CRISIL Research Ier Report Insecticides

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Insecticides (India) Ltd

Enhancing investment decisions

Initiating coverage



© CRISIL Limited. All Rights Reserved.

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).

CRISILFundamental Grade

Assessment CRISILValuation Grade

Assessment

5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP)

4/5 Superior fundamentals 4/5 Upside (10-25% from CMP)

3/5 Good fundamentals 3/5 Align (+-10% from CMP)

2/5 Moderate fundamentals 2/5 Downside (negative 10-25% from CMP)

1/5 Poor fundamentals 1/5 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. CRISIL EQUITIES | 1

July 08, 2011Fair Value Rs 338CMP Rs 335Fundamental Grade 4/5 (Strong fundamentals)

Valuation Grade 5/5 (CMP has strong upside)

Industry Information technology

Polaris Software Limited

Business momentum remains intact

Fundamental Grade 3/5 (Good fundamentals)

Valuation Grade 3/5 (CMP is aligned)

Industry Chemicals

Insecticides (India) LtdBrand power

Insecticides (India) Ltd (IIL) manufactures pesticide formulations for crop

protection. Strategic brand acquisitions, aggressive marketing strategies and

new product launches have led to strong revenue growth. However, IIL’s

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 self-

owned 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.

KEY FORECAST

(Rs mn) FY09 FY10 FY11 FY12E FY13E

Operating income 2,634 3,775 4,501 6,768 8,441

EBITDA 281 340 438 685 906

Adj net income 208 282 323 501 664

Adj EPS-Rs 16.4 22.3 25.5 39.5 52.4

EPS growth (%) 45.3 35.7 14.4 55.1 32.6

Dividend yield 5.6 3.2 1.3 1.5 2.1

RoCE (%) 26.3 25.7 25.3 28.8 29.6

RoE (%) 23.6 25.7 23.6 29.0 29.6

PE (x) 2.5 3.3 8.6 5.5 4.2

P/Bv (x) 0.5 0.8 1.8 1.4 1.1

EV/EBITDA (x) 1.6 3.0 7.1 5.1 3.7

NM: Not meaningful; CMP: Current Market Price

Source: Company, CRISIL Equities

CFV MATRIX

KEY STOCK STATISTICSNIFTY/SENSEX 5729/19078

NSE/BSE ticker INSECTICID/

INSECTCID

Face value (Rs per share) 10

Shares outstanding (mn) 12.7

Market cap (Rs mn)/(US$ mn) 4,255/96

Enterprise value (Rs mn)/(US$ mn) 4,598/104

52-week range (Rs) (H/L) 355/209

Beta 1.1

Free float (%) 25.3%

Avg daily volumes (30-days) 197924

Avg daily value (30-days) (Rs mn) 66

SHAREHOLDING PATTERN

PERFORMANCE VIS-À-VIS MARKETReturns

1-m 3-m 6-m 12-mINSECTICIDES 6% 8% 54% 39%

NIFTY 3% -3% -3% 9%

ANALYTICAL CONTACTSudhir Nair (Head) [email protected]

Neeta Khilnani [email protected]

Arun Vasu [email protected]

Client servicing desk

+91 22 3342 3561 [email protected]

1 2 3 4 5

1

2

3

4

5

Valuation Grade

F u n d a m e n t a l G r a d e

Poor

Fundamentals

Excellent

Fundamentals

S t r o n g

D o w n s i d e

S t r o n g

U p s i d e

74.7% 74.7% 74.7% 74.7% 74.7%

5.1%3.0% 3.9% 6.0%

0.5% 0.2%

25.3%20.2% 21.8% 21.2% 19.3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Ma r-10 Jun-10 Sep -10 De c-10 Ma r-11

Promoter FII DII Others





Table 1: IIL Business environment

Product / Segment Pesticides formulations Technicals

Revenue contribution (FY11) 90.0% 10.0%

Revenue contribution (FY13) 84.0% 16.0%

Product / service offering • Formulations - liquid, granules and

powder

• Home pesticides

Technicals are an input for manufacturing of

formulations

Geographic presence • Manufacturing facility: Chopanki

(Rajasthan) and Samba (Jammu)

• Earns 99.8% of revenues from the

domestic market

Manufacturing facility: Chopanki (Rajasthan)

Market position • Has a market share of 2.4% in the domestic pesticides market as of FY10 (Source:

CMIE)

Sales growth

(FY08-FY11 – 3-yr CAGR)

24.0% 272% (two-year CAGR - started in FY08)

Sales forecast(FY11-FY13 – 2-yr CAGR)

30.0% 57%

Key competitors United Phosphorous, Meghmani Organics,

Excel Crop Care, Rallis India, Bayer Crop

Science, PI Industries and Syngenta India

United Phosphorous, Meghmani Organics, and

Excel Crop Care

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 increasingusage 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 IIL’s revenues, on account of its dependency on the domestic

market






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 IIL’s 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.

Table 2 : IIL’s sales growth has been higher than the industry’s

% Growth

FY07 FY08 FY09 FY10Insecticides India sales growth 41.0% 20.3% 32.9% 34.8%

Industry sales growth 3.8% 12.7% 32.3% 7.5%

Source: CMIE

Table 3: IIL is gaining market share amidst competition

Company Overall market share (%) Rank (FY10)

FY07 FY08 FY09 FY10

United Phosphorus 9.4 9.2 11.8 11.4 1

Syngenta 6.5 6.8 7.2 8.5 2

Bayer Cropscience 7.1 6.5 7.4 7.6 3

Rallis 6.2 6.0 5.7 5.5 4

Gharda Chemicals 6.0 6.0 5.3 5.2 5

Dhanuka Agritech 2.2 2.4 2.4 2.5 15

Insecticides India 1.8 1.9 1.9 2.4 16

Source: CMIE

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.

IIL has steadily

increased market share

from 1.2% in FY05 to2.4% in FY10





Figure 1: Pesticides industry structure

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 produceto 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.

-Few MNCs dominate the top tier- they

constitute ~20% of the tota l industry.

-Major players include Bayer Corp

Sciance , Syngenta, Monsanto, BASF, etc.

-They have strong, well-established brands anda diversified product base. Few of them havepresence in the technical segment.

-Large Indian companies with strong distribution

reach, limited R&D capabilit y but good processchemistry skills to develop off-patent products.

-Few of them have presence in the technicalsegment as well.

-Major players include United

Phosphorous, Dhanuka Agritech, Ralli s

India, Bilag Industrie s, PI Industries, GhardaChemicals , Insect icide s India Ltd.

-They form 50-60% of the tot al industry.

-Theyform the remaining proportion of the total industry.

-Small regional players with limited distribution reach.

-They also include spurious product manufacturers.

-Low capita l intensive nature has led to fragmentation in the formulations segment-

there are around 400-500 formulators along with 35 large pl ayers in the i ndustry.

IIL's presence

We expect domestic

pesticide industry to grow

by at least 12% per

annum until 2015





Figure 2: Domestic pesticide industry growth

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. IIL’s own product portfolio is

geared towards sales of insecticides which account for 70% of pesticide sales.

Rise in MSP of major crops increases pesticide industry’s

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 government’s policy with regards to MSP for major crops.

Figure 3: Increase in MSP of major crops Figure 4: Crop-wise share of pesticide usage

- indexed to 100

Source: Ministry of Agriculture, CRISIL Equities Source: Industry, CRISIL Equities

52.225 54.883 63.753 73.59 84.352

5.1%

16.2%15.4%

14.6%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

10

20

30

40

50

60

70

80

90

FY06 FY07 FY08 FY09 FY10

(Rs bn)

Market Size Growth (RHS)

75

100

125

150

175

200

225

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

Cotton Paddy Wheat

Cotton, 37%

Paddy, 20%

Plantations/Pulses, 17%

Wheat/Cereals, 10%

Others, 16%





Cotton and paddy account for more than 50% of India’s pesticide consumption.

As a result, pesticide consumption is largely driven by the production trend in

these two crops.

Table 4: Porter’s five forces for Indian pesticide industry

Degree Comments

Buyer power Medium Dependent on the prospects of the agriculture industry and ability of the company to push

its products to farmers. IIL’s pan-India presence helps to mitigate this risk to a certain

extent through diversification of customer base.

Supplier power Medium Low supplier concentration, reduces the bargaining power of suppliers.

Threat of new entrants Low 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 Low 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 brandingstrategies 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.

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

MNC’s 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.

IIL has 106 products in

its portfolio: 90 generic

products, 15 specialty

molecules and one

product patent(fungicide), which is in

the application stage





Figure 5: New product launches

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

Nocil’s 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.

5 5

7

3

8

0

1

2

3

4

5

6

7

8

9

FY07 FY08 FY09 FY10 FY11

New product launches





• 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 Thimet’s 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* Figure 7: Lethal - revenues and revenue growth*

Source: Company, CRISIL Equities Source: Company, CRISIL Equities

Figure 8: Thimet - revenues and revenue growth*

Source: CRISIL Equities* Does not include revenues from brand variants

We believe that the company’s ability to launch new products on a sustained

129.5163.6

232.6

221.0

285.8

26.4%

42.2%

-5.0%

29.4%

-10%

0%

10%

20%

30%

40%

50%

0

50

100

150

200

250

300

350

FY07 FY08 FY09 FY10 FY11P

(Rs mn)

Total Revenue y-o-y growth (RHS)

191.9 275.4 333.8 362.7 392.7

43.5%

21.2%

8.6% 8.3%

0%

5%

10%15%

20%

25%

30%

35%

40%

45%

50%

0

50

100

150

200

250

300

350

400

450


(Rs mn)


250.5 266.4 322.6332.9

416.8

6.3%

21.1%

3.2%

25.2%

0%

5%

10%

15%

20%

25%

30%

0

50

100

150

200

250

300

350

400

450


(Rs mn)


Victor Lethal and Thimet,

along with its brand

variants, constituted ~35%

of the total revenues in

FY11





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 management’s 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 morethan 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.





Figure 9: Geographically diversified revenues


Capacity expansion to keep growth momentumintact

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). IIL’s 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 FY06 FY07 FY08 FY09 FY10

Chopanki unit-formulationsCapacityEC (lakh litres) 30 30 35 40 60

Granules (tonnes) 4,500 6,500 6,500 7,500 7,500

WDP (tonnes) 1,800 2,300 3,200 3,500 4,500

Chopanki unit-technicalsTechnicals (tonnes) 0 0 350 1,100 3,800

Samba unit-formulationsEC (lakh litres) 30 30 40 40 55

Granules (tonnes) 6,000 6,000 6,000 6,100 6,100WDP (tonnes) 1,100 1,800 2,100 2,100 2,100

Table 6: Capacity in the new units

Plant FY12

Dahej unit-formulationsCapacityEC (lakh litres) 40

Granules (tonnes) 12000

WDP (tonnes) 2500

Dahej unit-technicalsTechnicals (tonnes) 9000

Udhampur unit-formulationsEC (lakh litres) 30

Granules (tonnes) 2000

WDP (tonnes) 600

Source: Company

North India, 35%

South India, 40%

East India, 10%

West India, 15% Pan-India presence

eliminates the risk of

uncertain weather

conditions in any one partof the country





Table 7: Capex details

PlantStage of

completionTotal investment/source of

funding Strategy

Dahej unit-formulations

• The plant is

completed.

Operations have

commenced from

31st March 2011.

• 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.

• 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.

Dahej unit-technicals

• Majority of the

work is completed.

• The expected date

of commissioning

is Q2FY12.

• Total investment of Rs 550 mn

financed from internal accruals.

• 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.

Udhampur-formulations

• 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.


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, IIL’s successful foray into the technicals segment is reflective of its

strong and experienced R&D team.

Raw material expenses form ~80% of IIL’s 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

distributor’s margin by consuming higher proportion of technicals manufactured

in-house.

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...

Source: CRISIL Equities

Figure 11: ... have led to lower EBITDA margins than peers’


0%

2%

4%

6%

8%

10%

12%

14%

16%

D h a

n u

k a

E x c e l

C r o p

G h a

r d a

C h e m

i c a

l s I I L

R a

l l i s

S y n g

e n

t a

I n d i a

U n i t e

d

P h o s p h

o r u s

B

a y e r

FY08 FY09 FY10

0

2

4

6

8

10

12

14

16

18

20

FY08 FY09 FY10

(%)

Dhanuka Agritech Excel Crop IIL

Rallis United Phosphorus Bayer





Competitive landscape

Table 8: Comparison with MNC players

Insecticides (India)FY10

Bayer Crop ScienceIndiaFY10

Syngenta IndiaFY10

MonsantoIndustriesFY10

Market share % Overall: 2.4%

Domestic: 5.0%

Exports: Nil

Overall: 7.6%

Domestic: 17.0%

Exports: 3.0%

Overall: 8.5%

Domestic: 10.0%

Exports: 7.0%

Overall: 0.9%

Domestic: 2.0%

Exports: NA

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

-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 well-

established 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 inherbicides

-Focussed on the

domestic market;

does not have

presence in

technicals

International sales % Nil 12% NA 4%

Financial detailsOperating income Rs mn 3,971 17,939 18,092 4,244

EBITDA margin % 9.0 14.0 16.6 17.4

RoCE % 23.2 30.1 29.0 15.8RONW % 22.4 23.2 22.0 15.4

NPM % 7.4 7.3 10.0 12.9

Sales growth (5-year

CAGR)

% 30.1 16.8 24.0 1.2

NP growth (5-year

CAGR)

% 31.8 18.7 24.9 1.5

GFA turnover Times 10.4 3.4 3.4 2.1

Debt service ratiosDebt equity ratio Times 0.17 0.21 0.02 0.03

Interest cover Times 14.1 8.8 26.5 6.0

Working capitalratios

Current ratio Times 0.9 1.0 0.7 1.3

Debtors Days 58 40 55 39

Finished goods Days 61 45 62 44

Raw material days Days 71 111 110 72

Creditors Days 101 91 142 235

Source: Prowess, CRISIL Equities





Table 9: Comparison with Indian players

Insecticides(India) United Phosphorous Rallis India Dhanuka Agritech

FY10 FY10 FY10 FY10

Market share % Overall: 2.4%Domestic: 5.0%

Exports: Nil

Overall: 11.4%Domestic: 6.0%

Exports: 49%


Exports: 4.0%


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-

spread distribution

network

- Majorly

concentrated in

the generic

insecticides

segment

- Major focus is in

the domestic

market; has

presence in the

technicals space

- 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

- 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

- Has various

international

collaborations

which ensure

higher

profitability

- Innovative

marketing

campaigns, also

sells through self-

owned retail

outlets

- Tried to backward

integrate in the

technicals

segment, but

backed out

- Present in the

domestic market

International sales % Nil 75% 30% Nil

Financial detailsOperating income Rs mn 3,971 27,984 9,429 4,462

OPM % 9.0 12.5 18.0 14.3

RoCE % 23.2 8.1 31.7 35.6

RONW % 22.4 10.8 24.8 37.4

NPM % 7.4 6.6 11.3 8.9

Sales growth (5-

year CAGR)

% 30.1 19.8 8.6 48.6

NP growth (5-year

CAGR)

% 31.8 20.8 9.2 49.3

GFA turnover Times 10.4 1.5 2.1 6.8

Debt service ratiosDebt equity ratio Times 0.17 1.2 0.02 0.59

Interest cover Times 14.1 4.0 26.9 8.7

Working capitalratiosCurrent ratio Times 0.9 4.4 0.8 1.0

Debtors Days 58 98 29 78

Finished goods Days 61 19 43 52

Raw material days Days 71 31 40 74

Creditors Days 101 113 148 54

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.

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.

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

company’s profitability and the competitive advantage may be adversely

affected.

Unpredictable weather,

threat from biotech seeds,

and lengthy registration

process are the key

challenges for the company





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.

Figure 12: Healthy revenue growth going forward Figure 13: Product-wise revenue diversification


EBITDA margins to expand to 10.7% in FY13We 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.

Figure 14: EBITDA and EBITDA margin trend


1,976 2,634 3,775 4,501 6,768 8,441

17%

33%

43%

19%

50%

25%

0%

10%

20%

30%

40%

50%

60%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

FY08 FY09 FY10 FY11 FY12E FY13E

(Rs mn)

Revenues y-o-y revenue growth (RHS)

46.9% 44.1%49.6% 51.6% 49.9%

22.9% 28.3% 22.9% 19.9% 19.4%

4.5%9.5% 11.4% 15.2% 16.0%

25.7%18.0% 16.1% 13.4% 14.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY09 FY10 FY11 FY12E FY13E

Liquid formulations Granules Technicals Powder

281340

438

685

906

10.7%

9.0%

9.7%

10.1%

10.7%

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

0

100

200

300

400

500

600

700

800

900

1,000


(Rs mn)

EBITDA EBITDA margin (RHS)

Revenues likely to grow at

a two-year CAGR of 37%

to Rs 8.4 bn in FY13

EBITDA margins are likely to

expand on account of higher

consumption of indigenously

manufactured technicals,

and relatively lower ad

spend





PAT to grow at a two-year CAGR of 44%, EPS toincrease 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.

Figure 15: PAT and PAT margin


Figure 16: RoCE and RoE trend


143 208 282 323 501 664

7.2%

7.9%

7.5%

7.2%

7.4%

7.9%

6.8%

7.0%

7.2%

7.4%

7.6%

7.8%

8.0%

0

100

200

300

400

500

600

700


(Rs mn)

PAT PAT margin (RHS)

24.5

26.325.7

25.3

28.8

29.6

25.3

23.6

25.7

23.6

29.0

29.6

20

22

24

26

28

30

32


(%)

RoCE RoE

PAT margin is expected to

expand to 7.9% in FY13

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.

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.

Professional set-up and strong second line

IIL’s 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.

IIL has an experienced

management, quick in

identifying new brand

acquisition opportunities





Corporate Governance

CRISIL’s 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 company’s corporate governance.

Overall, IIL’s corporate governance conforms to regulatory requirements

supported by reasonably good board practices and an independent board.

Board composition

IIL’s board consists of eight members, of whom five are independent directors,

which is in line with the requirements under Clause 49 of SEBI’s 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 company’s business and its

processes.

Board’s processes

The company’s 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.

Corporate governance

practices at IIL conform

to regulatory requirement





Valuation Grade: 3/5

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 firm’s 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 Terminal value

Cost of equity 16.8% 16.8%

Cost of debt (post tax) 7.4% 7.4%

WACC 15.4% 15.4%Terminal growth rate 4.00%

Sensitivity analysis to terminal WACC and terminal growth rate

Terminal growth rate

T e r m i n a l W A C C 338 2.0% 3.0% 4.0% 5.0% 6.0%

13.4% 359 377 399 426 461

14.4% 334 348 365 385 410

15.4% 313 325 338 353 372

16.4% 296 305 316 328 343

17.4% 282 290 298 308 319


Key upside to our fair value estimates• Materialisation of the new technical collaboration with a Japanese player

• Acquisition of more brands

• New expansion plans

We assign a fair value of

Rs 338 per share to IIL

The fair value implies P/E

multiples 8.5x FY12 EPS

and 6.4x FY13 EPS,

higher than the historical

median of 3.4x. As

significant growth isexpected from FY10 due

to the capacity

expansion, we believe

that a higher multiple is

justified





One-year forward P/E band One-year forward EV/EBITDA band

Source: NSE/BSE, Company, CRISIL Equities Source: NSE/BSE, Company, CRISIL Equities

P/E – premium / discount to NIFTY P/E movement

Source: NSE/BSE, Company, CRISIL Equities Source: NSE/BSE, Company, CRISIL Equities

Table 10: Peer valuations

Companies

M.cap Price/Earnings (x) Price/Book (x) EV/EBITDA RoE (%)

(Rs mn) FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E

Insecticides India 4,287 8.6 5.5 4.2 1.8 1.4 1.1 7.1 5.1 3.7 23.6 29.0 29.6

Dhanuka Agritech 4,652 9.1 7.1 6.1 2.7 1.9 1.5 7.3 5.4 4.4 38.1 30.4 27.9

United Phosphorus 72,531 13.0 9.6 8.4 1.9 1.8 1.5 7.1 6.1 5.5 17.9 19.7 19.0

Bayer Cropscience 35,186 22.3 19.5 - 5.1 4.2 - 14.1 12.0 - 25.3 23.5 -

Rallis India 30,480 24.2 18.1 14.2 5.8 4.7 3.7 16.7 12.1 9.7 28.3 28.7 29.6

PI Industries 9,958 15.3 11.4 8.1 4.7 2.7 2.0 7.9 6.1 4.6 35.4 32.6 31.4

Source: CRISIL Equities, industry sources

0

50

100

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300350

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EV 3x 4x 5x 6x

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Premium/Discount to NIFTY Median premium/discount to NIFTY

0

2

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8

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J a n - 0

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1yr Fwd PE (x) Median PE

+1 std dev

-1 std dev





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 IIL’s 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 Contribution to revenues (%) FY08 FY09 FY10 FY11

Formulations-liquid 59.0 46.9 44.1 47

Formulations-granules 22.2 22.9 28.3 19

Formulations-powder 18.3 25.7 18.0 18

Technicals 0.5 4.5 9.5 10

Business segmentsCapacity utilisation (%)

FY08 FY09 FY10 FY11

Formulations-liquid 81 69 68 89

Formulations-granules 70 94 106 113

Formulations-powder 90 89 67 94

Technicals 68 97 58 55

Product category No. Of products

Generics 90

Specialty molecules 15

Patent (under application stage) 1

Total 106

Source: Company





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 Balance Sheet

(Rs mn) FY09 FY10 FY11 FY12E FY13E (Rs mn) FY09 FY10 FY11 FY12E FY13E

Operating income 2,634 3,775 4,501 6,768 8,441 Liabilities

EBITDA 281 340 438 685 906 Equity share capital 127 127 127 127 127

EBITDA margin 10.7% 9.0% 9.7% 10.1% 10.7% Reserves 844 1,099 1,386 1,819 2,416 Depreciation 11 12 15 15 24 Minorities - - - - -

EBIT 270 328 423 669 882 Net worth 971 1,226 1,513 1,945 2,543

Interest 42 9 10 47 58 Convertible debt - - - - -

Operating PBT 228 320 413 622 823 Other debt 138 219 380 805 655

Other income 14 9 (0) 2 3 Total debt 138 219 380 805 655

Exceptional inc/(exp) (0) (0) (1) (20) - Deferred tax liability (net) 14 17 20 20 20

PBT 241 328 412 604 826 Total liabilities 1,123 1,462 1,913 2,771 3,219

Tax provision 33 46 90 123 162 Assets

Minority interest - - - - - Net fixed assets 244 253 313 497 543

PAT (Reported) 208 282 322 481 664 Capital WIP 8 71 592 592 592

Less: Exceptionals (0) (0) (1) (20) - Total fixed assets 251 324 905 1,089 1,135

Adjusted PAT 208 282 323 501 664 Investments 1 - - - -

Current assets

Ratios Inventory 963 1,181 1,258 1,990 2,506

FY09 FY10 FY11 FY12E FY13E Sundry debtors 332 634 806 1,168 1,434

Growth Loans and advances 150 265 263 395 493

Operating income (%) 33.3 43.3 19.2 50.4 24.7 Cash & bank balance 33 87 37 53 59

EBITDA (%) 54.5 21.1 28.7 56.3 32.3 Marketable securities 171 50 1 1 1

Adj PAT (%) 45.3 35.7 14.4 55.1 32.6 Total current assets 1,648 2,216 2,364 3,606 4,492

Adj EPS (%) 45.3 35.7 14.4 55.1 32.6 Total current liabilities 779 1,081 1,357 1,926 2,409

Net current assets 869 1,136 1,007 1,680 2,083

Profitability Intangibles/Misc. expenditure 2 2 2 2 2

EBITDA margin (%) 10.7 9.0 9.7 10.1 10.7 Total assets 1,123 1,462 1,913 2,771 3,219

Adj PAT Margin (%) 7.9 7.5 7.2 7.4 7.9

RoE (%) 23.6 25.7 23.6 29.0 29.6 Cash flow

RoCE (%) 26.3 25.7 25.3 28.8 29.6 (Rs mn) FY09 FY10 FY11 FY12E FY13E

RoIC (%) 26.7 24.6 20.7 24.2 24.9 Pre-tax profit 241 328 413 624 826

Total tax paid (30) (43) (86) (123) (162)

Valuations Depreciation 11 12 15 15 24

Price-earnings (x) 2.5 3.3 8.6 5.5 4.2 Working capital changes (140) (333) 29 (658) (396)

Price-book (x) 0.5 0.8 1.8 1.4 1.1 Net cash from operations 83 (36) 371 (141) 293 EV/EBITDA (x) 1.6 3.0 7.1 5.1 3.7 Cash from investments

EV/Sales (x) 0.2 0.3 0.7 0.5 0.4 Capital expenditure (63) (85) (596) (200) (70)

Div idend payout ratio (%) 14.3 10.5 11.4 8.5 8.5 Investments and others 11 122 49 - -

Dividend yield (%) 5.6 3.2 1.3 1.5 2.1 Net cash from investments (52) 37 (546) (200) (70)

Cash from financing

B/S ratios Equity raised/(repaid) 0 (1) (0) - -

Inventory days 184 150 139 142 144 Debt raised/(repaid) (12) 81 161 425 (150)

Creditors days 116 112 119 112 113 Dividend (incl. tax) (30) (30) (37) (41) (57)

Debtor days 42 61 62 63 62 Others (incl extraordinaries) 0 3 1 (27) (10)

Working capital days 83 80 80 70 79 Net cash from financing (42) 54 125 357 (216)

Gross asse t turnover (x) 10.8 13.5 13.8 14.6 14.1 Change in cash position (10) 54 (50) 16 6

Net asset turnover (x) 12.0 15.2 15.9 16.7 16.2 Closing cash 33 87 37 53 59

Sales/operating assets (x) 11.7 13.1 7.3 6.8 7.6

Current ratio (x) 2.1 2.1 1.7 1.9 1.9 Quarterly financials

Debt-equity (x) 0.1 0.2 0.3 0.4 0.3 (Rs mn) Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11

Net debt/equity (x) (0.1) 0.1 0.2 0.4 0.2 Net Sales 697 1,032 1,854 1,058 835

Interest coverage 6.4 38.6 42.8 14.1 15.1 Change (q-o-q) -15% 48% 80% -43% -21%

EBITDA 67 97 185 104 65

Per share Change (q-o-q) -12% 45% 92% -44% -38%

FY09 FY10 FY11 FY12E FY13E EBITDA margin 9.5% 9.4% 10.0% 9.8% 7.8%

Adj EPS (Rs) 16.4 22.3 25.5 39.5 52.4 PAT 64 62 129 69 61

CEPS 17.3 23.2 26.7 40.7 54.3 Adj PAT 64 62 129 69 61

Book value 76.6 96.7 119.3 153.4 200.5 Change (q-o-q) 15% -3% 107% -46% -12%

Dividend (Rs) 2.3 2.3 2.9 3.2 4.5 Adj PAT margin 9.2% 6.0% 7.0% 6.6% 7.4%

Actual o/s shares (mn) 12.7 12.7 12.7 12.7 12.7 Adj EPS 5.0 4.8 10.0 5.4 4.8





Focus Charts

IIL’s stock has outperformed Nifty Industry market share as of FY10

- indexed to 100Source: NSE Source: CMIE

Revenue and revenue growth trend EBITDA and EBITDA margin trend


PAT and PAT margin trend Shareholding pattern over the quarters

Source: Company, CRISIL Equities Source: BSE

0

50

100

150

200

250

300

350

400

J a n - 0 8

M a r - 0 8

M a y - 0 8

J u l - 0 8

S e p - 0 8

N o v - 0 8

J a n - 0 9

M a r - 0 9

M a y - 0 9

J u l - 0 9

S e p - 0 9

N o v - 0 9

J a n - 1 0

M a r - 1 0

M a y - 1 0

J u l - 1 0

S e p - 1 0

N o v - 1 0

J a n - 1 1

M a r - 1 1

M a y - 1 1

J u l - 1 1

Insecticeides NIFTY

UnitedPhosphorus, 1

1%Gharda, 5%

SyngentaIndia, 9%

BayerCropscience,

8%

Rallis

India, 5%

Bilag

IndustriesPvt., 5%Dhanuka, 3%

Others, 52%

Insecticides,

2%

1,976 2,634 3,775 4,501 6,768 8,441

17%

33%

43%

19%

50%

25%

0%

10%

20%

30%

40%

50%

60%

0

1,000

2,0003,000

4,000

5,000

6,000

7,000

8,000

9,000


(Rs mn)

Revenues y-o-y revenue growth (RHS)

281340

438

685

906

10.7%

9.0%

9.7%

10.1%

10.7%

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

0

100

200300

400

500

600

700

800

900

1,000


(Rs mn)

EBITDA EBITDA margin (RHS)

143 208 282 323 501 664

7.2%

7.9%

7.5%

7.2%

7.4%

7.9%

6.8%

7.0%

7.2%

7.4%

7.6%

7.8%

8.0%

0

100

200

300

400

500

600

700


(Rs mn)

PAT PAT margin (RHS)

74.7% 74.7% 74.7% 74.7% 74.7%

5.1%3.0% 3.9% 6.0%0.5% 0.2%

25.3%20.2% 21.8% 21.2% 19.3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Mar-10 Jun-10 Sep-10 Dec-10 Mar-11

Promoter FII DII Others



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CRISIL Research Ier Report Insecticides

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