Broker’s Call: Insecticides India (Accumulate)

Target: INR 469

CMP: INR 440.80

Insecticides in India posted a sharp contraction in gross margin, driven by a significant market loss and high-cost inventory divestitures.

The top line grew 9 percent, but gross margin shrank 1,900 basis points year over year to 12.4 percent.

The sharp and sudden drop in the price of agrochemicals from China led to a significant drop in the price of the technology, forcing the Insecticide Company India to sell its products at competitive prices. EBITDA came in at a loss of ₹28.30 crore as against our estimate of a loss of ₹10 crore.

Management says the art business has suffered during April and May, due to the continued drop in raw material prices. It expects the impact of high-cost inventory to fade after the first quarter of fiscal ’24.

India has been awarded a 15-acre plot of land in Darode, Rajasthan, for a new pesticide plant. The ability will come in stages. The first phase is expected to start in FY25 for formulations and the biological unit. In the second phase, the company will establish a technical factory in the same location.

While management expects 10-12 percent growth next year, driven by healthy demand for newly launched products, margin improvement is the need of the hour to increase profitability. We reaffirm the buildup with TP below $469 from $659 based on 10x (unchanged) FY25 EPS of $46.9.