house because of differences in product combinations. The backward integration offers higher pricing flexibility to the company and enables it to offset the rise in prices of other chemicals, higher marketing expenses and maintain EBITDA margins, which otherwise would have been under pressure. The company has plans to almost double its technicals capacity by setting up a new plant in Dahej, of which it intends to utilise 50% in-house. This is likely to result in margin expansion from the current levels, as the company is estimated to save on distributors margin by consuming higher proportion of technicals manufactured in-house. CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 11
IIL
is
one
of
the
few
players to have successfully forayed into the technicals segment

Moderately placed amongst its peers
IIL is moderately placed as compared to its peers in the industry. It compares well in terms of size and geographic reach. However, its margins are relatively lower compared to peers primarily on account of its business model that involves higher advertising and branding expenses to aggressively market its own and acquired brands. For instance, the company had roped in television actor Aman Verma to promote its brands acquired from Montari Industries in 2003. Further, its product mix is skewed towards generic formulations and
technicals, in which the margins are lower than speciality molecules and products manufactured through technical collaborations. The company also follows the strategy of competitively pricing its products to penetrate in a target market. These measures have resulted in lower operating margins than peers.
Figure 10: Higher selling expenses as a % of sales...

16% 14% 12% 10% 8% 6% 4% 2% 0%
Dhanuka
Syngenta India
United Phosphorus
Gharda Chemicals
IIL
Excel Crop
FY08
FY09
FY10
Source: CRISIL Equities
Figure 11: ... have led to lower EBITDA margins than peers
(%) 20 18 16 14 12 10 8 6 4 2 0 FY08 Dhanuka Agritech Rallis FY09 Excel Crop United Phosphorus FY10 IIL Bayer
Bayer
Rallis
CRISIL EQUITIES | 12

Competitive landscape
Table 8: Comparison with MNC players
Bayer Crop Science Insecticides (India) FY10 Market share % Overall: 2.4% Domestic: 5.0% Exports: Nil Business: Overview - Strength lies in aggressively marketing brands and subsequently gaining market share -Has been active in product launches and has a wide distribution network -Majorly concentrated in the generic insecticides segment - Major focus is in the domestic market; has presence in the technicals space International sales Financial details Operating income EBITDA margin RoCE RONW NPM Sales growth (5-year CAGR) NP growth (5-year CAGR) GFA turnover Debt service ratios Debt equity ratio Interest cover Working capital ratios Current ratio Debtors Finished goods Raw material days Creditors Times Days Days Days Days 0.9 58 61 71 101 1.0 40 45 111 91 0.7 55 62 110 142 1.3 39 44 72 235 Times Times 0.17 14.1 0.21 8.8 0.02 26.5 0.03 6.0 Times 10.4 3.4 3.4 2.1 % 31.8 18.7 24.9 1.5 Rs mn % % % % % 3,971 9.0 23.2 22.4 7.4 30.1 17,939 14.0 30.1 23.2 7.3 16.8 18,092 16.6 29.0 22.0 10.0 24.0 4,244 17.4 15.8 15.4 12.9 1.2 % Nil 12% NA 4% -Enjoys strong parental support of Bayer AG -Has launched new products and initiatives at a rapid pace on account of strong R&D facilities and wellestablished distribution network -Major focus in the domestic market, not present in the technicals segment -Incorporated in 2000, it has fast grown in the herbicides, fungicides and insecticides segments -Earns around ~55% of its revenues through exports; technicals form 36% of revenues -It also researches and develops new variety of hybrid seeds; this segment accounts for 22% of turnover -Majorly involved in developing biotechnology crops and hybrid seeds (form 69% of turnover) -Within the pesticides segment, has major presence in herbicides -Focussed on the domestic market; does not have presence in technicals India FY10 Overall: 7.6% Domestic: 17.0% Exports: 3.0% Syngenta India FY10 Overall: 8.5% Domestic: 10.0% Exports: 7.0% Monsanto Industries FY10 Overall: 0.9% Domestic: 2.0% Exports: NA
Source: Prowess, CRISIL Equities
Table 9: Comparison with Indian players

Insecticides (India) FY10 Market share % Overall: 2.4% Domestic: 5.0% Exports: Nil Business: Overview - Strength lies in aggressively marketing brands and subsequently gaining market share - Has been active in product launches and has a widespread distribution network - Majorly concentrated in the generic insecticides segment - Major focus is in the domestic market; has presence in the technicals space International sales Financial details Operating income OPM RoCE RONW NPM Sales growth (5year CAGR) NP growth (5-year CAGR) GFA turnover Debt service ratios Debt equity ratio Interest cover Working capital ratios Current ratio Debtors Finished goods Raw material days Creditors Times Days Days Days Days 0.9 58 61 71 101 4.4 98 19 31 113 0.8 29 43 40 148 1.0 78 52 74 54 Times Times 0.17 14.1 1.2 4.0 0.02 26.9 0.59 8.7 Times 10.4 1.5 2.1 6.8 % 31.8 20.8 9.2 49.3 Rs mn % % % % % 3,971 9.0 23.2 22.4 7.4 30.1 27,984 12.5 8.1 10.8 6.6 19.8 9,429 18.0 31.7 24.8 11.3 8.6 4,462 14.3 35.6 37.4 8.9 48.6 % Nil - Largest player in the domestic market - Has inorganically grown through various overseas acquisitions of brands/companies - Manufactures and exports off-patent agrochemicals, a segment in which it is amongst the largest players globally - Product portfolio ranges from pesticides to specialty chemicals to seeds - Has manufacturing locations across 9 locations in India and 16 outside India 75% - Has a diversified revenue base across insecticides, herbicides and fungicides - Rallis, a subsidiary of Tata Chemicals Ltd, has announced that it will be acquiring Metahelix Life Sciences, a seeds company - With factories spread across five locations, it has a well entrenched distribution network - Has presence in the technicals segment, earns 79% of revenues from the domestic market 30% Nil - Has various international collaborations which ensure higher profitability - Innovative marketing campaigns, also sells through selfowned retail outlets - Tried to backward integrate in the technicals segment, but backed out - Present in the domestic market United Phosphorous FY10 Overall: 11.4% Domestic: 6.0% Exports: 49% Rallis India FY10 Overall: 5.5% Domestic: 9.0% Exports: 4.0% Dhanuka Agritech FY10 Overall: 2.5% Domestic: 6.0% Exports: Nil
Source: Prowess, CRISIL Equities

Key risks
Unpredictable weather and incidence of pests
The performance of the pesticide industry remains highly dependent on the weather, which can affect the presence of disease and pest infestations in the short term on a regional basis. Accordingly, it may negatively affect the demand for crop protection products. Also, sales of IIL in the domestic retail market are highly seasonal due to monsoons, with a majority of sales in the second quarter of the financial year. Floods, droughts and other extreme seasonal and cyclical factors create uncertainty of demand.
Unpredictable and lengthy are
weather, registration the key
threat from biotech seeds, process
Threat from biotech seeds and immunity of pests

The use of genetically modified seeds is on the rise. These seeds are inherently resistant to pests, which makes the use of pesticides redundant. Despite resistance to widespread use of these seeds and various controversies surrounding their impact on the environment, they remain a threat to pesticide consumption. However, the management has indicated that biotech seeds do require a certain amount of pesticides. Further, the tendency of various pests to develop immunity to various pesticides for short periods of time may impact the demand for pesticides during specific time intervals.
challenges for the company
Lengthy and expensive registration process

The registration process of a new product is very lengthy involving testing of products across soil types, climatic conditions, water conditions and variety of pests, which typically requires between three and seven years. Also, the cost of registration is high at Rs 25-30 mn per product. This, along with the presence of well-established players with strong brand names, creates a challenge for IIL in the registration of new products.
Regulatory risk
IIL enjoys certain fiscal benefits, viz. tax exemptions and excise duty refund for its plants in Jammu under the J&K Industrial Act of 2004. In the event of a change in regulation and withdrawal of these benefits by the government, the companys profitability and the competitive advantage may be adversely affected.

Financial Outlook
Revenues to grow at two-year CAGR of 37%
Revenues are expected to increase at a two-year CAGR of 37% to Rs 8.4 bn by FY13. Growth is expected to be driven by the commencement of commercial operations in the three new units, two formulations plants in Dahej and Udhampur, and one technical plant in Dahej and the recent acquisition of the hugely popular brand Monocil. The company plans to consistently add capacities in these new units, thereby boosting revenues on a sustained basis.
Revenues likely to grow at a two-year CAGR of 37% to Rs 8.4 bn in FY13
Figure 12: Healthy revenue growth going forward

(Rs mn) 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 FY08 FY09 FY10 FY11 FY12E FY13E 1,976 2,634 3,775 17% 19% 10% 4,501 6,768 8,441 0% 33% 43% 50% 50% 40% 30% 25% 20% 60%
Figure 13: Product-wise revenue diversification

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FY09 Liquid formulations FY10 FY11 Granules FY12E Technicals FY13E Powder 46.9% 44.1% 49.6% 51.6% 49.9% 4.5% 22.9% 25.7% 18.0% 9.5% 16.1% 11.4% 22.9% 13.4% 15.2% 14.8% 16.0%
28.3%
19.9%
19.4%
Revenues
y-o-y revenue growth (RHS)
EBITDA margins to expand to 10.7% in FY13

We expect EBITDA margins to expand from 9.7% in FY11 to 10.7% in FY13 on account of higher consumption of technicals manufactured in-house, and a relatively low ad spend given the popularity of the newly acquired brand Monocil. The technical capacity is expected to increase from 3,800 tonnes in FY10 to 12,800 tonnes in FY13, of which 50% is expected to be used in-house.
EBITDA margins are likely to expand on account of higher consumption of indigenously manufactured and spend relatively technicals, lower ad
Figure 14: EBITDA and EBITDA margin trend

(Rs mn) 1,000 900 800 700 600 500 400 300 200 100 0 FY09 FY10 EBITDA FY11 FY12E FY13E 281 340 438 9.0% 685 906 9.5% 9.0% 8.5% 8.0% 9.7% 10.1% 10.5% 10.0% 10.7% 10.7% 11.0%
EBITDA margin (RHS)

PAT to grow at a two-year CAGR of 44%, EPS to increase from Rs 25.5 in FY11 to Rs 52.4 in FY13
Adjusted PAT is expected to grow at a two-year CAGR of 44% to Rs 664 mn in FY13. Adjusted PAT margin is expected to expand in line with improvement in EBITDA margins. The company continues to enjoy tax exemption on 30% of the PBT of the Samba unit (~30% revenue contribution) and 100% of PBT in the Udhampur unit (~20% revenue contribution), which will also help the margin expansion.
PAT margin is expected to expand to 7.9% in FY13
Figure 15: PAT and PAT margin

(Rs mn) 700 600 500 7.5% 400 300 200 100 143 0 FY08 FY09 PAT FY10 FY11 FY12E PAT margin (RHS) FY13E 208 282 323 501 664 6.8% 7.2% 7.2% 7.2% 7.0% 7.4% 7.4% 7.9% 7.9% 8.0% 7.8% 7.6%
Figure 16: RoCE and RoE trend

(%) 32 30 28 26.3 26 24 22 20 FY08 FY09 RoCE FY10 FY11 FY12E RoE FY13E 25.3 25.7 25.3 25.7 24.5 23.6 23.6 29.6 29.0 29.6 28.8
RoE and RoCE to expand on account of higher profitability

Management Overview
CRISIL's fundamental grading methodology includes a broad assessment of management quality, apart from other key factors such as industry and business prospects, and financial performance.
Experienced management
IIL has an experienced management headed by Mr H. C. Aggarwal, chairman, and his son Mr Rajesh Aggarwal, managing director. Mr Rajesh Aggarwal promoted the company in 1996. His business acumen in the production and marketing of pesticides is reflected in the strong revenue growth of 30% in the past five years. Mr H. C. Aggarwal has more than three decades of experience in the pesticides segment and has been associated with IIL since 2001. He has been the president of Northern India Pesticides Manufacturing Association for over five terms and the director of Crop Care Federation of India (CCFI). He is currently on the board of CCFI. He oversees the broad strategic growth plans of the company, while Mr Rajesh Aggarwal is responsible for smooth functioning of day-to-day operations.
IIL has an experienced management, identifying quick in new brand
Proven ability to turn around brands

IIL has been quick in identifying and acquiring brands with high recall amongst farmers but which have been off-shelf for a few years. It has then successfully leveraged on the products brand strength through aggressive marketing strategies and various awareness campaigns on the use of pesticides amongst farmers. Though this strategy has resulted in higher advertising expenses and, consequently, lower profitability compared to peers, it has enabled the company to increase its market share in the fragmented formulations segment. The management is conscious of this fact and is taking steps to improve profitability by scouting for technical collaborations. We believe that the management has displayed a good mix of aggression with caution in their business strategy, which augurs well for the sustained growth of the company in the long term.
acquisition opportunities
Professional set-up and strong second line

IILs management has adopted a professional approach towards managing the company. The company has inducted various professionals from the industry at the senior and mid management levels to prepare for the next level of growth. Though the company does not have employees with specific designations such as CFO, COO, etc., there is a specialised head for each of the operational departments. Most of the second line has been associated with the company for nearly ten years.

Corporate Governance
CRISILs fundamental grading methodology includes a broad assessment of corporate governance and management quality, apart from other key factors such as industry and business prospects, and financial performance. In this context, CRISIL Equities analyses the shareholding structure, board
composition, typical board processes, disclosure standards and related-party transactions. Any qualifications by regulators or auditors also serve as useful inputs while assessing a companys corporate governance. Overall, IILs corporate governance conforms to regulatory requirements supported by reasonably good board practices and an independent board.
Corporate
governance
practices at IIL conform to regulatory requirement
Board composition
IILs board consists of eight members, of whom five are independent directors, which is in line with the requirements under Clause 49 of SEBIs listing guidelines. Given the background of the directors, we believe the board is well experienced. The attendance of independent directors at the board meeting is high. They have a fairly good understanding of the companys business and its processes.
Boards processes
The companys quality of disclosure can be considered good judged by the level of information and details furnished in the annual report, websites and other publicly available data. All the major decisions, including decision regarding the acquisition of brands are discussed in detail at the board meetings. The independent directors receive the agenda papers around 10-15 days in advance. The company has all the necessary committees audit, remuneration, and investor grievance - in place to support corporate governance practices. The audit committee is chaired by an independent director, Mr. Navneet Goel, who has been associated with the company for the past three to four years.
Valuation
Grade: 3/5
We assign a fair value of Rs 338 per share to IIL
We have used the discounted cash flow (DCF) method to value IIL and arrived at a fair value of Rs 338 per share. The stock is currently trading at Rs 335 per share. Consequently, we initiate coverage on IIL with a valuation grade of 3/5, indicating that the current market price is aligned.
Key DCF assumptions

We have considered the discounted value of the firms estimated free cash flow from FY13 to FY21. We have included capital expenditure of Rs 270 mn over FY12 and FY13, and a maintenance capex of Rs 50 mn per annum thereafter. We have assumed a terminal growth rate of 4% beyond the explicit forecast period.
WACC computation
FY13-21 Cost of equity Cost of debt (post tax) WACC Terminal growth rate 16.8% 7.4% 15.4% Terminal value 16.8% 7.4% 15.4% 4.00%
The fair value implies P/E multiples 8.5x FY12 EPS and 6.4x of FY13 3.4x. growth EPS, As is higher than the historical median significant to the we
Sensitivity analysis to terminal WACC and terminal growth rate

Terminal growth rate Terminal WACC 338 13.4% 14.4% 15.4% 16.4% 17.4% 2.0% 359 334 313 296 282 3.0% 377 348 325 305 290 4.0% 399 365 338 316 298 5.0% 426 385 353 328 308 6.0% 461 410 372 343 319
expected from FY10 due capacity believe expansion, justified
that a higher multiple is
Key upside to our fair value estimates

Materialisation of the new technical collaboration with a Japanese player Acquisition of more brands New expansion plans
One-year forward P/E band

(Rs) 500 450 400 350 300 250 200 150 100 50 0
One-year forward EV/EBITDA band

(Rs mn) 6,000 5,000 4,000 3,000 2,000 1,000 0
May-09
May-11
May-10
May-08
May-09
May-11
May-08
May-10
Mar-08
Mar-09
Mar-08
Mar-11
Mar-10
Mar-10
Mar-09
Mar-11
Jul-08
Jul-09
Jul-09
Jul-11
Jul-08
Jul-10
Jan-08
Jul-10
Jan-09
Jan-08
Jan-11
Jan-10
Sep-08
Jan-10
Jan-09
Nov-08
Sep-09
Sep-08
Sep-09
Nov-10
Nov-09
Nov-09
Nov-08
Insecticides India Ltd
2x
4x
6x
8x
10x
EV
3x
4x
5x
Nov-10
Sep-10
Sep-10
Jan-11
6x
Source: NSE/BSE, Company, CRISIL Equities
P/E premium / discount to NIFTY

0% -10% -20% -30% -40% -50% -60% -70% -80% -90% -100%
P/E movement
12 10 8 6 +1 std dev 4 2 0
Jan-09 Jan-10 Jan-08 Nov-08 Nov-09 May-09 Nov-10 Jan-11 May-08 May-11 May-10 Mar-09 Mar-10 Mar-08 Mar-11 Jul-08 Jul-09 Jul-10 Sep-08 Sep-09
-1 std dev
Jan-08
Jan-09
Jan-10
Nov-08
Nov-09
May-08
May-09
May-10
Nov-10
Mar-08
Mar-09
Mar-10
Jan-11
Sep-09
Sep-10
Sep-08
Mar-11
Premium/Discount to NIFTY
Median premium/discount to NIFTY
1yr Fwd PE (x)
Median PE
Table 10: Peer valuations

M.cap Companies Insecticides India Dhanuka Agritech United Phosphorus Bayer Cropscience Rallis India PI Industries (Rs mn) 4,287 4,652 72,531 35,186 30,480 9,958 Price/Earnings (x) FY11 FY12E FY13E 8.6 9.1 13.0 22.3 24.2 15.3 5.5 7.1 9.6 19.5 18.1 11.4 4.2 6.1 8.4 14.2 8.1 Price/Book (x) FY11 FY12E FY13E 1.8 2.7 1.9 5.1 5.8 4.7 1.4 1.9 1.8 4.2 4.7 2.7 1.1 1.5 1.5 3.7 2.0 EV/EBITDA FY11 FY12E FY13E 7.1 7.3 7.1 14.1 16.7 7.9 5.1 5.4 6.1 12.0 12.1 6.1 3.7 4.4 5.5 9.7 4.6 RoE (%) FY11 FY12E FY13E 23.6 38.1 17.9 25.3 28.3 35.4 29.0 30.4 19.7 23.5 28.7 32.6 29.6 27.9 19.0 29.6 31.4
Source: CRISIL Equities, industry sources
Sep-10
Jul-08
Jul-09
Jul-10
Jul-11
Jul-11

Company Overview
IIL manufactures insecticide formulations for crop protection. It has also ventured into the home pesticides segment, which currently accounts for only ~4% of total revenues. It has two formulation manufacturing units, one each in Chopanki, (Rajasthan) and Samba, (Jammu). It backward integrated into the technical segment in 2007. The technicals manufacturing unit is located in Chopanki, Rajasthan. The popular brands from IILs product portfolio are Lethal, Thimet and Victor. These brands, along with its variants, account for ~35% of total revenues. It has recently acquired the brand Monocil from Nocil Ltd., which is expected to generate healthy revenues post FY11. The company was incorporated by Mr. Rajesh Aggarwal in 1996. Commercial operations commenced in 2002 after the setting up of the Chopanki unit. In 2007, the company came out with an IPO to fund its expansion plans and raised Rs 369.2 mn (3.21 mn shares at an issue price of Rs 115 per share). The expansion was earlier planned in Rajasthan, but since the company could not acquire land at competitive rates in Rajasthan, the location of the technical plant was shifted to Dahej (Gujarat). This shift coupled with the recession in 2009 and the time involved in getting the clearances resulted in a delay in utilising the IPO proceeds. The IPO proceeds are now fully utilised with the proposed commissioning of new units in Gujarat and Jammu.
Table 11: Business snapshot

Business segments Formulations-liquid Formulations-granules Formulations-powder Technicals Contribution to revenues (%) FY08 59.0 22.2 18.3 0.5 FY09 46.9 22.9 25.7 4.5 FY10 44.1 28.3 18.0 9.5 FY11 47 19 18 10
Business segments Formulations-liquid Formulations-granules Formulations-powder Technicals Product category Generics Specialty molecules Patent (under application stage) Total Source: Company
Capacity utilisation (%) FY08 81 70 90 68 FY09 69 94 89 97 FY10 68 106 67 58 FY11 89 113 94 55
No. Of products 90 15 1 106

Table 12: Key milestones
1996 Incorporated as private limited company 2001 Converted into public limited company 2002 Commissioned formulation plant at Chopanki (Rajasthan) 2003 Acquired all the brands of Montari Industries Ltd 2004 Commissioned second formulation plant at Samba (Jammu) 2005 Set up R&D Laboratory at Chopanki and was granted ISO 9001-2000 certification 2006 Acquired the exclusive right to sell the Thimet brand in India from American Vanguard Corporation, USA 2007 Came out with an IPO to raise Rs 369.2 mn R&D facility and technical plant commenced in Chopanki Expansion of formulations completed at Samba unit 2011 Acquired Monocil brand from Nocil Ltd. Two new formulation plants- Dahej and Udhampur commence operations Entered into an agreement with National Research Development Corporation, Government of India for providing technological support for research & development of a specific formulation Source: Company
Annexure: Financials
Income statement (Rs mn) Operating income EBITDA EBITDA margin Depreciation EBIT Interest Operating PBT Other income Exceptional inc/(exp) PBT Tax provision Minority interest PAT (Reported) Less: Exceptionals Adjusted PAT Ratios FY09 Growth Operating income (%) EBITDA (%) Adj PAT (%) Adj EPS (%) Profitability EBITDA margin (%) Adj PAT Margin (%) RoE (%) RoC E (%) RoIC (%) Valuations Price-earnings (x) Price-book (x) EV/EBITDA (x) EV/Sales (x) Dividend payout ratio (%) Dividend yield (%) B/S ratios Inventory days C reditors days Debtor days Working capital days Gross asset turnover (x) Net asset turnover (x) Sales/operating assets (x) C urrent ratio (x) Debt-equity (x) Net debt/equity (x) Interest coverage Per share FY09 Adj EPS (Rs) C EPS Book value Dividend (Rs) Actual o/s shares (mn) 16.4 17.3 76.6 2.3 12.7 FY10 22.3 23.2 96.7 2.3 12.7 FY11 25.5 26.7 119.3 2.9 12.7 FY12E 39.5 40.7 153.4 3.2 12.7 FY13E 52.4 54.3 200.5 4.5 12.7 184 116 42 83 10.8 12.0 11.7 2.1 0.1 (0.1) 6.4 150 112 61 80 13.5 15.2 13.1 2.1 0.2 0.1 38.6 139 119 62 80 13.8 15.9 7.3 1.7 0.3 0.2 42.8 142 112 63 70 14.6 16.7 6.8 1.9 0.4 0.4 14.1 144 113 62 79 14.1 16.2 7.6 1.9 0.3 0.2 15.1 Quarterly financials (Rs mn) Net Sales C hange (q-o-q) EBITDA C hange (q-o-q) EBITDA margin PAT Adj PAT C hange (q-o-q) Adj PAT margin Adj EPS Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 697 -15% 67 -12% 9.5% 64 64 15% 9.2% 5.0 1,032 48% 97 45% 9.4% 62 62 -3% 6.0% 4.8 1,854 80% 185 92% 10.0% 129 129 107% 7.0% 10.0 1,058 -43% 104 -44% 9.8% 69 69 -46% 6.6% 5.4 835 -21% 65 -38% 7.8% 61 61 -12% 7.4% 4.8 2.5 0.5 1.6 0.2 14.3 5.6 3.3 0.8 3.0 0.3 10.5 3.2 8.6 1.8 7.1 0.7 11.4 1.3 5.5 1.4 5.1 0.5 8.5 1.5 4.2 1.1 3.7 0.4 8.5 2.1 10.7 7.9 23.6 26.3 26.7 9.0 7.5 25.7 25.7 24.6 9.7 7.2 23.6 25.3 20.7 10.1 7.4 29.0 28.8 24.2 10.7 7.9 29.6 29.6 24.9 Cash flow (Rs mn) Pre-tax profit Total tax paid Depreciation Working capital changes Net cash from operations Cash from investments C apital expenditure Investments and others Net cash from investments Cash from financing Equity raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Others (incl extraordinaries) Net cash from financing C hange in cash position C losing cash 0 (12) (30) 0 (42) (10) 33 (1) 81 (30) 3 54 54 87 (0) 161 (37) 1 125 (50) 37 425 (41) (27) 357 16 53 (150) (57) (10) (216) 6 59 (63) 11 (52) (85) 122 37 (596) 49 (546) (200) (200) (70) (70) FY09 241 (30) 11 (140) 83 FY10 328 (43) 12 (333) (36) FY11 413 (86) 15 29 371 FY12E 624 (123) 15 (658) (141) FY13E 826 (162) 24 (396) 293 33.3 54.5 45.3 45.3 43.3 21.1 35.7 35.7 19.2 28.7 14.4 14.4 50.4 56.3 55.1 55.1 24.7 32.3 32.6 32.6 FY10 FY11 FY12E FY13E FY09 2,634 281 10.7% 11 270 42 228 14 (0) 241 33 208 (0) 208 282 (0) 282 FY10 3,775 340 9.0% 12 328 9 320 9 (0) 328 46 322 (1) 323 FY11 4,501 438 9.7% 15 423 10 413 (0) (1) 412 90 FY12E 6,768 685 10.1% 15 669 47 622 2 (20) 604 123 481 (20) 501 826 162 664 664 FY13E 8,441 906 10.7% 24 882 58 823 3 Balance Sheet (Rs mn) Liabilities Equity share capital Reserves Minorities Net worth C onvertible debt Other debt Total debt Deferred tax liability (net) Total liabilities Assets Net fixed assets C apital WIP Total fixed assets Investments Current assets Inventory Sundry debtors Loans and advances C ash & bank balance Marketable securities Total current assets Total current liabilities Net current assets Intangibles/Misc. expenditure Total assets 963 332 150 33 171 1,648 779 869 2 1,123 1,181 634 265 87 50 2,216 1,081 1,136 2 1,462 1,258 806 263 37 1 2,364 1,357 1,007 2 1,913 1,990 1,168 395 53 1 3,606 1,926 1,680 2 2,771 2,506 1,434 493 59 1 4,492 2,409 2,083 2 3,219 244 8 251 1 253 71 324 313 592 905 497 592 1,089 543 592 1,135 127 844 971 138 138 14 1,123 127 1,099 1,226 219 219 17 1,462 127 1,386 1,513 380 380 20 1,913 127 1,819 1,945 805 805 20 2,771 127 2,416 2,543 655 655 20 3,219 FY09 FY10 FY11 FY12E FY13E

Focus Charts
IILs stock has outperformed Nifty
400 350 300 250 200 150 100 50 0
Jan-09 Jan-10 Jan-08 Nov-08 Nov-09 May-09 May-10 Nov-10 Jan-11 May-08 May-11 Mar-09 Mar-10 Mar-08 Mar-11 Jul-09 Jul-10 Jul-08 Sep-08 Sep-09 Sep-10 Jul-11
Industry market share as of FY10

Insecticides, 2% United Phosphorus, 1 1% Gharda, 5%
Syngenta India, 9%
Bayer Cropscience, 8% Others, 52% Rallis India, 5% Bilag Industries Pvt., 5%
Insecticeides
NIFTY
Dhanuka, 3%
- indexed to 100 Source: NSE Source: CMIE
Revenue and revenue growth trend

(Rs mn) 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 FY08 FY09 FY10 FY11 FY12E FY13E 1,976 2,634 3,775 17% 19% 10% 4,501 6,768 8,441 0% 33% 43% 50% 50% 40% 30% 25% 20% 60%
EBITDA and EBITDA margin trend

(Rs mn) 1,000 900 800 700 600 500 400 300 200 100 0 FY09 FY10 EBITDA FY11 FY12E FY13E 281 340 438 9.0% 685 906 9.5% 9.0% 8.5% 8.0% 9.7% 10.1% 10.5% 10.0% 10.7% 10.7% 11.0%
Revenues
y-o-y revenue growth (RHS)
EBITDA margin (RHS)
PAT and PAT margin trend

(Rs mn) 700 600 500 400 300 200 100 143 0 FY08 FY09 PAT FY10 FY11 FY12E FY13E 208 282 323 501 664 6.8% 7.2% 7.2% 7.2% 7.0% 7.9% 7.9% 8.0% 7.8% 7.5% 7.4% 7.4% 7.6%
Shareholding pattern over the quarters

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Mar-10 Promoter Jun-10 FII Sep-10 DII Dec-10 Mar-11 Others
74.7% 74.7% 74.7% 74.7% 74.7% 25.3% 20.2% 5.1% 21.8% 0.5% 3.0% 21.2% 0.2% 3.9% 6.0% 19.3%
PAT margin (RHS)
Source: BSE
CRISIL Research Team

Senior Director
Mukesh Agarwal +91 (22) 3342 3035 magarwal@crisil.com
Analytical Contacts
Tarun Bhatia Prasad Koparkar Chetan Majithia Sudhir Nair Jiju Vidyadharan Ajay D'Souza Ajay Srinivasan Sridhar C Manoj Mohta Director, Capital Markets Head, Industry & Customised Research Head, Equities Head, Equities Head, Funds & Fixed Income Research Head, Industry Research Head, Industry Research Head, Industry Research Head, Customised Research +91 (22) 3342 3226 +91 (22) 3342 3137 +91 (22) 3342 4148 +91 (22) 3342 3526 +91 (22) 3342 8091 +91 (22) 3342 3567 +91 (22) 3342 3530 +91 (22) 3342 3546 +91 (22) 3342 3554 tbhatia@crisil.com pkoparkar@crisil.com chetanmajithia@crisil.com snair@crisil.com jvidyadharan@crisil.com adsouza@crisil.com ajsrinivasan@crisil.com sridharc@crisil.com mmohta@crisil.com
Business Development
Vinaya Dongre Ashish Sethi Head, Industry & Customised Research Head, Capital Markets +91 (22) 33428025 +91 (22) 33428023 vdongre@crisil.com asethi@crisil.com
CRISILs Equity Offerings

The Equity Group at CRISIL Research provides a wide range of services including: Independent Equity Research IPO Grading White Labelled Research Valuation on companies for use of Institutional Investors, Asset Managers, Corporate
Other services by the Research group include

Funds & Fixed Income Research Mutual fund rankings Wealth Tracking and Financial Planning tools for asset managers, wealth managers and IFAs Valuation for all debt instruments Developing and maintaining debt and hybrid indices Consultancy and research support to retirement funds Industry & Customized Research Provide comprehensive research coverage across 65 sectors Customised research on market sizing, demand modelling and entry strategies Customised research content for Information Memorandum and Offer Documents
About CRISIL Limited CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.
About CRISIL Research

CRISIL Research is the countrys largest independent and integrated research house with strong domain expertise on Indian economy, industries and capital markets. We leverage our unique research platform and capabilities to deliver superior perspectives and insights to over 1200 domestic and global clients, through a range of research reports, analytical tools, subscription products and customised solutions.
To know more about CRISIL IER, please contact our team members:
Vinaya Dongre Head, Business Development Email : vdongre@crisil.com I Phone : 9920225174 Sagar Sawarkar Senior Manager, Business Development Email : ssawarkar@crisil.com I Phone : 9821638322 Ashish Sethi Head, Business Development Email : asethi@crisil.com I Phone : 9920807575
Regional Contacts:
Ahmedabad / Mumbai / Pune Vishal Shah - Manager, Business Development Email : vishah@crisil.com I Phone : 9820598908 Bengaluru / Chennai Anand Krishnamoorthy - Manager, Business Development Email : ankrishnamoorthy@crisil.com I Phone : 9884704111 Hyderabad Kaliprasad Ponnuru - Manager, Business Development Email : kponnuru@crisil.com I Phone : 9642004668 Kolkata / Delhi Priyanka Agarwal - Manager, Business Development Email : priyagarwal@crisil.com I Phone : 9903060685
Head Office: CRISIL House, Central Avenue, Hiranandani Business Park, Powai, Mumbai - 400 076 Phone : 91-22-3342 3000 Web: www.crisil.com Download reports from: www.ier.co.in CRISIL Limited. All Rights Reserved.

CRISIL Research Ier Report Insecticides

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CRISIL Research Ier Report Insecticides

Uploaded by

Copyright:

Available Formats

Insecticides (India) Ltd

Enhancing investment decisions

Explanation of CRISIL Fundamental and Valuation (CFV) matrix

CRISIL Fundamental Grade

CRISIL Valuation Grade

CRISIL Limited. All Rights Reserved.

July 08, 2011

protection. Strategic brand acquisitions, aggressive marketing strategies and

KEY STOCK STATISTICS

PERFORMANCE VIS--VIS MARKET

CRISIL Limited. All Rights Reserved.

Insecticides (India) Ltd

Source: Company, CRISIL Equities

CRISIL Limited. All Rights Reserved.

Insecticides (India) Ltd

increased market share from 1.2% in FY05 to 2.4% in FY10

Table 3: IIL is gaining market share amidst competition

IIL is placed in the second layer of the industry structure

CRISIL Limited. All Rights Reserved.

Insecticides (India) Ltd

Figure 1: Pesticides industry structure

domestic 12% per

pesticide industry to grow annum until 2015

CRISIL Limited. All Rights Reserved.

Insecticides (India) Ltd

Figure 2: Domestic pesticide industry growth

Figure 3: Increase in MSP of major crops

Figure 4: Crop-wise share of pesticide usage

Wheat/ Cereals, 10%

Plantations/ Pulses, 17% Paddy, 20%

CRISIL Limited. All Rights Reserved.

Insecticides (India) Ltd

Table 4: Porters five forces for Indian pesticide industry

(fungicide), which is in the application stage

CRISIL Limited. All Rights Reserved.

Insecticides (India) Ltd

CRISIL Limited. All Rights Reserved.

Insecticides (India) Ltd

Figure 7: Lethal - revenues and revenue growth*

y-o-y growth (RHS)

y-o-y growth (RHS)

Source: Company, CRISIL Equities

Source: Company, CRISIL Equities

Figure 8: Thimet - revenues and revenue growth*

Victor Lethal and Thimet,

variants, constituted ~35% of the total revenues in FY11

y-o-y growth (RHS)

CRISIL Limited. All Rights Reserved.

Insecticides (India) Ltd

Pan-India distribution network has also helped

CRISIL Limited. All Rights Reserved.

Insecticides (India) Ltd

Pan-India eliminates uncertain

presence the risk of weather

conditions in any one part of the country

East India, 10%

South India, 40%

Source: Company, CRISIL Equities

Capacity expansion to keep growth momentum intact

Table 5: Continuous build-up of capacity in the past

30 4,500 1,800 0 30 6,000 1,100

30 6,500 2,300 0 30 6,000 1,800

35 6,500 3,200 350 40 6,000 2,100