By Suhani Adilabadkar
The Indian agrochemical Industry has been emerging in significance over the last year, thanks to changing global trends, as well as a rising focus crop protection, higher productivity and food security. The Indian agrochemical industry is estimated to be around $5 bn with exports contributing 50% of its total revenues. Share prices of all Indian players, Bayer, UPL, Sharda Cropchem, PI Industries except BASF have either corrected or remained largely flat YoY. On the other hand, smaller companies such as Shivalik Rasayan have been reporting strong numbers every quarter.
Quick take
- Shivalik Rasayan Ltd (SRL) is a niche player in the Indian agrochemical industry.
- The company manufactures organophosphorous insecticides. It is the largest producer of Dimethoate Technical and second largest for Malathion Technical, with 50% of its production being exported.
- Low long term debt equity ratio of 0.51 and complete release of promoter pledged shareholding as on March 2018 are positives for long term growth.
- SRL has its manufacturing facility at Dehradun, Uttarakhand, with an annual production capacity of 1450 MT and setting up a new manufacturing facility at Dahej-II, Gujarat with an investment of Rs. 1000 Mn. It got consent for its new facility this week.
- The Chinese government’s clampdown on its domestic agrochemical industry due to environmental issues has opened up the opportunity for Indian firms. The Make In India initiative will also improve its long term growth prospects.
- Apart from a high exposure to exports, SRL's industry also faces challenges such as high dependence on monsoons, high inventory, seasonal nature of demand and non genuine pesticides accounting 40% of the total market.
In the Indian context, pesticide or agrochemicals are construed as insecticides as it forms the largest proportion of the entire industry. Major domestic players in insecticides are Bayer, Monsanto, Rallis, PI industries, UPL and Insecticides India. Exports constituting half of the industry revenues are expected to grow at a CAGR of 16% to touch $4 bn by FY19-20, increasing its share to 60%.
Financial Strength
Shivalik Rasayan has been exhibiting strong growth momentum over the past 6-7 quarters. Revenue, EBDITA & Profit After Tax have grown 25%, 53% & 64% respectively YOY in the December quarter FY18, and the March results saw revenues grow 33.4% and net profits rise 86.8% YoY. Consolidated yearly PAT has grown 5 times since 2015. The company has high ROE & P/BV of 37% & 3.77 respectively. Low long term debt equity ratio of 0.51 and complete release of promoter pledged shareholding as on March 2018 are other positives for long term growth.
The Way Forward
The organophosphate insecticides market is expected to grow at a CAGR of 5% in the coming years, driven by rising food demand and limited arable land. Asia-Pacific is a major consumer of organophosphorous insecticides followed by US and Europe.
For the industry as a whole, there are two major growth drivers, lower consumption of about 0.6 kg/ha compared to 3 kg/ha global average, and agrochemicals worth $4 bn going off-patent by 2020. In addition to that, the Chinese government’s clampdown on its agrochemical industry due to environmental issues reducing imports and Make In India initiative will also improve its long term growth prospects.
Agriculture is still the backbone of the Indian economy with 52% of dependent population. Only 45% of the total sown land has access to irrigation facilities and 25% of total produce every year is lost to pest attacks. In this context the agrochemicals industry is poised to play significant role in ensuring food security for the Indian economy, which in itself is biggest growth driver for the domestic industry. Shivalik Rasayan, part of the double digit export growth trajectory & stable domestic market is attractively valued with respect to its product portfolio and has the financial durability for long term investment.
Suhani Adilabadkar is a Research Analyst registered with SEBI ((INH200003240)) She has done PGDBA (Finance), MS (Finance) and a Fellowship from Insurance Institute of India. She maintains a blog at oasisfundamentals.blogspot.in.
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