Indian Agrochemical Industry PDF

Indian Agrochemical Industry
Indian Agrochemical Industry-

On Course to Harvest Decent Growth
1 http://equityunravelled.wordpress.com
Contents
Sr. No. Title Page No.
1. Indian Agrochemical Industry
• Introduction 3
• Types of Agrochemicals 4
• Competitive landscape 6
• Understanding Value chain of Industry 6
• Regulation of Agrochemicals in India: 8
• Factors impacting Agrochemicals Industry 10
• Major Risks and Challenges 12
• Porters Five Force Analysis 15
2. Company Analysis
• Dhanuka Agritech Ltd. 16
• Insecticide India Ltd. 27
• Rallis India Ltd. 41
• PI Industries Ltd. 52
• Bharat Rasayan Ltd. 69
• Excel Crop Care Ltd. 79
• UPL 89
3. Scuttlebutt 101
Introduction:
Since time immemorial, agriculture continues to remain the backbone of Indian
economy. Although, over the last two decades the overall contribution of agriculture
sector towards the GDP growth of the country has decreased still agriculture continues
to play a pivotal role in Indian economy with more than 50% of India’s population is
dependent on the sector for their livelihood. In India, agricultural produce contributes
about sixteen percent (16%) of total GDP and ten percent (10%) of total exports.
The primary objective of the agriculture sector is to produce reliable supply of food for
the ever increasing world population. Paramount importance must be given to expedite
the agricultural productivity in order to feed the burgeoning world population.
Agrochemicals commonly referred to as pesticides, have been introduced in agriculture
for efficient and economical production of agricultural products. They are used to
control weeds, insect infestation and various diseases thereby increasing agricultural
productivity. It is estimated that about 15%-25% of potential crop production is lost due
to pests, weeds and diseases thus the usage of pesticides play a vital role in enhancing
productivity.
Market Size:
India is the fourth largest global producer of agrochemicals after the US, Japan and
China with a market size of $ 4.4 billion in FY15 and is expected to grow at 7.5% per
annum to reach USD 6.3 billion by FY20. The market is evenly divided between
domestic consumption and exports. The domestic demand is expected to grow at 6.5%
per annum and exports at 9% per annum.
Indian Agrochemical Market (USD Billion)
3.15
2.05
3.14
2.3
Domestic (USD bn) Export (USD bn)
Source: Analysis by Tata Strategic
Types of Agrochemicals:
The agrochemicals can be broadly classified into five types: -
Insecticides ➢ Insecticides provide protection to the crops from the insects by
either killing them or by preventing their attack. They help in
controlling the pest population and maintain it below a desired
threshold level. They can be further classified based on their
mode of action:
a. Contact insecticides: These kill insects on direct contact and
leave no residual activity, hence causing minimal
environmental damage.
b. Systemic insecticides: These are absorbed by the plant tissues
and destroy insects when they feed on the plant. These are
usually associated with long term residual activity.
Fungicides ➢ Fungicides protect the crops from the attack of fungi and can be
of two types – protectants and eradicates. Protectants prevent
or inhibit fungal growth and eradicates kill the pests on
application.
➢ This in turn improves productivity, reduces blemishes on crop
(thus enhancing market value of the crop) and improves storage
life and quality of harvested crop.
Herbicides ➢ Herbicides: Herbicides also called as weedicides are used to kill
undesirable plants. They can be of two types - selective and
non-selective.
➢ Selective herbicides kill specific plants, leaving the desired crop
unharmed, while non-selective herbicides are used for
widespread clearance of ground and are used to control weeds
before crop planting.
Bio- ➢ Bio-pesticides are new age crop protection products
pesticides manufactured from natural substances like plants, animals,
bacteria and certain minerals.
➢ They are eco-friendly, easy to use; require lower dosage
amounts for same performance as compared to chemical-based
pesticides.
➢ The bio-pesticides category currently is a small proportion of
the market but has a huge growth potential considering its non-
toxic nature.
Others ➢ Fumigants and Rodenticides are the chemicals which protect
the crops from pest attacks during crop storage.
MARKET SHARE OF AGROCHEMICALS(FY15)

Fungicides
18%
Herbicides
Insecticides 16%
60%
Bio-pesticides
Others 3%
3%
➢ Indian crop protection market is dominated by insecticides which command 60%

market share. Insecticides find major applications in rice and cotton crops.
Fungicides and Herbicides are the largest growing segments accounting for 18%
and 16% of total crop protection agrochemical market respectively.
➢ The weeds tend to grow in damp and warm season and die in cold weather hence
the sale of herbicides is seasonal. Herbicides find their use in Rice and wheat
crops. Increasing labor costs and labor shortage are key growth drivers for
herbicides.
➢ The shift from cash crops to fruits and vegetables has led to a significant growth
for fungicides.
Indian State Wise Crop Protection:
Andhra Pradesh (including Telangana & Seemandhra), Maharashtra and Punjab are top
three states contributing to 45% of pesticide consumption in India. Andhra Pradesh is
the leading consumer with 24% share. The top seven states together account for more
than 70% of crop protection chemicals usage in India.
State-wise Consumption of Pesticides in India(fy15)

Others
15% AP
24%
West Bengal
5%
Harayana
5%
Tamil Nadu
5% Maharashtra
Gujarat 13%
7%
Karnataka
MP Chattishgarh Punjab
7% 8% 11%
Competitive Landscape
The Indian agrochemicals market is highly fragmented in nature with over 800
formulators. The organized sector dominates the market with 70% market share while
the rest belongs to the spurious unorganized market. The market has been witnessing a
flurry of M&A activities with large players consolidating their market position buying
out small manufacturers.
The market share of large players depends primarily on product portfolio and
introduction of new molecules. Strategic alliances with competitors are common to
reduce risks and serve a wider customer base.
Market share of top players
Major Players 2005 % 2017 % %change over FY05-FY17
Rallis India 591 10.8% 1400 5.5% -5.3%
Sharda Crop Chem 30 0.6% 1129 4.4% 3.8%
PI industries 271 5.0% 867 3.4% -1.6%
Insecticides 90.3 1.7% 1107 4.3% 2.6%
Excel crop care 381 7.0% 963 3.7% -3.3%
Dhanuka Agritech 61.5 1.1% 873 3.4% 2.3%
Bayer Crop science 668 12.2% 2802 11.1% -1.1%
UPL 1356 24.9% 16312 64% 33.9%
Total 5454 25453
(Note- figures represent only agrochemical sales segment of companies)
Source: annual report
Understanding Value chain of Agrochemical Industry:

Agrochemical business can be subcategorized in two parts 'Technical' manufacturing
and 'Formulation' manufacturing.
a) 'Technical' or 'Active Ingredients' manufacturers: They manufacture the key raw
material used for making Agrochemicals, quite similar to API manufacturers in
Pharmaceutical Industry. ‘Technical Manufacturing’ an asset intensive business
which requires substantial capital expenditure.
b) 'Formulation' manufacturers: They manufacture the end product used by the
farmers. The active ingredients are then mixed with inert ingredients (solvents,
adjuvant and fillers) to achieve the desired formulation. It is generally an asset light
business and serves the B2C segment.
Chemicals are the major raw material required for the manufacturing of technical - a
highly capital and technology intensive business. Domestic technical manufacturers face
intense competition from their Chinese counterparts who thrive on high economies of
scale.
The domestic formulation players procure major portion of technicals through imports
from international players. Some of the large formulation firms have undergone
backward integration which has rendered them a certain degree of self-sufficiency and
control on quality. There are close to 125 technical grade manufacturers, about 800
formulators and more than 145,000 distributors involved in the chain.
Over the last few years, the global agrochemical industry has been on a massive
consolidation spree with the top 6 companies merging to form three global giants. This
development has resulted in rising entry barriers as high levels of R&D expenses are
required for introducing and selling new products and services.
These global giants have continued to remain the prime innovators in the industry as
they possess enormous financial muscle which they utilize in enhancing R&D
capabilities with the aim of reaping rewards in the form of patent protection. Releasing a
new product in the market has become increasingly cumbersome in terms of time and
finances. It takes roughly 11 years for a product to enter the market beginning from R &
D of the novel active ingredient, at an average cost of $ 286 million. This has become a
major impediment in development of new products which is quite evident from the fact
that only a few registrations or launches of active ingredients occurred in 2017.
Custom synthesis business (CSM) is quite a lucrative business segment for the
agrochemical entities under which the company secures long term export contract from
international formulation players. The CSM business for the global companies is
currently limited to few big players like Lonza, AG, Saltigo etc. These companies extend
their services beyond the agrochemical space to pharma intermediaries, fine chemicals,
preservatives and other specialty chemicals.
Agrochemicals can also be classified into
(i) Generic (non-patented) and
(ii) Specialty (patented) products.
➢ Generics are a commodity business consisting of a large number of players

resulting in intense competition. Thus, margins remain low in generics
manufacturing and brand strength plays an important part in protecting the
profitability in this segment.
➢ Few Indian companies have signed exclusive manufacturing and marketing
arrangements with larger MNCs to produce specialty products in lieu for the
royalty paid to the MNCs. These companies manage to work in a lesser
competitive environment and are able to maintain their profit margins. Besides,
entities having a higher number of product registrations domestically or in
overseas markets have sustainable growth prospects due to lesser dependence on
individual products or markets.
➢ Apart from an entity’s ability to consistently launch new products, product
maturity and portfolio diversity continues to remain the key parameters the
entities must focus upon to maintain sustainable revenues and cash flows.
➢ Agrochemicals worth $ 4.1 billion is expected to go off patent by year 2020 which
may provide significant opportunities for Indian companies to export the generic
version of the agrochemicals. Entities which possess strong R&D capabilities and
high budgetary allocation will be better placed the tapping the market
opportunities arising from patent expirations.
Regulation of Agrochemicals in India:
The import, registration process, manufacture, sale, transport and distribution are
regulated by The Insecticides Act, 1968 and Insecticides Rules, 1971.All
insecticides/pesticides have to register with the Central Insecticides Board &
Registration Committee (CIB & RC) before use or sale.
The technical grade products registration can be obtained in three ways:
i. Provisional registration u/s 9(3b)

Any new molecule/pesticide which has to be registered for the first time in the
country is registered provisionally for a period of 2 years on conditions specified
by the registration committee. This registration is for data generation only. The
commercialization of the product is not allowed under this section.
ii. Regular registration u/s 9(3)

After fulfilling the pending enquiry or the conditions as specified by the
registration committee during the provisional certification, the pesticide may be
registered regularly under this section. It is a permanent registration, and
commercialization is permitted. Once the product is registered under Section
9(3), competition cannot seek registration for the same product for typically three
years. Hence, products can enjoy the first-mover advantage as well as market
leadership over the next 3-4 years.
iii. “Me-Too” Registration u/s 9(4)

After 9(3) registrations of a molecule, any other person can apply for registration.
Section 9(3) of the Act provides the process of first time registration of an insecticide by
the first applicant (hereinafter “the Originator”). An applicant wanting to register a new
product ‘first time’ in India is required to generate data to demonstrate its ‘safety’ and
‘efficacy’ in Indian conditions (costing millions of rupees) in addition to hundreds of
million dollars spent globally on toxicity and chemistry studies. The registration process
mandates the submission of efficacy and safety data by the Originator.
However, under Section 9(4) where an insecticide has already been registered by the
Originator and another person (hereinafter “the Subsequent Applicant”) wishes to
import or manufacture that insecticide in India, the Subsequent Applicant is required to
provide only bioequivalence data to the relevant Authority. i.e.; subsequent applicants
can get registration under Section 9(4) for same product on payment of nominal fee
‘without having to submit any data’. As a result, for every registration under Section
9(3), there are multiple registrations under Section 9(4).
Innovator Companies Launch Innovator Companies Launch

New Products Globally Product in India
During Patent Phase Post Patent Phase
Innovator grants license for Indian entity buys samples of the product
the product to an Indian from the innovator or any other supplier
company or launches through (Chinese manufacturers sell generic
its Indian arm (In-licensing) & version of the technical post patent expiry,
Co-Marketing with Indian but Indian Players are also getting active in
Company. reverse engineering of expired patent)
Indian Entity Applies for permission to launch

Applies for 9(4) Registrations
the product in India to CIBRC for 9(3)
after Patent expiry and need to
Registrations and gets three years exclusive
provide only bioequivalence
marketing rights or until patent expiry if test
results of product are successful. data unlike conducting tests
for toxicity and safety which
Generally, it takes 3-6 years to get approval us done for 9(3) Registration
from the time of filing application.
Innovators tend to focus on their core
competencies and tie up with domestic
players both for registration and product
launches in the country
Many non-serious players made in-roads into Indian Pesticides market through 9(4)
registrations and spurious products which accounted for around 40% of domestic
market in 2014 inflicting huge crop losses and damage to the soil. On the other hand,
Innovator companies were not able to recoup Investments made in India for conducting
studies.
CIB’s intent to enforce stricter norms
In FY08, the agrochemical regulatory body laid down guidelines which allowed players
to register imported formulations of innovative products without registering its
technical. This is because in the absence of registration of underlying technical,
imported formulation cannot be copied.
However, The Gujarat High Court has instructed the Central Insecticide Board (CIB) to
frame guidelines for time-bound registrations of technicals (with formulations
registered) which have not been registered even after expiry of their exclusivity period.
Non-registration of technicals has prevented competition (generics) from entering a
molecule even after expiry of its exclusivity period (generally 3 years), thus enabling
incumbents/innovators to enjoy higher margins for extended periods.
Assuming the exclusivity period is restricted to three years again, this move could also
hurt IRRs of new launches. India being mostly into generic manufacturing, this move
will be beneficial for major domestic players while companies selling 9(3) formulation
products in tie-ups with MNCs can have negative impact as there technical will soon be
reengineered by other companies affecting high margins earned due to exclusivity
advantage.
Factors impacting Agrochemical Industry:

1. Perennial rise in demand for food grains: According to a UN study, India
is expected to surpass China as the most populous country in the world by 2022.
India’s current population is 1.32 billion strong which currently supports nearly
17.86% of the world population with only 2.4% of land resources and 4% of water
resources. Every year 25% of the total agricultural production is lost due to pests,
weeds and diseases. In order to sustain the ever increasing population, high
emphasis will be laid on making the agricultural production process more
efficient which will drive growth for the agrochemicals in the Indian
subcontinent.
2. Limited farm availability: As per Indian agriculture census 2010-11, per

capita arable land availability in India has consistently declined from ~0.34 ha in
1950s to ~0.15 ha in 2000s. With rising population, it is further expected to
reduce to ~ 0.07 ha by 2030. Available arable land per capita has been reducing
globally and is expected to reduce further. As per World Bank statistics for FY14,
per hectare yield in India is also amongst the lowest in the world.
➢ In order to sustain the growing demand for food grains either the arable land
should be increased or the productivity of the existing land should be improved.
As the arable land is limited, increasing productivity is the only option available.
This can only be achieved through usage of high yielding seeds, fertilizers and
pesticides.
Per Capita Arable

0.4
0.34
0.35
0.3
0.25
0.2
0.15
0.15
0.1 0.08 0.07
0.05
0
1951 2001 2025E 2030E
India’s crop yields significantly lower than world average
3. Government’s impetus to boost farm income: Prime Minister Narendra

Modi has increased budgetary allocation to the rural, agriculture and allied sector
by 24% in FY18 in a bid to double farmer income by year 2022.Government has
targeted increased spending in (a) Irrigation - capex spending up 25% in FY17
and 21% in FY18E and an increase in the fund for irrigation from INR 200bn to
INR 400bn, (b) Crop insurance – The government plans to expand crop coverage
from 30% of gross cropped area in FY17 (25% in FY16) to 40% in FY18 and 50%
in FY19. These will also help improve farm incomes.
4. Growth of horticulture & floriculture: India has witnessed a massive

growth in horticulture produce – particularly fruits and vegetables – over the last
five years. The horticulture production in 2016-17 is headed for a record 300
million tons. The country has also exported 22,000 metric tons of floriculture
products worth of Rs.547 crore ($ 82 m) in 2016-17, registering a growth of 20%
annually from last decade. Fungicides are the fastest growing pesticides due to
encouragement by government on growth of horticulture and floriculture to
increase agricultural exports.
5. Lower per capita consumption in India Vs Global counterparts: India’s

pesticides consumption is one of the lowest in the world with per hectare
consumption of just 0.6 Kg compared to US (5-7 Kg/ha) and Japan (11-12 Kg/ha).
In India, paddy accounts for the maximum share of pesticide consumption
around (26%-28%) followed by cotton (18% -20%).
Pesticide Consumption (kg/ha) Comparison (FY15)

18 17
16
14 13
12
12
10
8 7 7
6 5 5
4
2 0.6
0
India UK France Korea USA Japan China Taiwan
6. Increasing pest attacks: In India, more than 40,000 different types of insects
have been recorded and of these about 1,000 have been listed as potential pests
for economic plants. 500 pests have caused serious damage to agricultural output
at some point in time and 70 others have been causing damage more often.
Therefore, pesticides have been recognized as an essential tool in India to
increase agricultural production by preventing crop losses before and after
harvesting.
Major Risks and Challenges:

1. High dependency on Monsoon season: Indian agriculture sector is highly
dependent on monsoons. Only 45% or 64 million hectares of the net sown area
(142 million hectares) have adequate access to irrigation facilities. Therefore,
rainfall continuous to remain primary source of water for three fifth of the land
under cultivation.
➢ Unseasonal rains can also have a detrimental impact on the crop schedules or
may cause mass destruction and spoilage of crops.
➢ According to weather agency ‘Skymet’, India is most likely to witness normal
annual Monsoon rains from June to September (CY18) which will augur well for
agrochemical Industry.
➢ Also, the El Nino effects, which led to abnormally less rainfall over the last 2-3
years, are gradually fading in India and paving way for La Nina, which would be
induce more rainfall over the coming year thereby increasing farm production.
2. Seasonal Demand: The agriculture sector is the major demand driver for
pesticides. As the crops are mainly sown in two cropping seasons, namely Kharif
(July-November) and Rabi (October-February), the demand for pesticides is
seasonal with a skew towards Kharif crops which account for 70% of annual
pesticide consumption.
3. Dependence on vagaries of Crude oil prices: Crude oil is an essential raw

material used for the manufacturing of the technicals. The persistent rise in the
prices of the crude oil from $25-30 per barrel to $70 per barrel over the last two
years has led to surge in prices of technicals. Also, India imports 60% technicals
from China which is facing increasingly stringent environmental norms which
has resulted in shut down of several factories thereby creating shortage of
technicals in the market leading to a surge in prices.
4. High working capital requirement: The industry dictates large working

capital investment due to high inventory levels requirement along with extension
of long credit periods. Seasonal demand for pesticides have made it imperative
for the companies to build up inventory well before the season which in turn
leads to higher inventory holding cost.
➢ The industry has to extend long credit period due to intense competition amongst
the incumbents. Pesticides are the last input in the agricultural process, hence
farmers are left with little surplus money (after having invested in seeds and
fertilizers) left for purchasing pesticides, therefore the incumbents have to extend
long credit period to stimulate the demand.
Farming
Ploughing Sowing
of land seeds
and Fertilizers Pesticides
Irrigation
5. Lack of awareness among farmers: There is a general lack of awareness

among the farmers with regards to appropriate kind of pesticide, its dosage &
quantity and frequency of application. However, educating farmers is not easy
owing to differences in regional languages and the propensity to adopt newer
products.
The main point of contact between the farmers and the manufacturers are the
retailers who don't have adequate technical expertise and are thus unable to
impart proper product understanding to the farmers. It is also very difficult for
the farmers to convey their needs effectively to the manufacturers.
6. Inefficient Distribution systems: The agrochemical industry caters to large

number of farmers all across India. There is a need to develop a strong and
efficient distribution network which may help the farmers cut out crop loss due to
non-availability of pesticides.
➢ Lack of efficient distribution system also makes it difficult for agrochemical
companies to reach out to the farmers and promote their products and educate
them about the benefits of using pesticides. Many players in the industry are
reaping the benefits of developing extensive distribution system which make their
products accessible to wide range of customers.
7. Low Research and Development (R&D) spending: In India, the average

expenditure on R&D for pesticides is abysmally low at about 1-2% of sales,
compared to global companies where average expenditure is about 6-7% of sales.
The Indian players focus more on marketing the off-patent products rather than
developing a new molecule.
➢ The global innovators are outsourcing part of their R&D to countries like India
in a bid to reduce their research cost. Indian companies such as PI Industries
have already started catering to the niche demand as they have abundant
supply of low cost high quality manpower.
8. Threat from Genetically Modified (GM) seeds: Genetically modified seeds

possess self-immunity towards natural adversaries which have the potential to
negatively impact the business of agrochemicals.
9. Rising demand for organic farming: The Indian government is taking

initiative to promote Integrated Pest Management (IPM), zero budget farming
and usage of bio-insecticides. With rising demand for organic food, farmers have
reduced chemical usage and adopted organic farming. This may raise some
concerns on the negative impact of using pesticides.
10. Regulatory risks: The agrochemical Industry is catering to politically

dominated agricultural sector. Any negative regulatory announcement due to
government intervention may severely hamper industry’s growth prospects.
➢ Recently, the government has set up a committee for reduction/control in prices

of pesticides. The move has been vehemently opposed by the industry players.
This definitely exposes the vulnerability of the sector to Government and
regulatory risk.
PORTER’S FIVE FORCES ANALYSIS: -
KEY POINTS DETAILS CONCLUSION

Many companies sign exclusive contracts with
innovator companies for manufacturing and
marketing of in-licensed products.
THREAT OF Backward Integration has ensured that the LOW THREAT

NEW companies enjoy superior economies and scale
ENTRANTS and access to quality control.
Supply chain management is very important to

make product available at various touch points
which cannot be made overnight.
There is no substitute for pesticides available in

the market that can control damage and increase
THREAT OF productivity in farming. LOW-MEDIUM
SUBTITUTE THREAT
Govt initiative to promote organic farming may
raise some concerns regarding the negative
impact of using pesticides.
Highly fragmented market with large number of
players.
COMPETITIVE MEDIUM-HIGH
RIVALRY Low margins in the generics segment due to COMPETITIVE
BETWEEN intense rivalry. INTENSITY.
EXISTING
PLAYERS Long Term in-licensed contracts secured by top
companies in specialty segments help them
generate decent margins in the segment.
Large number of players in the industry gives the
farmers a lot of options to choose their vendor.
BARGAINING MEDIUM
POWER OF Since there is a risk associated with using BARGAINING
BUYERS inferior/spurious products which may damage the POWER.
crop, farmers stick to their trusted partners.
BARGAINING Few suppliers control the entire market hence the MEDIUM-HIGH
POWER OF market power is concentrated. There is an BARGAINING
SUPPLIERS additional risk of forward integration by these POWER
global giants.
Dhanuka Agritech Ltd

Dhanuka Agritech Limited is engaged in the manufacturing and marketing of plant
protection agrochemicals, including insecticides, herbicides, fungicides and plant
growth regulators. The Company's brand portfolio consists of over 80 products.
Business model (Asset Light model)
Company manufactures pesticides products in various forms – liquid, dust, powder and
granules to facilitate ease of handling, spraying and coating on plants. It has currently
three formulation plants located at Sanand (Gujarat), Udhampur (J&K) and Keshwana
(Rajasthan). Company has shut down old plant located at Gurgaon (Haryana) and
shifted the entire production facility to newly set up plant in Keshwana (With a capex of
around 60cr.). The new plant has almost doubled its existing capacity with state of the
art infrastructure which is fully automated and requires less manpower.
As manufacturing business of technicals is capital intensive, Company has consciously
avoided manufacturing technicals and are sourcing technical molecules from third
parties including global MNCs and Indian companies. For sourcing of specialty
molecules, company is associated with four American and five Japanese companies and
the generics are majorly bought from Indian Players while some are imported from
China. For in-licensed product molecules, Company does not pay any royalty fee to
innovators. They buy molecules from innovator at fixed determined price and perform
the necessary operations at formulation unit to turn it into final product.
Dhanuka has a mix of products types like some are in-licensed (9(3) registration by
innovator company but co-marketed by Dhanuka), 9(3) products by company where
company enjoys three-year exclusivity in tie with innovators and 9(4) registered
products. The company is also expected to receive registration from one more Japanese
company and it will be the sixth Japanese company with which Dhanuka will have a tie-
up.
Government Initiatives under ‘Make in India’ regime
Recently, Government is taking steps to promote manufacturing of technicals under
‘Make in India’ regime by restricting import of products that have manufacturing
registration in India. According to management, Company imports only 2-3 molecules
from China, so Government’s initiative to restrict import will not have much impact on
company’s operations. Additionally, there are certain molecules for which Indian
Players doesn’t have much technical know-how, suggesting continuous import of such
molecules by companies in India.
Management take on Backward Integration
Due to import restrictions, it is expected that companies with technical indigenous
registration will enjoy high margins in coming years. Management is not showing any
inclination towards backward integration of manufacturing generic molecules.
However, the Company is in talks with few Japanese Players to get contract for
manufacturing specialty molecules. Dhanuka already has access to 37 acres of land in
Dahej (Chemical Zone) to tap any opportunity of contract manufacturing in future.
Though management is interested in contract manufacturing but considering the

experience and R&D spending of company, it is going to be extremely difficult for the
company to get such contracts. Having said that, Dhanuka has decade of relationship
with international innovators giving company access to introduce specialty products and
enjoy margins on them for extended periods which suggest such possibility cannot be
disregarded.
Sales and Distribution
The Company has a pan-India presence through its marketing offices in all major states
in India, with a network of more than 7,000 distributors/ dealers selling to over 75,000
retailers across India and reaching out to more than 10 million farmers. With more than
200 registrations and 500 active SKUs, the company has one of the largest market
penetrations. Dhanuka Agritech currently has 30 Branch offices across India and 48
warehouses. Such Extensive Distribution System makes Dhanuka the preferred partner
of global innovators (highest tie-ups compare to peers) to venture into rapidly growing
Indian Agrochemical Industry.
Product Portfolio
One of the key attribute to generate higher margins in Industry is to launch new
products continuously. Dhanuka has successfully launched 20-25 products in last five
years and continue to maintain policy of launching 4-5 new products annually. Out of
the five new products, company generally launches two 9(3) products (specialty
products having three years of exclusivity) and 2-3 generic products every year. In fact,
company launched 11 products in FY18 as against 4-5 products generally launched by
company. Out of 11 products, one is in-house 9(3) product- Foster and another is D-
ONE product for cotton in-licensed from Dow Agro-sciences.
Increasing volume of 9(3) products is relatively difficult as they are the new products for
which company needs to educate farmers about their benefits and invest in marketing &
promotion to increase sales volume while 9(4) products volumes can be easily ramped
up. Since, margins on 9(3) products are high due to exclusivity period, successfully
scaling up of specialty (branded) products will give edge to company in long run.
Company has high expectation from below Registered/ Launched products.
Year Products Category Innovator/ Tie-up Crop
FY13 Lustre Fungicide E.I. Dupont USA Groundnut, onion, chilly, Paddy
FY15 Sempra Herbicides Nissan Chemicals, Japan Sugarcane, maize
FY15 Mortar Insecticide In-house R&D Paddy, vegetables
FY15 Sakura Herbicide Nissan Chemicals, Japan Multiple crop
FY16 Cover Insecticide Dupont Multiple crop
FY17 Conika Fungicide Hokko Chemicals, Japan Horticulture crops
FY17 Maxx-soy Herbicides Nissan Chemicals,Japan Soya bean
Dhanuka was the first company to bring a Dupont molecule into India (1992) and since
then has continued its tie-up with the MNC despite the latter’s direct entry in the
country. The strong relationship along with its distribution strength has helped launch
multiple DuPont products like Lustre, Hi-Dice, Dunet, Hook.
Most recently, it launched Dupont’s highest selling molecule Rynaxypyr (Coragen)
having market size of around 500 Crore under the brand name “Cover” - which
according to management is one of the top three products of company, Targa Super- one
of the company’s most successful product along with cover liquid (sold only by Dhanuka
along with DuPont) and cover granules are the top three performing products of the
company.
Targa Super was the only largest-selling innovative product for Dhanuka till Fy13.
However, it has launched Lustre, Cover, Sempra, Mortar, Sakura, Conika, Maxx-soy
under 9(3) over FY13-18. The company is also expected to launch two new products that
is rice herbicide (DAL will third player), rice Insecticide and grapes fungicide in FY19
under 9(3).
Advertisement and Promotion
Dhanuka Agritech has been successful in creating extensive distribution channel and
brand value of their products which has helped company to gain some market share in
last few years. However, to sustain in competitive agrochemical Industry, the company
must continuously invest in marketing and promotion of their products to create
awareness about the benefits of pesticides. Company has hired veteran bollywood actor
Mr. Amitabh Bachchan as the Brand Ambassador. This move has enhanced company’s
brand recognition and visibility among farmers
For a pesticides industry, it is very important to use the right product coupled with right
quantity at the right time. For this, the company conducts literacy programmes for
farmers, by giving product demonstrations and providing technical advice on correct use
of technology and about specific crop related problems.
Marketing team (company call them Dhanuka Doctors currently having around 1500
personnel’s) visits villages and help farmers solve their problems. They also provide
them with product literatures, product samples, demo kits etc. to provide on the spot
solutions. The Company also conducts classroom and field training for safety and new
products.
Ad & Sales Promotion Spend

% of sales
35 4.30%
3.70% 3.60%
30 3.16%
25
3.82% 3.56%
Rs. Cr. 20 3.65%
15
10
0
FY11 FY12 FY13 FY14 FY15 FY16 FY17
Ad & Sales Promotion Spend 18 20 21 32 29 30 28
Source: annual reports

Company spends around 3-5% of Revenues on Advertisements, Filed Assistants, and
Business Promotion and on Education & Seminars conducted by Company.
Management and Board of Directors
➢ Dhanuka commenced its operations in 1980, with the acquisition of Northern
Minerals Limited (NML), a sick company engaged in the manufacturing of
pesticide formulations. Dhanuka promoters turned it around in record time of
two years. Mr. RG Agarwal, chairman and co-promoter of Dhanuka enjoys good
reputation and has a credible brand image amongst business circles. Mr. M.K
Dhanuka, managing director and co-promoter of company is having four decades
of experience in Industry.
➢ Dhanuka is a family run enterprise with management focus on core business.

Their Successor (second generation of family) have completed their education
from reputed B-schools and are expected to operate organization in more
organized manner in coming years. The Company is managed by a good blend of
both experienced and young team.
➢ Company made buyback of 9.41 lakh shares for Rs 80 Cr. in March’17. The
bought back shares constituted 1.88% of the pre-buyback paid-up capital of the
company. The buyback was made from all the existing shareholders of the
company on a proportionate basis under the tender offer route.
➢ At present, Promoter holdings are 75% suggesting their confidence in Business.

Dividend payout ratio has also been greater than 25% from past five years.
Company has not issued any major warrants or stock options to employees.
Board of Directors
Name Designation Experience
Mr. Ram Chairman Mr. Ram Gopal Agarwal started pesticides business more
Gopal than 40 years ago; a philanthropist; he also served for two
Agarwal terms as Chairman of “Crop Care Federation of India”.
Mr. Managing Mr. Mahendra Kumar Dhanuka co-founded the Company
Mahendra Director and has 40 years of experience. He is a President of HPMA
Kumar (Haryana Pesticide Manufacturers Association) for over a
Dhanuka decade. He oversees the overall operations of the Company.
Mr. Arun Executive Mr. A. K. Dhanuka; Director (Works), looks after
Kumar Director manufacturing operations at Gurgaon factory. He joined
Dhanuka the Company after completing his graduation and has been
looking after production since then.
Mr. Rahul Executive Mr. Rahul Dhanuka; Director (Marketing), Master’s in
Dhanuka Director business administration from S.P. Jain, Mumbai; oversees
the entire marketing function of the Company.
Mr. Mridul Executive Mr. Mridul Dhanuka; Director (Operations), master’s in
Dhanuka Director business administration from NITIE, Mumbai; oversees the
manufacturing and supply chain functions across the
Company’s four production facilities; spear-heads
expansion projects; brought technological and managerial
excellence in the company’s operations
Mr. Priya Independent Mr. Priya Brat, M.Sc (Hons) in Physics, Fellow Member of
Brat Director Indian Institute of Bankers, had a distinguished career in
State Bank of India and headed various important
assignments related to Industrial Credit, Forex
Management, Project Appraisal, Loan Syndication and
Merchant Banking.
Mr. Vinod Independent Mr. Vinod Jain, aged 64 years, is a Commerce Graduate
Kumar Jain Director from Delhi University and has a rich and multi- faceted
experience of 40 years. With his innovative ideas and skills,
he has taken his business of cotton yarn to new heights. He
is also Secretary of Cotton Yarn Merchant Association.
Mr. Indresh Independent Mr. Indresh Narain, aged 69 years, has a rich experience in
Narain Director Banking and retired as Head of Compliance and Legal
Department, HSBC Group.
Mrs. Asha Independent Mrs. Asha Mundra, a graduate from Miranda House
Mundra Director College, Delhi is an Executive Director in M/s Anupriya
Marketing Limited, which is involved in marketing of
interior and panel products.
Mr. Om Independent Mr. Om Prakash Khetan, a postgraduate from IIT,
Prakash Director Kharagpur (M. Tech degree) and IIM, Kolkata (MDP) and
Khetan completed his training in USA and UK. He has over 30
years of experience in Industrial Relations/Human
Resources.
Moat Analysis
Key point Details Conclusion

Management Dhanuka’s Management has decades of experience in Wide Moat
Agrochemical Industry and have complete focus on their
core business operations. Second generation of family
also showing enthusiasm and interest in family business
suggesting good succession planning by company’s
management.
Brand Dhanuka has been successful to establish brand recall Wide Moat
due to continuous launch of 9(3) products and in-
licensed products which gave company first mover
advantage in some products.
Distribution Company is having strong distribution network which Wide Moat
has helped them to gain market share from last few
years despite high competition in industry.
Pricing Company usually passes any increase in raw material Wide Moat
Power prices and pass on RM price hike due to china’s
shutdown of factories is one such example. Moreover,
tie-ups with innovator companies helps Dhanuka enjoys
better pricing of specialized products due to exclusivity
period.
Financial Analysis
Dhanuka Agritech Ltd. has grown its Revenue at a CAGR of 10% from last 8 years.
Company clocks around 75% of revenue from specialty products and 25% from generic
segment.
Net Sales
1200
962
1000 873
785 829
800 738
INR Cr.
582
600 491 529
400
200
0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
➢ Company is the market leader in Insecticide segment with contribution to

revenue of 44%. Over the last few years, company has been successful in reducing
its dependence on Insecticides from earlier contribution being greater than 50%
of revenue by Insecticides to 44% today.
➢ Herbicides continuous to witness the strongest growth due to rising labor costs
and Targa super is the most successful herbicide of company which helped them
gain market share in herbicide segment. Company is well positioned to derive
benefits in coming years due to earlier launch of 9(3) products like Sempra (first
company to tap Sugarcane market) & Sakura and from launch of rice herbicide in
FY19.
➢ Fungicides segment is also expected to witness strong growth on back of
burgeoning demand of horticulture and floriculture crops in overall Indian
Agrochemical Exports. Company is also planning to launch new grape fungicide
in FY19 to tap the expected massive growth opportunity of horticulture crops.
REVENUE CONTRIBUTION (FY17)

Others, 11%
Fungicides, 15%
Insecticides, 44%
Herbicides, 30%
➢ Company’s contribution to revenue from south is significant around 32% in FY18.

The level of water in reservoirs of south India is lowest among the regions,
making it highly monsoon dependent and impacting company revenues in turn.
➢ West and north region contribution is also significant around 31% and 26% while
revenue share from east is around 11%. Company is planning to scale distribution
and sales from this region in coming years as east is very lucrative market
especially for paddy crops.
➢ Fy18 revenues are also impacted due to uneven and poor rainfall in south. Also,
Innovators decided to reduce prices of two products to maintain sales as
competitors are coming up with generic version of these products which includes
cover (one of the top three product of company) as well.
➢ Company has grown revenues in line with Industry growth rate of 10% and is
expected to perform well with diversified products and normal rainfall forecast in
FY19 by IMD.
➢ Primarily price hike has been the key driver for 10% growth in last few years with
minimal volume growth. As with the advent of technology, amount of pesticide
used has decreased say from earlier 500 grams usage to 7-8 grams now, leading
to low growth in volume terms.
Dhanuka Agritech Ltd. - Common Size P&L Account
Year / Rs Cr. FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Expenditure
Cost of Raw Material Consumed 65.4% 60.3% 60.1% 66.0% 54.2% 49.4% 51.6% 40.3%
Purchase of Traded Goods 6.2% 4.9% 5.5% 4.4% 5.6% 12.5% 12.8% 11.5%
(Increase)/Decrease in Inventory -5.2% -0.5% -0.2% -7.2% 2.9% -0.9% -7.3% 6.7%
Employees Benefit Expenses 7.2% 7.9% 8.2% 7.9% 8.2% 9.9% 11.2% 11.1%
Other Expenses 11.0% 12.4% 12.3% 12.6% 12.3% 12.2% 12.3% 13.2%
Total Operating Expenditure 84.5% 85.0% 85.9% 83.7% 83.2% 83.1% 80.6% 82.7%
Gross Profit 33.6% 35.3% 34.6% 36.8% 37.3% 39.0% 42.9% 41.6%
Operating Profit / EBITDA 15.5% 15.0% 14.1% 16.3% 16.8% 16.9% 19.4% 17.3%
Other Income 0.5% 0.1% 1.2% 0.6% 0.8% 1.5% 1.7% 1.7%
Depreciation 1.0% 0.9% 0.8% 0.7% 0.7% 0.7% 1.7% 1.5%
Profit Before Interest & Tax (PBIT) 15.0% 14.3% 14.5% 16.3% 16.8% 17.7% 19.4% 17.5%
Interest/Finance Costs 1.3% 1.0% 0.6% 0.6% 0.3% 0.1% 0.1% 0.1%
Profit Before Tax 13.7% 13.2% 13.9% 15.8% 16.5% 17.5% 19.3% 17.4%
Current Tax 3.1% 2.5% 2.8% 3.0% 3.0% 4.0% 5.2% 4.2%
Other Taxes 0.2% 0.0% 0.0% 0.1% 0.0% 0.6% 0.4% 0%
Profit After Tax 10.4% 10.8% 11.1% 12.6% 13.5% 12.9% 13.7% 13.1%
➢ Gross profit has been increasing gradually because of good monsoon in
FY14.However, margins could have been better but sudden depreciation of rupee
in FY14 impacted the company’s margins as company import raw material from
china and innovator companies.
• Despite poor monsoon, the company was able to manage decent margins
because of better product mix, price hike in stocked inventory due to
increase in RM and some excise refunds.
• Dhanuka imports its raw material on fixed contracts which are determined
with the innovator company at the beginning of the year.
• Company usually passes any price hike due to increase in raw material
prices or rupee depreciation to customers thus maintaining healthy gross
margins. However, price reduction in some specialty products due to high
competition intensity, rising RM costs and product mix led to margin
contraction in FY18.
➢ Employee cost has increased as company continuously hire talented

personnel’s especially for their R&D center to provide training to field assistants
so that they can educate farmers about products on ground levels.
➢ Other expenses include mainly manufacturing, administrative and selling &

distribution expenses. Major expenses are marketing & promotion expenses
which constitute around 3% -5% of revenues.
➢ Operating profit has been increasing in tandem with gross profits as any
incremental benefit at top level will usually flow to bottom level given asset light
model of company.
Balance Sheet Strength
➢ Dhanuka Agritech has equity of Rs 9.82 Cr. divided in 4.91 Cr. shares of Rs 2
each. The net worth stands at Rs 519.86 Cr. as on March’17.
➢ Company is debt free and holds Rs 4.34 Cr. in cash & 64.17 Cr. in Investments.
Company recently has shut down plant in Gurgaon (Haryana) and it is estimated
that the value of land is around 100 Cr.
➢ The ROE and ROCE are 25% and 36.12% for FY17.
➢ Asset light model helps company to earn high ROCE but because of Industry
nature, they are required to have high working capital needs.
Cash Conversion Cycle

Year FY11 FY12 FY13 FY14 FY15 FY16 FY17
Receivable Days 79 92 85 71 77 76 70
Inventory Days 85 89 84 82 85 73 83
Payable Days 39 44 37 26 33 34 30
Cash Conversion Cycle 125 136 133 126 129 115 123
Source: ratestar.in
➢ Working capital cycle of Dhanuka is close to Industry cycle of around 120 days
since pesticides are last input in agriculture process; it becomes increasingly
important for company to provide good credit terms.
➢ Inventory availability is equally important considering the intense competition
and presence of spurious products in markets.
Risks & Concerns:
Dependency on global innovators for technical sourcing: Dhanuka is

dependent on global innovators for the supply of technical/active ingredients in its key
products. Technicals’ supply disruption could adversely impact the company’s earnings.
Adverse currency movement: 25% of raw material costs are imported for Dhanuka
Agritech ltd. Hence, any sharp INR movement could impact the company’s earnings
adversely.
Increase in crude oil prices: Since the pesticides products are toxic in nature and
requires good packaging, company is dependent on plastic-based packing materials
hence exposed to fluctuations of crude prices in market. Some raw materials are also
linked to crude so any adverse movement in crude also impact RM prices.
Regulatory Risks: Company has a policy of launching at least two 9(3) products
annually through tie-ups with innovators, however, registration of specialized (9(3))
products requires an arduous task of registering the products before launching. So, any
negative regulatory changes like addressed above of registering technicals after three
years could adversely affect the company.
Dependence on domestic market: Dhanuka is completely focused on domestic

markets and erratic weather conditions in India affects its revenue growth much more
than it does for diversified companies with multiple continents as markets.
VALUATIONS
At Rs 544, Dhanuka Agritech ltd trades at a:
Price-earnings ratio 21.17 Price to Cash Flow 42.31

Price to book value 4.13 EV/EBITDA 14.67
Source: screener. in
➢ Let’s just calculate what growth rate the market is applying to the current stock
price by using reverse discounted cash flow (DCF).
➢ Assumptions:-Initial cash flow is 79 (average cash flow of last 3 years),
discount rate (opportunity cost of capital) is 12% and terminal growth rate after 5
years is 4%.
➢ By doing reverse DCF with above assumptions, I found that implied growth rate
by the market is 29%. i.e.; Market is expecting that Dhanuka Agritech will be able
to grow their cash flow at 29% for next 5 years.
➢ If we look at the growth rate of cash flow for past 5 years, Dhanuka Agritech has
grown their cash flow at 27%. Free cash flow= cash from operating activities
minus payment for purchase of fixed asset.
Year / Rs Crore FY13 FY14 FY15 FY16 FY17 5 year CAGR
Net cash (used in) / generated from operating activities 47 33 110 140 63
Payment for purchase of fixed assets 30 31 26 32 20
Free Cash Flow 17 3 84 108 43 27%
➢ Looking at the above growth rate, the implied growth rate of 29% by market is
certainly on higher side. It would be not feasible to assume that such high growth
rate will be reflected in future.
Expected Return model

➢ Let’s try to calculate return by using Expected Return model:
DHANUKA AGRITECH LTD
Particulars FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 CAGR (8-Yr) CAGR (5-Yr)
Net Profit (Rs Cr.) 51 57 64 93 106 107 119 126 14% 14%
Net Profit Margin 10% 11% 11% 13% 14% 13% 14% 13%
Return on Equity 34% 30% 35% 32% 26% 25%
Assumptions: -
1. Taking optimistic scenario that Net Profit will grow at 15%
2. Using an exit multiple of 20x.
Calculations
Estimated CAGR in Net Profit over next 10 years 15%
Estimated Net Profit after 10 years (Rs Cr) 510
Current P/E (x) 21.17
Exit P/E in the 10th year from now (x, Estimated) 20
Estimated Market Cap (10th year from now; Rs Cr) 10195
Cost of Capital/Discount Rate 12%
Discounted Value (Rs Cr) 3282
Current Market Cap (Rs Cr) 2669
➢ Current market cap is below the discounted market cap which suggests that
market has not fully discounted the optimistic growth in profits.
➢ So, if we invest at current market cap and hold for 10 years, we can earn a CAGR
of around 14%.
➢ Even if we take conservative CAGR in net profit of 10% over next 10 years,
discounted market value is Rs. 2104 Cr. way less than current market cap of 2669
Cr.
Conclusion: Dhanuka Agritech Ltd. with asset light business model supported by
reasonably good distribution strength & brand image is poised to benefit from growing
Agrochemical Industry. However, current valuation does not provide adequate margin
of safety.
Insecticides India Limited

Introduction:
Insecticides India Limited (IIL) is among the few companies in India which has
successfully forayed in Technical manufacturing segment along with Formulation
products. The primary segments of company are synthesis of technical grade
agrochemicals and formulations of agrochemicals for crops like paddy, cotton, wheat,
sugarcane, vegetables and oilseeds. It has more than 120 formulation products and 20
technical products to its name at present. Its umbrella brand “Tractor” is a household
name when it comes to Indian farm sector.
Insecticides India (IIL), an insecticides manufacturer headquartered in Delhi has five
formulation plants in Udhampur (J&K), Samba (J&K), Dahej (Gujarat) and two plants
in Chopanki (Rajasthan) and has two technical synthesis plants at Chopanki (Rajasthan)
and Dahej (Gujarat). Company has also set up plant in Shamil (Uttar Pradesh) for
Biological segment.
Journey so far: -
2002 2003 2005 2006 2007
•Started •Acquired 21 •Set up R&D •Acquired the •IPO & listing at

operations by leading Laboratory in exclusive rights NSE/BSE
commissioning brands of Chopanki to sell the •Technical
formulation Montari •Granted ISO Thimet brand plant
plant in Industries Ltd 9001-2008 in India from commenced
Chopanki (Ranbaxy certification for American operations in
(Rajasthan) Group Chopanki Vanguard Chopanki
company) Corporation, •Expansion of
USA Formulations
completed in
Samba
2011 2012 2014 2015 2016
• Acquired • Launched Nuvan, • Started producing • Launched bio- • Tie-up with

Monocil brand Hakama and Diafenthiuron product MOMENTIVE
from NOCIL Ltd Pulsor in • Commenced MYCORAYA (USA) for AGRO
• Two new collaboration with product • Bonus shares SPRED* MAX
formulation AMVAC and Nissan invention R&D issued; followed by • Tie-up with NIHON
plants - Dahej and • Entered into JV center in JV with QIPs NOHYAKU (Japan)
Udhampur - with OAT Agrio, OAT Agiro Co. for SUZUKA and
commence Japan for (Japan) HAKKO;
operations research and • Commenced new • Launched
invention of new formulations unit GREEN LABEL
agricultural in Chopanki (Bispyribac
chemicals Sodium 10% SC)
• Technical plant in manufactured in
Dahej commences India for the first
operations time
Business Model:
IIL is mainly into a manufacturing of formulation products which contributes 75% to its
revenues while Institutional sales (mainly technical manufacturing segment) contribute
25% through selling of molecules to domestic players. The objective of company while
doing backward Integration was to reduce the cost of their formulation products, as 51%
of technical molecules are captively consumed by the formulation division.
Branded Formulation Segment
The company was mainly into selling of branded generic products in the market and was
doing reasonably well through acquiring established brands and re-launching it, but
management realized that the margin profile and capital returns were mediocre. So, like
other top Indian Generic Players, company also entered into a tie-up with Nissan
Chemicals in 2012 for an exclusive marketing of two products-Hakama and Pulsor. One
of the two products ‘Hakama’ is a selective herbicide whilst the other one ‘Pulsor’ is a
patented fungicide. ‘Pulsor’ is an exclusive tie-up with IIL whilst ‘Hakama’ was provided
by Nissan to Dhanuka Agritech (branded as Targa Super).
It also entered in a technical collaboration with US-based American Vanguard
Corporation (AMVAC) for the manufacturing and marketing of its product (NUVAN) in
India. Company is successfully expanding into specialized products segment through
tie-ups with many International Players, to take advantage of its distribution segment in
order to boast operating margins.
Entered into a Joint Venture (JV) with OAT Agrio, Japan
The IIL-OAT JV has set up a R&D Centre at Chopanki in Rajasthan. The JV would
mainly focus on research and invention of new agrochemicals. The total capex will be of
Rs. 40 Cr. with 20% contribution by IIL (around 8 Cr.) funded through term loans and
remaining by OAT.
IIL is the first company in India which is participating in generating new molecules. As
up till now, Indian Agrochemical companies have shied away from new molecule
discovery due to requirement of deep pockets, long gestation period and high
uncertainty of successful discovery. IIL has forayed in this space through JV to reduce
above risks.
Company will hold 30% voting rights in the JV and expects to register five new patents
in coming 2-3 years. Company got approval for one product patent and has filed for ten
process patents. IIL has been granted a patent for the preparation process of
acetamiprid, an insecticide to control pests.
Generally, even after registration, it requires 3-4 years to commercialize the operation of
products. Though commercializing a molecule takes time, IIL will immensely benefit
from the partnership as new molecules will enhance its product portfolio quality.
IIL and OAT will each have exclusive rights to develop and commercialize the products
across the world divided into their specific regions of access. IIL will also have the
opportunity to manufacture the products invented by JV for exports market. Since,
patented molecules earn substantially higher margin than generic products, it can lead
to overall margin improvement for IIL. Company is also open to CRAM business
opportunity due to the relationship and trust built-up with Japanese company and
already has facility to take advantage of any such agreement in future.
Large off-Patent Opportunity
Agrochemicals worth $ 4.1 bn (over Rs 26,000 Cr.) are expected to go off-patent by
2020. According to market intelligence firm CCM, during the period from 2017 to 2022,
the patents of 34 agrochemical active ingredients will expire. These active ingredients
include 15 kinds of herbicide, seven kinds of insecticides and 11 types of fungicides and
one safener.
Management is optimistic that they will successfully tap this opportunity and will try
being second or third player if not first to launch off-patent molecules. Company has
already indicated that they will double the launches from four to eight and are in the
process of getting those off-patent products registered in India as well as in other
markets. In fact, Management has guided that they will launch dozen of off-patent
molecules in fy19 itself.
Many Indian companies sell specialized products in association with MNCs. There is an
opportunity to sell molecules of specialized products to these companies once their
product molecules goes off-patent. CIB clarification on time bound registration of
technical after three years protection will also be beneficial for the company in coming
years. Once the technical become registered on which some companies are enjoying
exclusivity even after getting off-patent, IIL is planning to get me-too registration for
those molecules as well.
“Green Label” is one of the company’s successful off-patent products. The product has
emerged as a specialist of weed control in paddy and has the same molecule as Nominee
gold (Largest selling Rice Herbicide for PI) whose patent was earlier held by Japanese
giant Kumiai. The technical is Bispyribac Sodium and company was first in India to
manufacture this molecule to end the dependency on imports. Product has received a
very good market response and crossed 100 Cr. sales in FY18, where 60% is institutional
sale (sale of molecule to formulation companies) and 40% from brand sales.
Company’s strategy is to shift from generic molecules segment to off patent molecules in
coming years. Every time company launches new generation products, they discontinue
selling some generic products (commodity highly toxic “red triangle” labeled products)
having least contribution to revenue. This replacement process might cause some
revenue loss until new generation products earned better revenue than previous generic
product. Currently, there are 4-5 red triangle products of company contributing 15-20%
of revenues. Since, there is substantial opportunity for new generation products in
coming years, some revenue loss in short term should not be considered as a major
concern.
Cap-Ex plan in Dahej Plant
IIL has already invested Rs 2 bn for setting up facility for technicals as well as for
formulation in Dahej plant. The Dahej plant spread in 32 acres area has a capacity of
10000 MTS of technicals, 40 lakhs liters of EC, 2500 MTS of WDP and 12000 MTS of
Granules. Now, Indian government is restricting imports from china in order to
promote ‘Make in India’ regime. Company is planning to spend another Rs. 30 crores
for brown-field expansion of its technicals facility at Dahej. Company has also applied
for new facility in Dahej, which upon approval will be set up especially for technical
molecules. IIL imports 50% RM out of total RM imports (25% of total RM) from china.
In next fiscal, i.e., FY19 Company will set up a new plant (funded by internal accruals)
for catering to the increased demand caused by off patent opportunity and import
restriction from China.
More than 20 registrations are in process which will further improve capacity utilization
of technical plants. Ramping of Dahej plant will be critical given the amount of
investment is made by company. Management plans to manufacture high value
technicals (eg: Monocrotophos and rDiafenthuron) and expects backward integration of
several existing branded formulations would lead to improvement in margins as these
are high priced technicals.
Tapping Export Opportunity

IIL has also started focusing on export segment; it is planning to export branded
formulation and technicals to high growth emerging markets like Middle East, African
and South East Asian regions. Company finds that it’s difficult to enter USA and
European nations given the stringent registration requirements, so targeting emerging
nations would be more appropriate. They are working on data generation from last five
years which is required in order to register in other countries. Amount of around two Cr.
is spent yearly by company on data generation which is capitalized instead of expensed
directly in Profit &Loss Statement. Company is in process of forging tie-ups with the
local distributors and dealers of various countries to expand its reach.
Dahej plant is close to the port and is well suited to cater to the export markets.
Moreover, surplus capacity is available with company to fulfill any export demand going
ahead. Management in last con-call of Q3FY18 made a remark that they are expecting
export contribution around 400-500 Cr. to the top line in coming years. Currently,
exports stand at around Rs 35-40 Cr. with huge opportunity lying ahead as global
players are looking to tie-ups due to stringent environmental regulations in China and
availability of Indian players to serve their need at low costs.
Early mover advantage in Biological segment
Along with providing chemical solution for crop protection, the company is also slowly
expanding in Biological segment and has already set up a plant in UP along with
dedicated biological laboratory. Company launched its first bio-product in 2014 named
Mycoraja which is mycorrhizae based biological product, enhancing the absorption of
the nutrients through plant roots, and also provides drought tolerance and immunity
against diseases.
IIL has also recently launched another biological product, KAYAKALP. Kayakalp works
as a natural catalyst to improve soil’s organic capacity strengthen its nutrient value and
act as a health booster tonic for the soil that will help Indian farmers improve output.
Management is expecting sales of around Rs. 100 crores in next three years. Company
also got organic certificate for six products which company plans to launch in coming
years. This segment might help company to counter risk against rising popularity of
reducing usage of chemical pesticides. As IIL is one of the first companies in chemical
segment which has expanded into biological segment, company is certainly in lucrative
position to enjoy first mover advantage in future.
Product Portfolio: Company generally is depended on top 20-25 products which
they called Maharatnas. It includes both “Navratna’s” top selling 9 products of IIL
followed by next 11 products called “Super 11”. Company strategy is to introduce
different products under their Umbrella brands to leverage on the high brand recall
within the farmer community. Top five brands include Lethal, Victor, Thimet, Monocil
and Nuvan.
Top Selling Products
Brand Technical Product Application
Name Category
Lethal Chlorpyriphos Insecticide Lethal works on controlling sucking and chewing
20% EC insects on cotton. It also helps in controlling
insects in paddy & vegetables.
Victor Imidacloprid Insecticide Victor is used for controlling sucking pests,
17.8% SL hoppers and termites in cotton, paddy, vegetables
and sugarcane
Thimet Phorate10% CG Insecticide Thimet is used for control of chewing as well as
sucking insects on a wide range of food crops, oil
seeds, pulses, fiber crops, and horticulture crops.
Monocil Monocrotophos Insecticide Monocil is a generic insecticide used for a broad
36% SL spectrum of pests in a wide range of crops.
Nuvan Dichlorovos Insecticide Nuvan is a widely used generic insecticide to
76% EC control household pests and protect stored
products from insects.
Pluto/ Emamectin Insecticide It controls bollworms in gram, cotton, vegetable,
Xplode Benzoate5% SG pulses, and helps in increasing yields.
Hijack Glyphosate 41% Herbicide Hijack is a widely used variant for Glysophate
SL herbicide.
Pulsor Thifluzamide Fungicide Pulsor is a selective post emergent herbicide for
24% SC the control of a wide range of broadleaf weeds in
cereals, clover, new pasture and peas.
Hakama Quizalofop- Herbicide Hakama is a selective herbicide for grassy weeds
ethyl 5% EC (narrow leaf weeds) used in broad leaf crops like
soybean, cotton, groundnut, blackgram, onion,
jute and mentha.
Out of the above top brands, molecules sourced through International Collaboration
include Thimet, Nuvan, Hakama and Pulsor. Further, it has recently entered an
agreement with Nihon Nohyaku for exclusive distribution of SUZUKA (Flubendiamide)
which is an effective solution for control of pests in different crops like pulses,
vegetables and paddy. IIL plans to introduce one more brand HAKKO, an insecticide for
BPH in paddy crop in tie-up with Nihon.
Some products launched recently include:
Encounter –Insecticide applied for the crops like tea, pulses, cotton, and vegetables.
Aikido – Insecticide: This product is launched in technical collaboration with Nihon
Nohyaku, Japan. This product gives complete protection from brown plant hoppers
(BPH), white plant hoppers (WBPH) and leaf folder which destroy about 2530% percent
of paddy crop in the country every year. Applied for paddy and can also be used on
vegetables to get higher yields.
Hercules – Insecticide: This product largely applied for Cotton crop to protect from
sucking pest like white fly, Jassids & Thrips.
Sofia – Fungicide: It is especially useful for crops paddy, grapes, chilly, mango,
cucumber, rose, tomato, peas & cumin.
Company is confident of scaling up in-licensing arrangements leveraging strong
distribution network. They are also planning to launch 8-9 products in FY19, out of
which 6 launches will be from 9(3) segment and management expects that they will
boast EBITDA margins by around 250 bps in coming years. Management has guided to
launch 5-6 products on average every year for the next 5-6 years, out of which 75%
products will be 9(3). They are also planning to introduce product molecule combining
two different molecules which helps to serve more problems of farmers using single
product.
In FY18, Revenue Contribution from Branded Formulation Sales was around75%, out of
this 75%, ‘Navratna’ range of products accounted for around 64% while remaining 11%
is contributed by Super 11 range of products. Management is continuously striving to
increase the share of branded formulation and expected line up of 9(3) products will
definitely help to increase branded product share in coming years.
Punjab ban of Insecticides
Punjab Government has banned 20 Insecticides including Monocotophos (one of the
Navratna’s of IIL) in the list of insecticides harmful for environment. Under the
Insecticide Act 1968, State Govt. has suspended the pesticides for 60 days. After that
they will be sending a report to the Central Insecticide Board which will eventually take
a final call on the ban. According to Management, out of the 100 Cr. Market of Banned
products, company will take a hit of 10% i.e., 11 to 12 Cr. on top line in FY19.
Distribution and Promotion:
IIL has extensive distribution system with a network of 5000 distributors and 60,000
retail touch points with over 30 depots.
Company also get engaged in various on the ground farmer engagement activities like
company initiated a country-wide awareness drive for farmers under the name of
“Bhumi Kayakalp Abhiyan” (Land Rejuvenation Campaign), under which the company
aims to reach over 10 lakh farmers educating farmers about protecting and rejuvenating
the soil health.
It is also involved in activities like “Jagruta Abhiyan” and “Doctor Dada” campaign
educating farmers about the effective and efficient use of products catering to specific
crop related problems. Company has hired Actor Sunil Shetty as their brand
ambassador as company strategy of leveraging brand recall by launching different
products under same brands is well complimented by creating brand awareness through
Bollywood actor. Company has been spending around 14-16% of net revenues on sales
promotion and distribution expenses.
Sales & Distribution Expenses

% of sales
180 15%
160 15%
14%
140 14%
120
14%
Rs. Cr.
100
16% 14%
80
60
40
20
0
FY11 FY12 FY13 FY14 FY15 FY16 FY17
Ad & Sales Promotion Spend 72 75 88 120 134 145 165
Management and Board of Directors:

Around a decade ago, Mr. Rajesh Agrawal and his father sold their stake to his uncle for
a measly sum and built the company, Insecticides India from scratch, which has crossed
Rs 1000 crore revenues in FY17, and is among the fastest growing firms in the sector
with the aim of doubling the turnover to Rs.2000 Cr. in next 4-5 years.
Management is optimistic about prospects of company and has been on an expansion
spree from last few years. They also took a bold decision of setting up a R&D plant for
the development of new molecules indicating management aggressive nature for
achieving growth. Company also has a presence in home segment of pest control with
separate distribution network but is not very significant part of company’s revenues as
of now. The organization is also slowly adopting professional approach to managing a
company by creating specialized designations & hiring experienced personnel’s to
prepare for next level of growth.
Promoter and Promoter Group Holding is around 69% suggesting their confidence in
Business. IIL does not pay much dividend due to requirement of capital for expansion
purpose and has maintained around 10% dividend payout ratio from past five to seven
years.
Board of Directors
Mr. Hari Chand Chairman He has been a Director on our Board since 2001. He has
Aggarwal and Whole over 40 years of work experience in the agrochemical
Time Director industry. He has been the president of Northern India
Pesticide Manufacturing Association for more than five
terms.
Mr. Rajesh Managing He holds a bachelor’s degree in commerce from the
Aggarwal Director University of Delhi. He has over 22 years of experience in
agrochemical industry and handles day-to-day
operations of company.
Mrs. Whole Time She holds a bachelor’s degree in commerce from the
NikunjAggarwal Director University of Delhi. She has over two years of experience
in the field of agrochemical industry.Presently, she is
involved in general management covering almost all
aspects of day to day business activities.
Mr. Navin Shah Independent He has over 40 years of experience in the field of
Director manufacturing PVC compounds and plastics.
Mr. Virjesh Independent He holds a bachelor’s degree in commerce (honors) from

Kumar Gupta Director the University of Delhi. He has over 35 years of
cumulative experience as a consultant in the field of food
grains and retail sales of electrical goods.
Mr. Vinod Independent Mr. Vinod Kumar Mittal is highly experienced person in
Kumar Mittal Director the banking sector and he had taken a voluntary
retirement from the post of Chief Manager in State Bank
of Patiala, Zonal Office, New Delhi in the year 2005.
Mr. S. Independent Mr. Jayaraman Swaminathan holds a master’s Degree in
Jayaraman Director Science and a Diploma in Business Management.In 2008
he joined Sequent to work as Business Development
Advisor for Domestic and International markets. The
areas of work involved identifying new domestic and
international customers for active, formulations and
contract manufacturing for both pharma and veterinary
products.
Mr. Deepak Independent Mr. Deepak Gupta, aged 54 years, has experience of
Gupta Director more than 31 years in running own businesses,
marketing, distribution, manufacturing, HRD etc. in own
and corporate world as Senior Vice President Operations
at M/s Poly-medicure Ltd.Presently, he is participating
in Make in India programs and Skill India Mission
through coaching in small and Large Companies.
Moat Analysis

Management IIL Management has decades of experience in Wide moat
Agrochemical Industry. Management is quite
passionate about growing in all areas of agrochemical
segments and have been quite aggressive in giving
targets on public platforms but are successful in
achieving some if not all targets.
Management has also played a big role in turning

around the company and are very optimistic about
prospects of company.
Brand Recall Though some of the brands like tractor, Pulsor etc. are Medium moat
& Product very successful brands of IIL, but has weak brand
Portfolio recall compare to brands of other Industry Players.
Company has also gained some market share in last

few years thanks to their strategy of shifting focus from
generic to branded segment.
They are expected to introduce new products and

launch in-house molecule which will give lead to IIL
compared to its competitors.
Distribution Though distribution reach is not one of the best in the Medium moat
industry, IIL is continuously expanding its reach and is
in decent position to leverage their network.
In fact, company is all set to leverage through

introduction of biological segment products which
possess huge growth potential.
Mainly caters to North and South region, next to

expand in west & east regions.
Pricing Generic product doesn’t have much pricing power due Medium Moat
Power to presence of n number of players.
Management is continuously changing its product mix

towards branded segment showing some sign of
pricing power.
Research & Company is one of first to set up R&D center to Wide Moat
Development develop new molecules, along with separate R&D for
reverse engineering as well as for biological segment.
Insecticide India Ltd. - Common Size P&L Account

Expenditure
(Increase)/Decrease in Inventory -3.6% -8.9% 0.3% -5.9% -8.4% 0.9% -2.7% 3.8%
Other Expenses 18.9% 17.3% 17.2% 17.5% 17.7% 18.4% 18.8% 10.4%
Gross Profit 31.5% 31.4% 32.8% 30.4% 32.8% 31.9% 33.0% 28.9%
Other Income 0.0% 0.0% 0.0% 0.1% 0.1% 0.1% 0.0% 0.3%
Depreciation 0.3% 0.5% 0.9% 0.8% 1.5% 1.6% 1.4% 1.6%
Profit Before Tax 9.2% 8.2% 7.5% 5.6% 6.7% 5.1% 7.2% 11%
Total Tax 2.0% 1.9% 1.8% 1.0% 0.9% 1.1% 2.0% 3.2%
Profit After Tax 7.2% 6.3% 5.7% 4.6% 5.7% 4.1% 5.3% 7.8%
➢ Gross profit of IIL is lowest among its peers despite being backwardly
integrated into Technical segment. Though management is expecting
improvement in coming years with expansion in technical segment as still 25% of
total raw materials are imported.
• Earlier, company was only in branded generics segment not having much
pricing power which resulted in lower gross profits. Although from last few
years, there have been several launches in specialty products resulting in
some improvement in gross margins and IIL has also planned new
launches in specialty and 9(3) products in coming years which will further
boast gross profit margins.
➢ Employee cost has remained stable although company is continuously hiring

talented personnel’s especially for their R&D center for research purpose and
reverse engineering of molecules. It also has a sales team of more than 500
personnels for creating awareness and promoting brand at ground level.

distribution expenses. R&D spend is partially expensed and partially capitalized.
The machinery spending is capitalized while the usual R&D spend is expensed in
P&L which is not quite significant.
➢ Operating profits are poised to improve through launch of high margin

products in coming 1-2 years both in formulation & technical segments and once
operating leverage kicks in manufacturing plant with increase in sales.
Management has already given guidance of improvement in EBITDA margin by
250 bps in FY18-19.
➢ Depreciation is also continuously rising due to expansion in setting up new

plants.
➢ Finance costs also shown uptrend due inclusion of foreign currency losses in
interest costs as total debt also includes foreign currency loans along with
domestic debt to fund some expansions. However, it has been decreasing from
last two years and expected to show same trend in coming years as management
plans to reduce debt with increasing sales. Also, the recent expansions will be
done using internal accruals suggesting that there will not be any further increase
in debt.
➢ Revenue: Insecticide India Ltd. has grown its revenue at a CAGR of 13% from
last 8 years. Company clocks around 70% of revenue from Formulation segment
(B2C) and 30% from Institutional sales (B2B).
Net Sales
1,200 1,107
1,073
965 990
1,000
864
800
Rs. Crore
617
600 522
450
400
200
-

➢ FY14 sales saw significant improvement in sales growth due to good monsoons
where as last year’s sales growth has been mediocre due to poor monsoon.
➢ Insecticides contributes largest chunk with 60% of revenues coming from this
segment. The company has been trying to strengthen its herbicide portfolio
currently contributing around 26%.
➢ Fungicides are also the fastest growing segment accounts for 10% as of now while
the remaining 4% contributed by plant growth regulators & bio-fertilizers.
Though IIL has Pan-India presence, company derives most of the revenues from
North and South region with strong presence in these regions and with cotton
and paddy being their main crops.
➢ Company has been successful in growing revenues above the Industry growth
rate of approx. 10% and is mostly through price hike. Company’s decision on
revamping operation in direction of branded segments has worked quite well for
them and is expected to improve with line of new products to be introduced in
coming years. As there is still a lot of potential for improvement in revenues
through export contribution, launch of 9(3) products in coming years and
expansion in technical segment due to off-patent opportunities.

➢ Insecticide India Ltd. has equity of Rs 20.67 Cr. divided in 2.03 Cr. shares of Rs
10 each. The net worth stands at Rs 467.03 Cr. as on March’17.
➢ Company has total debt of Rs 115 Cr. Company has Interest Coverage Ratio of
9.30 suggesting company has 9 times EBITDA compare to interest payments.
Company is in fair position to pay off their interest and principal payments.
➢ The ROE and ROCE are 13% and 17% for FY17. ROE of company has been
showing declining trend from 21% in FY12 to 13% in Fy17.

Receivable Days 55 56 58 48 52 65 65
Inventory Days 93 108 120 106 124 129 119
Payable Days 78 79 84 74 82 88 73
Source: ratestar.in
➢ Working capital cycle of IIL is continuously getting stretched largely due to

increase in Inventories of raw material. According to management, working
capital will remain at same level or might increase as they are continuously
expanding in backward integration which might further stretch Inventory days.
At times, company provides discounts for aggressive sales which have led to
pressure on working capital with higher sales return.
Cash Flow: Company has a checkered history with respect to operating cash flows. As
OCF was not enough to fund the expansion, Company mainly funded through debt and
some through equity dilution. Improvement in WC cycle along with increasing profits
can help to increase operating cash flow in coming years.
Risks &Concerns:
Adverse currency movement: 25% of raw material costs are imported for IIL.
Hence, any sharp INR movement could impact the company’s earnings adversely.
However, company usually hedge around 25% of its currency exposure.
Regulatory Risks: Company is planning to launch new generation products and

waiting for registration approval. Also, company is planning to develop new molecule
which is a lengthy process and cost of registration is also very high. So, any delay in
approvals can hamper company’s sales in future.
Company is also registering molecules abroad for exports; any changes in regulatory
requirement might impact the company plan of aggressive export sales.
Investment Risks: Company has heavily invested in setting up Dahej Plant and
invested in JV for working on new molecules. Company needs to increase capacity
utilization of plant along with focusing on new molecules launch to generate sufficient
returns on investment.
VALUATIONS:
➢ At Rs 666, Insecticide India ltd trades at a:
Price-earnings ratio 16.40 Price to Sales 1.28

Source: screener.in
➢ Let’s try to calculate return by using Expected Return Model:

INSECTICIDE INDIA LIMITED
Net Profit (Rs Cr.) 32 33 35 40 55 39 58 84 15% 20%
Net Profit Margin 7% 6% 6% 5% 6% 4% 5% 7.3%
Return on Equity 21% 19% 19% 22% 14% 14%
Assumptions: -
Calculations
o Current market cap is above the discounted market cap which suggests that
market has fully discounted the optimistic growth in profits.
o So, if we invest at current market cap and hold for 10 years, we can earn a CAGR
of around 11%.
o Even if we take conservative CAGR in net profit of 8% over next 10 years,
discounted market value is Rs. 876 Cr. less than current market cap of 1377 Cr.
Conclusion: IIL has taken several initiatives which have resulted in significant sales
growth, but bottom line has not improved much due to high expenses and depreciation
due to capex. There are chances that once capacity utilization kicks in, company may
have significant improvement in bottom line along with new launches of specialized
products having high margins. However, at this time, expecting more than 12% growth
in bottom line may not be feasible given management has been claiming improvement
from last few years and are not reflected much up till now.
Rallis India Limited

Rallis India Limited is a Tata Group owned Agrochemical Company with more than 160
years of experience in servicing rural markets. Company has gone through many cycles
of diversification and divestments, and finally decided to focus on Agri-input business
with a comprehensive portfolio of pesticides, herbicides, fungicides and plant nutrients
for Indian farmers.
The Manufacturing facilities of Rallis India are located at five geographic locations
namely Akola, Lote, Turbhe, Ankleshwar and Dahej with a capacity of 10,000 tonne of
technical grade pesticides and ~30,000 tonne/litres of formulations per annum.
Areas of Business:
Domestic Formulation Business:
This segment caters to the crop protection and yield enhancement needs of the Indian
farmers including insecticides, fungicides, herbicides, and plant-growth nutrients
mostly through generic branded products. Company also has relationship with many
innovator companies which prefer Rallis as their distribution partner.
However, recent launches in last 3-4 years have not yielded much benefit to top line.
The company lost exclusivity on patented products which led to significant price erosion
coupled with tough competition from domestic generic players. Management is working
on building relationship with International companies for distribution tie-ups and also
planning to launch a dozen of products in the next five years.
• Plans for Backward Integration

With the environmental concerns looming large, the Chinese government has ordered
immediate shutdown of inefficient chemical plants. This development contributed to
significant demand-supply mismatch which led to a sharp increase in raw material
imports from China. As Rallis imported around 40%-45% of its Raw Material from
China which put undue pressure on its profit margins.
The company is now planning the backward integration of this chemical intermediates
to protect profit margins and is in the process of spending around a billion rupees for
backward integration of Agri-intermediate and CRAMS business segment which will
cater to pharmaceutical segment.
However, company will not be able to produce all molecules as there are certain
molecules which only china can manufacture because they control the RM of those
products. So, only those molecules where company can have an access will be
backwardly integrated.
Company is also open to partner with innovative companies for sourcing of RM (active
ingredients) for their formulation business to reduce dependency on China and
domestic suppliers in future.
Domestic Institutional Business:

This segment caters to the bulk and technical requirements of its institutional
customers. The company reverse engineers various off-patent models with relevant
market potential in the area of crop protection. Contribution of domestic Institutional
business to revenue is not so significant; however, backward integration of imported
molecules might not only help the company’s domestic formulation segment but can
also serve other domestic players as well.
International Business:
This segment handles exports of pesticides to all parts of the world with Latin America
and Africa being the key markets. The export basket includes technical-grade pesticides,
branded formulations and contract-manufactured products. Company’s International
Business was muted over the last few years due to shortage of rainfall in Brazil leading
to low acreages-a key market for company’s international business. Despite aggressive
pricing tactics employed by its competitors, the company managed to increase sales last
year primarily driven by gradually improving situation in Latin America especially
Brazil.
Growth in African and Asian markets is supported by the direct presence of holding
company i.e., Tata Group and opening of new offices abroad. Rallis had leveraged the
presence of Tata Africa, a subsidiary of Tata Group, to launch brands such as Contaf
Plus (blockbuster product of company) and Tata Panida (Pre-emergence herbicide) in
Nigeria. While in other markets like European & Latin America, company is trying to
build strategic alliance with key customers in order to boost sales. Company has also
applied for product registrations in different markets to sell their brands along with
alliances with international players. The pace of international registrations has
significantly increased over the last few years. However, the proportion of registered
product sales overseas to overall sales still remains low.
• Contract Manufacturing Business

Rallis is also into contract manufacturing business of generic technical molecules. The
rationale behind the setting of contract manufacturing in FY11 was that many Japanese
players were willing to partner with Indian players for contract manufacturing of their
products (diversifying ingredient base due to Tsunami disruptions) and European and
American players were already outsourcing from china but decided to diversify as they
don’t want to keep all eggs in one basket. Company can handle different types of
chemistries at Dahej plant which helped them to enter into Pharma Intermediate
segment in FY18 as well.
The Company commissioned its new CRAMS facility at Dahej in FY18 which will cater to
Pharma Intermediate customers and currently manufacture one molecule only. This (N
minus 2) molecule is a direct substitution for imports and has huge growth opportunity.
The capex incurred by the company is Rs 25 Cr. and expects to generate 2x asset turns
from the first year itself (FY19) i.e., can generate revenues of Rs.50-60 Cr. from this
Investment. The company will spend another Rs.25 Cr. in the CRAMS business for
another Pharma molecule.
Based on the success of Pharma CSM, Rallis will finalize plans to move more
aggressively in this segment. Given the higher margins potential in Contract
manufacturing than formulation business segment, this might prove to be major growth
driver of Rallis in coming years.
Product launched over FY14-FY18:

Year Products Product Category Crops
FY14 Plato Herbicide Soyabean
FY15 Origin Insecticide and Fungicide Rice
Duton Herbicide Rice
Hunk Insecticide Rice
Blend Fungicide Grape
FY16 Panida Grande Herbicide Cotton, Soyabean
Mark Herbicide Cotton, Soyabean
Zeeny Insecticide Okra
FY17 Summit Insecticide Cotton, Chilli, Soyabean
Epic Fungicide Rice
Neonix Seed treatment Groundnut, wheat
FY18 Cenator Fungicide Paddy
Pulito Fungicide Fruits and vegetables
Riceup Herbicide Rice
Odis Insecticide Paddy, Cotton, Chilli & brinjal
➢ Company is strong in millet, maize, pulses, and corn, cotton, paddy and
vegetables crops. Company consciously avoided the wheat segment as molecules
are already available at cheap rates so entering in the segment might not fetch
much return to company.
➢ Company has launched 14 products in last four years but their contribution to the
revenue is not significant. One of the reasons that products are not performing
well is lack of promotion activities by company on ground level. Moreover,
company has been strict with dealers for collection of receivables which has led to
dealer’s ignorance for company’s products. However, company has been
extending credit periods from last two years which has led to some improvement
in performance.
➢ In fact, company has lost market share to other players due to shift of focus in
other businesses in the past, stringent credit terms and not so successful product
launches. Company has been claiming re-acquisition of some market share in the
last two years.
➢ Continuous launches of branded products with ground level promotion along
with lenient credit terms to dealers are the key for company to improve domestic
agro-input sales.
➢ Management highlighted in Q4FY18 con-call that the company has at least 12
new products in its pipeline for launch in the next five years. Of these, five are
exclusive products, i.e., those in which Rallis will be either the sole marketer or
among a limited set of marketers under in-licensing or co-marketing agreements.

Other products in the pipeline are those developed in-house by Rallis.
➢ The management has also indicated that most of the newly launched products
have been well accepted by the farmers, although desired volumes are yet to be
achieved. Products such as Summit, Pulito and Epic have done well and will be
the growth drivers in the upcoming season.
Distribution: The Company has a wide distribution network with 2000 dealers &
40,000 retailers thereby covering around 80% of the Indian districts. The company has
over 25 depots with ~200 plus field staff and more than 1200-1300 crop advisers. Rallis
has presence in almost all key Agri states including Andhra Pradesh, Gujarat,
Maharashtra, Punjab and Haryana among others.

➢ The company got its name from Ralli brothers of Greece, who started a trading
business in England 2 centuries back (in 1815) which later was spread out across
the globe. Rallis India Ltd. went public in 1951 and in 1962 Tata group became
the major shareholder of the company. From 1962-63 fertilizer and
agrochemicals became dominant segments in its revenues. From being a trader,
Rallis ventured into manufacturing of agrochemicals in 1981.
➢ In mid 1990s Rallis closed down its various loss-making as well as non-Agri
business like textiles, cement, paint, etc. and started focusing on agrochemicals.
It also expanded its operations internationally, mainly US, Europe and Asia. It
has also extended its business domain to include seeds and specialty fertilizers.
➢ Rallis is a Tata Group entity where Tata chemicals (holding company) own
50.06% of Rallis. Rallis is a professionally run organization where currently Mr.
V Shankar is holding the reins of company as Managing director and CEO.
➢ Dividend payout ratio has also been in tandem with profits and has been greater
than 25% from last five years.
Shareholders with more than 1% of equity:
Name Holding % as on Mar’18.

Rakesh Jhunjhunwala 6.44
Hdfc Standard Life Insurance Company 3.33
Limited
Jhunjhunwala Rakesh Radhe-shyam 3.23
Hdfc Trustee Co Ltd. 2.8
Franklin India Smaller Companies Fund 1.92
Icici Prudential 1.91
Sundaram Mutual Fund 1.44
Sbi Magnum Tax gain Scheme 1.29
Aditya Birla Sun Life Trustee Private 1.16
Limited
Source: valueresearchonline.com
Board of Directors
Bhaskar Chairman Mr. Bhaskar Bhat, B.Tech, PGDM, has been Managing Director
Bhat of Titan Company Limited since April 1, 2002 and also serves as
its Chief Executive Officer. He has been Chairman of the Board at
Rallis India Limited since December 25, 2015. Mr. Bhat has
completed his Post Graduate Diploma in Management from
Indian Institute of Management (IIM), Ahmedabad in 1978 and
has received a B.Tech in Mechanical Engineering from IIT, 1976
V. Shankar Managing Mr Shankar (CA, CWA, CS and LLB) has an experience of almost
Director & CEO. 30 years across various fields related to chemicals and fertilizers.
He moved to the Tata Group in 2004 and is spearheading their
Agri-related businesses.
Prakash R. Independent Mr. Prakash Ranjan Rastogi served as a Vice Chairman and
Rastogi Director Managing Director of Clariant India Ltd. Mr. Rastogi had
been with Sandoz India from 1974 till 1994 when he was
Vice President and Head of the Chemicals Division before it
was de-merged to become Clariant.
Bharat Non- Mr. Bharat Vasani serves as the Group General Counsel of Tata
Vasani Independent, Group. Mr. Vasani served as Group General Counsel of Tata Sons
Non-Executive Limited for 17 years until July 2017. He is a Member of the
Institute of Company Secretaries of India. He holds B. Com., and
L.L.B.
R. Non- Mr. Ramakrishnan Mukundan, B.E.(Elec), MBA, has been the
Mukundan Independent, Managing Director of Tata Chemicals Limited since November
Non-Executive 2008 and also serves as its Chief Executive Officer. During his
18-year career with Tata Group, he has held various
responsibilities including strategy & business development,
corporate quality, corporate planning, etc. across the Chemical,
Automotive and Hospitality sectors of the Tata Group.
Y. S. P. Independent Dr. Yashwantrao Shankarrao Patil Thorat, Ph.D., served as the
Thorat Director. Managing Director of National Bank for Agriculture and Rural
Development since 2004. Dr. Thorat holds a Doctorate in
Economics and a Degree in Political Science and Law.
Punita Independent Dr. Punita Kumar Sinha, Ph.D., is the Founder and Managing
Kumar- Director. Partner of Pacific Pacific Paradigm Advisors, LLC. Dr. Kumar-
Sinha Sinha has a Ph.D. and a Masters in Finance from the Wharton
School, University of Pennsylvania. She received her
Undergraduate degree in Chemical Engineering from the Indian
Institute of Technology, New Delhi and M.B.A. degree from
Drexel University, Philadelphia.
C. V. Independent Dr. C. V. Natraj, Ph.D. has been a Senior Vice President of
Natraj Director. Corporate Research in the Strategy and Technology division at
Unilever since September 2000. Dr. Natraj has more than 30
years of experience in research.
Mrs. Independent Mrs. Padmini Khare Kaicker serves as a the Managing Partner of
Padmini Director. B. K. Khare & Co., one of the leading and respected Indian
Khare Accounting Firms, serving the profession for almost 5 decades.
Kaicker
Moat Analysis

Management Rallis is professionally run organization having a team Medium moat
of experienced personnels as top Management. Tata
Group has managed to build strong team and hire
professionals from time to time in order to manage the
business successfully.
However, company in past has made some capital

allocation mistakes which penalized them in terms of
losing market share in Agro-segment. However,
company has realized and is now focusing on their core
business.
Brand Recall Company is mostly into generic products packaged in Narrow moat
& Product Rallis brand which has served well in the past because
Portfolio of brand image of Tata Rallis. However, in recent time
company has faced tough competition by generic
players (red triangle products) selling at much lower
prices and farmer down trading to those products due
to low farm incomes.
Company branded products does not contribute much

to revenues and Rallis also has failed to launch any
blockbuster product in last few years. However,
company is planning few new launches in coming
years which might augur well for company in future.
Distribution Company is facing trouble in gaining distribution Narrow moat

strength lost in the past due to shift of focus from
agrochemicals. Distribution network is relatively weak
compared to its peers in the Industry.
Pricing Company was not able to pass price hike in RM due to Narrow Moat
Power shutdown of plants in china as they are mostly in
generic segment facing tough competition from other
players.
Research & Company focuses on reverse engineering process of Wide Moat

Development technicals and has expertise in various chemicals
which has helped company to enter contract
manufacturing of Pharma intermediary segment as
well.
Financial Analysis
Rallis India Ltd. has grown its Revenue at a CAGR of 5% from last 8 years. Company
clocks around 68% of revenue from domestic business and 32% from exports.
Net Sales
1,800
1,600 1,531 1,518 1,499
1,400
1,400 1,324 1,288
1,181
1,200 1,067
INR Cr.
1,000
800
600
400
200
-
Source: annual report (Standalone figures)
➢ Company’s revenues are mostly driven by volume growth in domestic and

International business. Company has registered double digit growth in
international business due to improved situation in Brazil and other international
markets in FY18.
➢ Rallis’ stagnating portfolio and lack of new differentiated launches are exposing
its existing portfolio to competitive threats from top line-focused generic players;
the prices of generics from these peers are 15-20% lower than that of Rallis and
these generics are eating into Rallis’ flagship 5-6 year old products. This has
impacted the top line and company’s revenue growth has been lagging its peers
significantly.
➢ Rallis benchmarks its performance through an internally defined parameter
called Innovation turnover Index (ITI) which measures the contribution by new
products introduced in the last four years to the revenue of the present year.
Innovation Index which decrease to 7% from 11% in FY17 again rose to 10% in
FY18 showing some sign of improvements.
➢ Company is also expecting double digit growth in export segment in coming year
due to better monsoon situation in Brazil. Domestic business segment might also
show some improvement due to line up of product launches in coming years.
Rallis India Ltd. - Common Size P&L Account
Expenditure
Cost of Raw Material Consumed 54.2% 52.6% 51.8% 51% 49.1% 48% 46.4% 47%
(Increase)/Decrease in Inventory -3.7% -0.3% 1.8% -2.4% -2.1% -0.2% 2.5% -4.9%
Employees Benefit Expenses 6.5% 6.8% 5.9% 5.8% 6.8% 8% 8.1% 8.4%
Other Expenses 16.8% 16.5% 15.7% 17.1% 17.8% 18.8% 17.2% 18.7%
Total Operating Expenditure 82.2% 83.3% 84.6% 83.8% 83.3% 84% 83.2% 84.9%
Gross Profit 41.1% 40% 37% 39% 41.3% 42.8% 42.1% 42.1%
Operating Profit / EBITDA 17.8% 16.7% 15.4% 16.2% 16.7% 16% 16.8% 15.1%
Other Income 1.3% 0.6% 0.9% 0.4% 0.1% 0.4% 0.8% 0.6%
Depreciation 1.6% 2.3% 2.2% 2.3% 2.9% 2.9% 3% 2.7%
Profit Before Interest & Tax (PBIT) 17.5% 15% 14.1% 14.2% 13.8% 13.4% 14.5% 13%
Exceptional Income / Expenses 0% -1.5% 0% 0% 0% 0% 11.3% 0%
Current Tax 4.8% 3.2% 2.9% 4% 3.7% 2.8% 5.7% 3.3%
Other Taxes 0.6% 0.9% 1.2% 0.1% 0.3% 0.3% 1% 0%
Profit After Tax 11.8% 8.6% 9% 9.6% 9.6% 9.8% 19% 9.5%
Source: annual report (Standalone figures (from FY15 Ind AS))
➢ Gross profit has been impacted because of increase in prices of active

ingredients at domestic and international level because of Chinese plant
shutdowns, increase in prices of derivatives of crude oil, bromine and chlorine
which are used for some molecules and currency depreciation.
• Company was not able to pass price hike of RM on all products to farmers
due to their low farm incomes and unfavorable monsoon. However,
Company is planning to gradually increase the prices of products and did
pass on some price hike in December and January as well.
➢ Employee cost has increased as company continuously hires talented

personnel’s especially for their CRAMS business. Company is building strong
team for their R&D centre and also hiring field staff and crop advisors to increase
awareness about agro-products among farmers.
➢ Other expenses are stable which includes mainly manufacturing,

administrative and selling & distribution expenses. FY18’s other expenses were
increased due to GST settlement, whereby the company received reimbursement
for 60% opening inventory while it had to write down 40% of the balance
amount.
• In FY16, Company has also commissioned 4 megawatt solar power plant

for captive consumption of two factories situated in Gujarat- in Dahej and
Ankleshwar with capex of around 30 Cr. The rationale was to gradually
decrease the consumption of grid power and in turn decrease the cost of
fuel and power for company.
➢ Operating profit in FY18 was impacted due to one-time expense of GST

settlement, Forex losses, and expected credit loss provisioning under IndAS.
Apart from that, Margins has remained fairly stable in last few years.
➢ Exceptional item in FY17 comprises profit of Rs.158 Cr. on assignment of

leasehold rights to a plot of land in the MIDC Area, Turbhe, Navi Mumbai. The
company uses the proceeds for special dividend, some amount invested in
Pharma Capex and balance 80-100 CR. has been parked for future requirements.
➢ Rallis India has equity of Rs 19.45 Cr. divided in 19.45 Cr. shares of Rs 1 each. The
net worth stands at Rs 1125.40 Cr. as on March’17.
➢ Company has debt of 21.55 Cr with debt to equity ratio of 0.02. So, can consider it
as almost debt free. Rallis also holds Rs 7.13 Cr. in cash & 209 Cr. in current
Investments as on Mar’17.
➢ The ROE and ROCE are 14.32% and 39.31% for FY18.

Year FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Receivable Days 28 28 32 33 40 53 50 67
Inventory Days 59 67 63 59 69 89 82 98
Payable Days 96 91 75 71 71 83 85 100
Cash Conversion Cycle -8 5 20 21 37 60 47 64
Source: ratestar.in
➢ Rallis is in one the few companies having shortest cash conversion cycle.
Management has been quite focused on maintaining their working capital but
sometimes their conservative approach has made the dealers less enthusiastic while
pushing their products in the market.
➢ However, working capital days increased sharply in FY18 due to higher inventory
days as company decided to stock up on raw materials in anticipation of possible
shortages caused by supply-side constraints in China and increase in closing
inventory of finished product due to farmer down-trading in difficult Industry
environment.
➢ Receivables also went up due to cash crunch among farmers and longer credit period
allowed to institutional players. Management is planning to bring the WC days to
normalcy level in upcoming fiscal.
Free Cash flow of Company:
Source: annual report (Standalone figures)
➢ In Fy18, free cash flow was negative due to low PAT and high working capital
requirements.
Risks &Concerns:
➢ Poor or delayed monsoon: Rallis’ business is highly dependent on strong
farm incomes which in-turn is dependent on good, timely and evenly distributed
monsoon.
➢ Adverse currency movement: 40% of raw material costs are imported from
China for Rallis India ltd. Hence, any sharp INR movement could impact the
company’s earnings adversely.
➢ Increase in crude oil prices: Many Molecules are dependent on derivative of
crude oil, so increase in crude oil prices will negatively impact the company’s
gross margins.
➢ Overseas regulation: Rallis is registering its products in the overseas market.
Stringent regulations by the respective countries can affect the company’s growth
adversely.
VALUATIONS
➢ At Rs 186, Rallis India ltd trades at a:

Estimated Market value of other Business Segments: - Estimated Market value

of other Business Segments: - Rallis has presence in seed segment and also
manufactures organic compost through its subsidiaries Metahelix Life Sciences Ltd. and
Zero Waste Agro-Organics Ltd. PAT for the combined subsidiaries was 25.53 Cr. in
FY18. If we take a multiple of 20, current market cap of other business segments stands
at around Rs. 510.6 Cr.

Assumptions: -
Calculations
Current Market Cap (standalone basis) (Rs Cr) 3123
market has fully discounted the expected optimistic growth in profits.
of around 11 %.
Cr. (estimated market cap of standalone business segment as total market cap of
company is 3634 – 510.6 estimated market cap of other business segment =
3123.4)
Conclusion: Rallis Management is making efforts to turnaround the company’s

prospects and has showed some sign of improvement from FY17 in terms of
performance and gaining some market share. But, their inability to pass recent price
hike in RM, high share of generic portfolio and failure to regain distribution strength are
some worrying factors. However, Contract manufacturing of Pharma Intermediate and
export business growth opportunity due to large patent molecules going off patent till
2020 might help company to achieve above Industrial growth rate in coming years.
PI Industries Limited
Introduction
PI Industry is one of the largest players in the Indian Agrochemical industry. The
company is among the very few players in the industry to have transformed from a pure
play domestic agrochemical player to a company with significant presence in the CSM
space. The company operated in two major business segments which include Agri
Inputs and Custom synthesis. The Agri input business offers plant protection and
solutions while custom synthesis is production of agro chemicals, intermediates and
other niche chemicals for global innovators.
With strength of over 2000 employees, the company currently operates in a strong
infrastructure set-up consisting of three formulation facilities as well as eight multi-
product plants under its three manufacturing locations at Panoli (near Ankleshwar) and
Jambusar (near Bharuch) in Gujarat and Jammu in J&K.
PI industries have three subsidiaries:
➢ PI Life Science Research Ltd: is the R&D arm of the company.

➢ PI Japan Company Ltd: is the marketing front office of the company in Japan.
➢ PI Finance & Investment Ltd: is the investment subsidiary.
Joint research centre with Sony Corporation: The Company opened a joint
research centre in 2010 with Sony Corporation for development of commercially viable
processes for molecules invented by Sony. Research would be in the field of electronic
chemicals.
Deal structure: The Company has assigned a dedicated lab to the Sony project. The
hardware assets are invested by PI industries while the soft assets are the joint property
of both the companies. Company gets a fixed fee during the process research and scale
up period. Once CSM manufacturing starts, arrangement shifts to normal contracts
model between the companies. The IP belongs to Sony but if PI makes any process
improvements, then the IP is jointly owned.
JV between PI and Mitsui Chemicals: PI industries and Mitsui Chemical

established a JV company namely SOLINNOS Agro Sciences in India in 2016 with 51%
stake held by Mitsui Chemical and remaining by PI Life Science Research Ltd- PI
Industries subsidiary. The rationale behind the JV is to enhance PI product Portfolio
and to strengthen its foot holding as Mitsui's has capability of delivering innovative
agrochemicals which can help PI to leverage strong distribution network in India. Mitsui
is a Japan based company with turnover of USD 15 billion and has business presence in
Japan, Europe, China, Southeast Asia and the USA. This newly formed JV will provide
registration services for Mitsui proprietary agrochemicals and intends to leverage PI's
deep understanding of Indian agriculture, farmer needs, regulatory systems, etc. This tie
up will further strengthen collaboration between the two companies and help them to
bring innovative solutions in India in order to enhance the farm productivity.
Journey so far:
• PII was set up by the late Mr. P P Singhal in 1947 , as an edible oil refinery unit
which was closed fown later.
1947
• The company started its agrochemicals operations in 1963which is currently its

major revenue driver.
• The company then started its own distribution under the VEGFRU brand in the
1960s late 1960s, catering to the north-west states of Rajasthan, Gujarat, Haryana and
Punjab.
• The company also gradually started to invest in R&D. In the 1970s, distribution
expanded further into West Bengal and the southern states.
1970s • Diversified into mining, later hived off into separate company .
• The company which used to just do formulations till the early 70s, eventually
started manufacturing active ingredients by 1980 with indigenous R&D. n the
1980s.
• In 1978, the company diversified into mining and mineral processing; this
1980s business was later hived off into a separate unlisted company, Wolkem India
Ltd.
• It entered the polymer compounding and CSM business during 1995.

• Name changed to PI Industries Ltd from Pesticide India in 1993.
1990s • Set up manufacturing site at Panoli.
• It moved to the SAP system. PI expanded its Udaipur R&D facility and also
established PI Life Science Research.
• Set up New multi product plants for Fine Chemicals in Panoli in 2008.
2000s • Inauguration of PI-Sony Research Center and Launch of Nominee Gold in 2010.
• Divestiture of Polymer Compounding business in 2011.

• Commenced commercial production at newly commissioned unit at Jambusar
SEZ in 2013.
• Commenced commercial production at the second unit at Jambusar SEZ in
2010s 2015.
• Commenced commercial production at the third unit at Jambusar SEZ in 2016.
• Formed strategic alliance with BASF, Germany in 2017.
Custom synthesis Segment:

The company provides Custom Research (CR) and Custom Manufacturing (CM) services
to innovator companies across the globe. These services include research and
development services, manufacturing services, evaluation and field trials of Agro-
chemicals and finally sales & distribution services.
Non-Compete business model attracts more customers
The company signed its first CSM contract in 1997-98. In the initial 4-5 years, the size of
the projects used to be small as the MNCs were quite reticent about their products
because they knew that without any patent protection laws, their registration and
product data is open for everyone to replicate. However, 2005 was a landmark year for
this business with India becoming a signatory to the WTO Patent & IPR treaty, and
patent laws being framed in India. Since then, PI started getting larger project enquiries
from Global MNCs. PI has gained respect of global innovators for keeping secure their
confidential data and intellectual property. PI never tried to reverse engineer a single
molecule and hence has emerged as a trusted partner for global MNCs.
Involvement in early stage of Lifecycle
PI is involved in the manufacturing of the molecule from the very early stages of its
lifecycle. The company is not directly involved in inventing any molecule- that part is
handled by the global MNCs. PI’s expertise lies in product’s process research so as to
manufacture the molecule with high yield and ensure timely delivery of the product.
The process research especially in early lifecycle of a patented molecule is a unique

competency since in early stage the molecule delivery channel is highly volatile and
therefore takes a time of 6 months to stabilize. Once stabilization is done only after that
delivery can start. Once that happens the yields improve substantially and delivery off
take picks up.
Company work on fee-based structure during process research and scale up stage, but
these stages are treated by company as investment phase because volumes are generally
10 kg and can move up to 1 tonne as scale up happens. But once the commercialization
begins, volume size moves from 50 T to 200 T in a rapid manner.
The CSM contracts are typically signed for 4-5 years which are renewed generally. The
patent life of molecule is generally 20 years. Typically the first 6-7 years are consumed
in getting regulatory approvals and processes in place. So, productive life cycle of a
typical molecule is 12-13 years. The first 6-7 years are good growth years for the
company.
Take or Pay contracts to avoid risks
These are largely take-or-pay contracts wherein delivery times might vary as per
demand but revenues are in general assured over the executable period. Hence there
might be phases wherein one can see muted growth or de-growth in particular year but
the same get compensated by aggressive growth in subsequent year(s).
De-risked Business Model
PI Industry is associated with the global innovators since the early phase which makes
them a partner rather than a mere supplier thereby de-risking its business model to a
great extent. Another interesting aspect which de-risks the PI’s CSM segment is the fact
that the company is the only or one of the two suppliers to most of its customers. CSM
contracts also cover the fluctuations of raw material, currency as well as low delivery off-
take Hence, the only risk that remains with PI is the delivery risk which is taken care of
by the professional and efficient management.
Little Incentive for Innovator to change Supplier
While registering their product in a country, the innovator is required to mention the
company which is expected to supply the Active Ingredient. The process involves tedious
paperwork and the company has to abide by numerous norms to get the approval. Once
a company secures the title of an ‘Active Supplier’, it is highly unlikely that the innovator
would switch as it is quite a cumbersome process. Also, the process efficiency of
molecule kicks in with more experience. Once PI industries becomes their trusted
partner, it is highly unlikely that the MNCs would not risk disturbing the working
combination as any change will set them back by a few years.
Expecting Revival of Global Agrochemical Industry
Currently, PI is involved in Active Production of 25 molecules and 15-20 molecules are

in the R&D pipeline. After a multi-year run since 2009, the agrochemical industry is
witnessing a significant slowdown from 2015 which had a noticeable impact on PIs
topline as well. Now, with the expectation of revival in the global agrochemical industry,
there will be increased off-take of commercialized molecules and such increase is not
covered in order-book but is normally booked under fresh annual contracts.
Competitive Scenario
As far as competition goes, there are no domestic competitors for PI and the current
order-book is established by PI by winning orders against Saltigo, Lonza and DSM - all
global majors in CSM space. The domestic Agro-chemicals market is characterized by
the high levels of price based competition for generic products. This segment however
requires far more resources to develop products for Indian conditions, seed them and
then grow the volumes in the domestic market. The upside is that the returns on these
investments are much higher than the generic space.
Tapping Opportunities in Non-Agro segments:
Although the CSM order book is heavily loaded in favor of the agrochemical molecules.
The company is looking to tap lucrative opportunities in specialty chemicals, electronic
chemicals (JV with Sony), pharma intermediates etc. The size of the non-agro segment
is manifold larger than the current size ( USD 5 billion) of CSM space. The company’s
new expansions are targeting molecules in these segments (like setting up of two
dedicated plants to individual molecules in Jambusar (near Bharuch) in Gujarat and
further development of new R&D centre at Udaipur) which are considered to be
potential next growth driver of PI CSM Business segment. Company is also planning for
opening of two new multi product plants in FY19 with a Capex of 225-250 Cr.
commissioning of both plants expected by end of December-January FY19.
Domestic Agri-input Business:
By the turn of the century, PI Industries had two different strategies to scale up its
business:
1. Continue to grow its Agrochemical generics business which would involve

investing in creating larger capacities, expanding to other markets and locking
horns with global MNCs with cheaper generics. OR
2. Embark on an unchartered path i.e. identifying gaps in the offerings in the Indian
markets, analyzing which MNC does not have a presence in the Indian
subcontinent, strike up exclusive marketing rights with them, leveraging the
strength of its distribution reach thereby creating a win-win situation for both the
MNCs and themselves.
PI’s management took a strategic call of reducing its dependence on the generics export
business as it might meet significant roadblocks due to increased awareness against
agrochemical side effects, contamination of water, toxicity etc. Thus the company
decided to shift its focus towards innovative agrochemicals and a symbiotic model with
global MNCs.
• There are three Product Categories –

1. In-licensing of newly launched/patented molecules by innovators
2. Co-marketing partnerships with multi-nationals
3. Manufacturing & marketing of select branded generic products
1. If the management feels that CSM innovative molecule also has a market potential in
India, then it enters into an in-licensing arrangement with the respective global
innovator company which enhances revenue streams for both the companies. The
success of this Agri-input business model is evident from the performance of PI’s
flagship brand Nominee Gold, a rice herbicide, which was brought to India by PI via
in-licensing arrangement with Japan’s Kumiai Chemical.
2. Company has adopted strategy of co-marketing arrangements for Nominee Gold with
a few MNC players. In return MNC also gives Company an access to some of their
brands for co-marketing. Company also entered into a strategic tie-up with BASF,
Germany, one of the leading chemical companies to market their innovative fungicides
and herbicides in India. Company already launched four new products in FY18 in
collaboration with BASF.
3. Company initially started their operations in branded generic segment. However, with
passage of time, their contribution to sales has reduced due to shift of focus to in-
licensing products. Still, company has some products like Foratox, Fosmite, Roket, and
Carina which has been the largest brands in India in generic category.
Product Portfolio:
Year Products Category Innovator/ Tie-up Crop

FY10 Nominee Herbicide In-licensed (Kumiai) Rice/ Paddy
Gold
FY12 Oval Insecticide Branded generic Cotton, Safflower
Wicket Herbicide Branded generic Wheat
Clutch Fungicide Co-marketing Tomato, Potato, Grapes
Sanipeb Fungicide Co-marketing Horticulture crops
FY13 Osheen Insecticide In-licensed (Mitsui) Paddy
Voltage Insecticide Co-marketing Brinjal,Tea,Apple,Chilli
Fluton Insecticide In-licensed (Nichino) Cotton, Cabage, Tomato, Rice
Cuprina Fungicide Co-marketing Grapes, Mango
FY14 Melsa Herbicide Branded generic Wheat
Pimix Herbicide Co-marketing Paddy
FY15 Keefun Insecticide Branded generic Horticulture
Bunker Herbicide Branded generic Wheat, Rice, Cotton, Soybean
FY16 Vibrant Insecticide In-licensed (Nippon) Rice
Biovita X Plant Nutrient In-licensed Horticulture
Perido Fungicide Rice, Wheat
FY17 eLegaceef Herbicide Co-marketing (Bayer) Maize
Fender Fungicide Rice
FY18 ELITE Herbicide Co-marketing (Bayer) Maize
Header Fungicide Co-marketing (Bayer) Rice
Some of company’s significant brands like Nominee Gold, Osheen, Biovita, Cuprina,
Roket, Foratox, Kitazin, Keefun, and Vibrant have built a strong association with
farmers and a strong recall value in the minds of our consumers. Company’s product
portfolio is caters to mainly rice crops followed by cotton, fruits and vegetables.
Some key products:
Nominee Gold: PI introduced post emergent herbicides such as Nominee Gold for the
rice crop in India in FY10. All post emergent herbicides present in the market could
tackle much lesser number of weeds at best 5-6 than what Nominee Gold could tackle
i.e., 20-30 weeds/grass that usually grow around the rice plant in any one location.
However, Nominee gold patent has expired and other Industry players have launched
generic version like Insecticides India’s product “Green Label” which resulted in low
contribution to sales of Nominee Gold in FY18. Company will start manufacturing
molecule of Nominee Gold till now imported from Kumai under the JV with Mitsui.
Osheen: - Osheen is a 3rd generation systemic insecticide invented in Japan by Mitsui

Chemicals Agro Group (MCAG). OSHEEN has been trusted as a most reliable solution
to effectively manage the Brown Plant Hoppers in Rice for number of years in the
leading Rice growing countries. It has also been tested and recommended by leading
agriculture research institutes of Govt. of India on Rice crop and Cotton crop. The
product competes with the likes of ‘Applaud’ from Rallis and ‘Confidor’ from Bayer Crop
science.
Vibrant: - Vibrant is a new granular insecticide having systemic and contact activity for
effective control of stem borer and leaf folder in Rice crop having a potential market of
INR 13b. Product has performed well due to its high level of efficacy compare to other
insecticides available in market targeting single pests.
Biovita: - Biovita is based on seaweed Ascophyllum nodosum. It enables plants to

receive direct benefits from the naturally balanced nutrients and plant growth
substances available in seaweed extract. Bio-Vita is the largest plant nutrient brand in
India with an immense penetration potential going ahead.
The 5 new products that were launched in the domestic market in FY18 have all been
well accepted by the farmers. The company also plans to launch at least three new
products in FY19 (wheat herbicide, rice insecticide, and vegetable insecticide).
Divestiture of Polymer Compounding Business:
PI’s strategy of focusing on its core business of Agri-inputs and CSM is evident with the
divestment of its polymer business to Rhodia, S.A. As the polymer business was not
fitting in well with the growth strategy going forward. PI received around 70 crores from
this business which was utilized in reducing the debt from its balance sheet and funding
its core business activities. PIL has booked exceptional gain of 30 crores on sale during
FY12.
The deal concluded in April, 2011 includes transfer of all assets, people, plant facility, R
& D capabilities, customer base and logistic network in India. The polymer business
witnessed significant pressure on margins because of input-cost pressures. Post this
divesture, PIL is completely focused on both high margin and highly scalable
businesses.
Distribution: PI has a strong marketing and distribution network which covers more
than 40,000 retail points and 10,000 distributors/direct dealers across all major
agricultural nodes. The company is particularly strong in the north, west, and east
regions.
SAP tool used to forecast demand
Company has developed in house SAP toll which is used for forecasting demand of the
product across regions. Each of the 140-150 territories is assigned a manager who
meticulously assesses demand from his region on various parameters like type of crop,
total acreage, planting practices, products available in the market etc. SAP tool has
proved instrumental to company’s planning process.
Research & Development Centre
R&D plays an important part in generating revenues under the CSM business segment.
PI’s R&D is involved in synthesis and development of new molecules in agrochemicals,
fine chemicals, specialty chemicals and photographic chemicals - end products as well as
intermediates on the basis of in-house research. Company believes that Technology will
be the key differentiator going forward so they are Augmenting R&D capabilities. R&D
facility is spread in 125,000 sq. ft. in Udaipur, with over 250 scientists in fully
operational state.
Company is involved in Process research where R&D costs are quite low compare to
innovation research facilities. Therefore, an annual spend on R&D is around 2-3% of
Revenues. Out of this spending, 60% is usually spent on boasting long term capabilities
and remaining on functional operational requirements of company.
Management & Board of Directors

➢ The promoter (Mr Salil Singhal) family had 3 sons, in a joint family structure.
➢ The three heirs of Singhal empire manage the following businesses:
o Arvind Singhal ( Mining Business- Wolkem India Ltd )
o Sanjaya Singhal (Energy metering business )
o Mayank Singhal (PI Industries Limited)
➢ There are no cross holdings or linkages between the different groups.
High Promoter Holding:

➢ Promoter holdings are 51.45%, suggesting their confidence in business. Company
started paying dividend from 2010 but dividend payout is not much generally less
than 12%.
➢ Due to capital Intensive nature of business, Cash flow to be invested back in business
instead of returning back to share holder.
Mr. Salil Singhal got retired giving the reins of PI Industry to his son Mr. Mayank
Singhal. PI Industry is a family run organization with Professional management at
senior level. Company is focused on their two Business Segments mainly catering to
Agrochemicals. Mayank Singhal, CEO and Managing Director played a crucial role in
setting up their CSM business segment which differentiates company from all other
players in Industry
Board of Directors

Mr. Narayan Independent A Qualified Chartered Accountant started his career with Arthur
K. Seshadri Chairman Anderson. He subsequently joined KPMG and rose to become
Managing Partner of the Business Advisory Practice of the firm in
India. He possesses expertise in strategic planning, good
management practices and financial engineering.
Mr. Mayank Managing With over 20 years of experience in the Agrochemical industry,
Singhal Director & Mr. Mayank Singhal heads PI Industries as the MD & CEO. An
CEO engineering management graduate from the UK, he served the
Company’s interest across various positions and steers the
company’s growth setting the vision, driving business strategy,
nurturing global relationships and Corporate Governance.
Mr. Rajnish Executive A qualified Chartered Accountant, Mr. Sarna brings with him a
Sarna Director diverse experience of over 25 years in areas of business
development & strategy, customer relationship management,
operations, finance & risk management, legal contracting &
compliances, investor relations, corporate planning & reporting,
information technology & process reengineering etc
Mr. Arvind Additional An entrepreneur, possess rich Industry experience of more than 4
Singhal Director decades spanning across various industries like mining & mineral
processing, agro-chemicals and specialized chemicals, Electronic
Metering System etc. Mr. Arvind Singhal is currently holding the
position of Managing Director in M/s Wolkem India Ltd.
Mr. Pravin Independent Mr. Pravin K. Laheri (IAS, Retd., Gujarat cadre) has served the
K. Laheri Director Government of Gujarat in various capacities including District
Development Officer, Director - Cottage Industries, Joint
Secretary (Education Department), Industries Commissioner,
Principal Secretary to five Chief Ministers of Gujarat, Principal
Secretary Rural Development, Information etc & Chief Secretary.
Mr. Ravi Independent Mr. Narain holds a master degree in economics and in business
Narain Director administration. He co-founded the National Stock Exchange of
India Ltd. (NSE) in 1994 as part of India’s efforts to open up its
economy to global capital and was its Managing Director & CEO
till 2013.
Mrs. Ramni Independent Mrs. Nirula holds a Bachelor’s Degree in Economics and a Master’s
Nirula Director Degree in Business Administration. Beginning her career with the
ICICI, she rose to the position of the MD & CEO of ICICI Securities
Ltd. Possessing a rich experience of more than 3 decades in the
financial sector, she has held various leadership positions in areas
of Project Financing, Strategy, Planning & Resources and
Corporate Banking.
Dr. T.S. Additional He holds PhD in Medical Microbiology from University of
Balganesh independent Calcutta; PhD from Brookhaven National Lab, USA and Max
Director Planck Institute, Germany. Awarded an honorary doctoral degree
from the University of Uppsala, Sweden. 30 years’ experience in
antibacterial drug discovery, including as Head of Research at
Astra Zeneca’s antibacterial drug discovery.
Moat Analysis
Management Mayank Singhal has been working with his father Mr. Salil Wide moat
Singhal and growing the business since 1996.
Company is known for his transparent and ethical values which

also attracted innovators to partner PI in the early stage of
lifecycle of molecule.
There is also not any major capital Misallocation record of

company in past.
Brand Recall Company does not have wide product portfolio but has strong Medium
& Product brand recall. Moat
Portfolio
Company relationship with innovators helps them to launch
new in-licensed products. Company’s products like Nominee
Gold, Osheen and Vibrant has achieved tremendous success
suggesting company’s strong promotion activity at ground level.
Relationship Company has differentiated business model as it the preferred Wide Moat
with partner for most innovators for contract manufacturing and
Innovators research process.
It will take at least 15-20 years for new comer to win orders
from innovators at initial stage of lifecycle. Thus company is in
very strong position when it comes to contract manufacturing
business keeping competitors at bay.
Distribution Company has one of the strongest marketing and distribution Wide Moat
network catering to all regions.
Company leverage their strong distribution network by

collaborating with MNCs and innovators to distribute their
products.
Pricing Company mainly deals with in-licensed and co-marketing Medium
Power products in domestic market which has comparatively high Moat
margins due to product patent.
However, Company was not able to pass all price hikes in RM in

Fy18 due to soft environment at ground level. They will
gradually pass the price hike in coming year.
Research & Company is continuously improving its R&D facility and has Wide Moat
Development recently augmented for Pharma Intermediate research.
Sony has partnered with PI for joint research centre and it was
first time that Sony jointly worked with any company in India.
Financial Analysis
PI Industries has grown its Revenue at a CAGR of 18% from last 8 years. Company
generally clocks around 38% of revenue from Domestic Formulation Business and 62%
from export segment.
Net Sales
2,500
2,277 2,277
2,097
2,000 1,940
1,596
INR Cr.
1,500
1,151
1,000 879
720
500
-

Company has gradually increased the contribution of CSM segment to revenue from
43% contribution in FY12 to 62% now. As CSM segment has high margins compare to
domestic formulation business, it has augured well for the company. Moreover, it helps
company to maintain sales as domestic business is exposed to vagaries of monsoon
while CSM is comparatively stabilized business model.
Segmental Revenue:
Revenue (Rs. Cr.) FY12 FY13 FY14 FY15 FY16 FY17 FY18
CSM 374 595 925 1139 1274 1401 1401
Growth (%) 59% 55% 23% 12% 11% 0%
Agri-input Sales 505 556 671 801 823 867 875
Growth (%) 10% 21% 19% 3% 5% 1%
Total Revenue 879 1,151 1,596 1,940 2,097 2,277 2,277
➢ Under custom synthesis and manufacturing (CSM) business, revenue growth was
below potential because the company was unable to source adequate raw material
to meet its supply commitments due to plants closure in China, some logistic
problems at the port and de-stocking of sales globally. These orders will spill over
the upcoming quarters.

CRAMS Order book ($ Bn.) 0.25 0.30 0.31 0.40 0.58 0.85 1 1.15
Growth 20% 2% 30% 46% 47% 18% 15%
➢ The CSM business has grown by 25% CAGR in the past, but slowed in the last
three years due to weak Agri-markets globally. 1.15 billion USD order book is
executable over a 4-5 year period, out of which 60% are long term contracts while
roughly 40% gets negotiated annually.
➢ 70% of revenues in CSM segment is derived from top five molecules in FY18
while 30% from rest 15 odd molecules.
➢ It takes around 3-4 years to achieve sustainable growth rate in new molecules
which will increase new molecules contribution to sales in coming years.
Agri-Formulation Sales: Majority (around 70%) of sales of domestic business comes

from in-licensed and co-marketed products and company has successfully reduced
contribution of generics product to total agro-revenue.
There was de-growth in domestic formulation business segment in FY18 due to uneven
rainfall in few regions. This along with GST de-stocking and raw material supply
problems resulted in muted growth for the company as well as industry in the domestic
market in FY18.
Raw Material Supply Issues:
The value chain is as follows: Starting materials-> intermediates -> AI
➢ PI is predominantly into AI (active ingredient) in CSM where there is higher

valued add. AI goes into manufacturing of formulations.
➢ Generally PI sources around 30-35% raw material from china. Due to supply
issues from china because of shut down of plants caused some problems.
➢ To deal with this, in last 6-9 months, PI has reduced raw material sourcing to less
than 20%. In next 6-9 months, dependence on china will go down further
mitigating this risk
➢ PI has started de-risking the business model by backward integration into
intermediates in some of the molecules. Also, PI is developing alternate sources
with other suppliers in India for supplying intermediates. PI guarantees off take
from these suppliers for next 1-3 years.
➢ Last year, PI did backward integration of two products. This helped PI get into
newer products. If backward integration gives PI financial/strategic advantage
then PI will go for it, otherwise it will look for Indian companies to supply them.
➢ In domestic market, price rise of RM due to supply constraint impacted the
margins since all cost could not be passed on to the farmers. Whereas CSM
contracts cover the price rise of RM so margins were not impacted, it delayed
delivery of molecules though.
PI Industries Ltd. - Common Size P&L Account

Expenditure
(Increase)/Decrease in -4.1% -3.8% 0.1% -2.3% -1.2% -1.0% -1.8% 0.3%
Inventories
Other Expenses 17.3% 19.0% 18.0% 17.3% 15.9% 15.1% 14.8% 16.3%
Gross Profit 41.6% 44.0% 41.4% 42.4% 42.5% 44.7% 48.9% 48.7%
Other Income 0.4% 0.6% 0.7% 1.0% 1.2% 1.0% 1.6% 2.6%
Depreciation 2.2% 2.0% 1.9% 2.0% 2.6% 2.6% 3.2% 3.6%
Foreign Exchange Gain/(Loss) 1.0% -0.5% 0.0% 0.0% 0.9% 0.6% 0.0% 0.0%
Exceptional Income / Expenses 0.0% 3.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Total Tax 3.7% 4.5% 4.1% 4.6% 5.6% 4.3% 2.2% 4.3%
Profit After Tax 9.0% 11.8% 8.5% 11.8% 12.7% 15.0% 20.2% 16.1%
➢ Gross profit: Management highlighted that change in product mix and increase
in raw material costs were the primary reasons for decrease in margins during
the year.
• The company is working towards backward integration to reduce its
dependence on Chinese raw material supply, and has been successful in
backward integrating for two products this year.
• It has also been looking at alternative suppliers of raw materials imported
from China, and has tied up with 7-8 such suppliers recently. PI currently
imports 16-17% of its raw materials from China, down from more than
30% over past few years.
• Company was unable to pass complete price hike of RM in domestic
market due to soft Industry environment.
➢ Employee cost has been in increasing trend because company is continuously

hiring professionals for new plants and for their R&D centre.
➢ Other expenses – includes administrative, general and marketing & promotion

expenses. It is also increased mainly due to increase in marketing & promotion
cost, logistics cost and power & fuel costs.
➢ Operating profit –Investment in R&D doubled in FY18 due to introduction of

new molecules, increase in employee benefit expenses, and increase in other
expenses resulted in decline in operating margins.
• Management expects margins to pick up when all plants at Jambusar
facility will be working at higher capacities.
➢ Depreciation: - it is increasing due to set up of new plants at Gujarat and will

increase in coming year as more capex is planned by management for setting up
of new plants in FY19.
➢ Interest expenses: - Company has been reducing debt continuously using

internal accruals and reducing working capital requirements resulted in decline
in interest charges thus boasting the bottom line.
➢ PI Industry has equity of Rs 13.76 Cr. divided in 13.79 Cr. shares of Rs 1 each. The
net worth stands at Rs 1627.18 Cr. as on March’17.
➢ Company has debt of Rs. 120 Cr. and holds Rs 132 Cr. in cash &bank balance
while 83 Cr. in Investments.
➢ The ROE and ROCE are 32.82% and 34.19% for FY17. Average return on capital
employed for last 10 years has been 33.81%
➢ Business model of PI is capital intensive having fixed asset turnover of 2.5 in
FY17. Generally asset turns are around 3 which saw decline due to operations of
new plants which will gradually increase once capacity picks up.

Receivable Days 61 63 60 51 53 65 63 72
Inventory Days 53 58 58 55 58 64 63 98
Payable Days 46 46 59 66 69 79 69 59
Cash Conversion Cycle 68 76 60 41 43 50 57 111
Source: ratestar.in
➢ There was increase in inventories in FY18 due to reduction in delivery off-take.

These inventories will be delivered in coming quarters. PI has comparatively
better working capital cycle and apart from FY18 aberrations they are
continuously improving on WC front.
➢ This has resulted because of increase in proportion of CSM revenues because
Exports have lesser working capital requirements mainly due to less receivable.
➢ Working capital is expected to be normalized in coming year after the delivery
off-take and decrease in receivables.
Risks & Concerns:

Slowdown in Global Agrochemical market: company is expecting the global
market to revive in coming year. However, if it continues to decline than company might
again de-grow in CSM category thus impacting overall performance as majority of
revenues comes from CSM.
Dependence on Monsoon: Though company has successfully reduced contribution
from domestic agri-business but still it form large chunk of revenues. So any irregularity
or unevenness in rainfall will impact domestic business performance.
Adverse currency movement: Company is net exporter hence appreciation of

currency will impact negatively. However, to avoid that company generally hedge 70-
80% of forex transaction using annual forward contracts.
Increase in crude oil prices: Many raw materials are derived from crude and recent
price hike in crude might adversely affect cost of raw material of the company.
VALUATIONS
At Rs 790, PI Industries ltd trades at a:
➢ Assumptions:-Initial cash flow is 86(average cash flow of last 3 years), discount
rate is 12% and terminal growth rate after 10 years is 5%.
by the market is 34%. i.e.; Market is expecting that PI Industries will be able to
grow their cash flow at 34% for next 10 years.
➢ If we look at the growth rate of cash flow for past 8 years, PI Industries has grown
their cash flow at 21%. Free cash flow= cash from operating activities minus
payment for purchase of fixed asset.
certainly on higher side.

PI INDUSTRIES LTD
Net Profit (Rs Cr.) 65 104 97 188 246 315 459 367 28% 18%
Return on Equity 51% 30% 35% 35% 35% 39%
Assumptions: -
Calculations
of around 16%.
discounted market value is Rs. 9571 Cr. Less than current market cap of 10891
Cr.
Conclusion: PI Industry has grown tremendously in past few years due to growth in
revenues of CSM segment. However, recent global environment in agrochemical has
muted the growth. Company has huge opportunity in CSM segment with market
potential of 5 billion growing at 5-7% globally.
Successful product launches in domestic market along with revival in global agro-
market can augur well for company in future. Also, Pharma intermediate and electronic
chemical are future growth drivers along with expansion in Agro chemical order book.
Focused management with decades of experience along with unique business model
makes PI a strong player in Agrochemical Industry.
Bharat Rasayan Limited

Introduction
Bharat Rasayan Limited (BRL) is engaged in the business of manufacturing Technical
Grade Pesticide and is one of the leading manufacturer and exporter of 'Pesticides
Technical’s and Intermediates’.
BRL has two technical grade pesticides manufacturing facilities located at Rohtak,
Haryana and state of art plant set-up at Dahej, (Gujarat). Dahej Plant is spread over 30
acres with a capacity of 20,000 MTs of tech grade material per annum which enabled
the Company to upgrade its manufacturing technology and add new molecules to its
portfolio to further consolidate its position in the industry.
The Dahej plant turned around the company’s prospects as there was expansion of
capacity which helped company to increase its production manifold. The plant which
started commercial production in FY13 was mainly funded through debt. However;
company has managed to repay debt using internal cash flows in last few years.
The capacity utilization for the both the plant is around 100% during peak season (H1)
while it is 80% during the lean season (H2). The Dahej plant is hardly utilizing ~50% of
the land available currently and the company can easily expand over the surplus land
available there in future.
Subsidiary: - Siris Crop Science Ltd
Siris Crop Sciences Limited was incorporated on 16th January 2003 and is involved in
similar Business model of manufacturing generic Technical Pesticides like Bharat
Rasayan Ltd. BRL was already having stake of 40% in Siris Crop Sciences Limited till
2010, but management consciously decided to buy remaining 60% stake in FY11 to
create synergies and increases its value to company.
Contract Manufacturing
Currently, the company does contract manufacturing for MNCs which contributes
around 20%-25% revenues in FY17. These are usually long term contracts of 3-5 years
with raw material price fluctuations being passed on. Company is also planning to
manufacture patented molecules for these MNCs and is expected to scale up this
segment of business in coming years.
There is also a shift happening in the Japanese agrochemical companies where they are
shifting their manufacturing from China and Japan to India. Company also has
opportunity to get contract manufacturing from these companies to manufacture off-
patented as well as patented molecules.
Tapping Export Opportunity

Company’s revenue from exports is around 30%, but given the low cost manufacturing
and availability of manpower along with better pricing realization of product in India,
there is high potential of growing exports for company.
Company primarily exports to Asia and Middle East which are one of the fastest growing
markets globally. The company has around 200 international registrations primarily in
Asia and Middle East.
The company is planning to register some of its products in the Latin America markets
primarily Brazil. Registration in Brazil take a lot of time and even cost of registration is
pretty high at Rs.3 – 5 Cr. Furthermore, the company might register its products in US
markets which also involves a lot of cost (~Rs.20 Cr. for one molecule) only if it has firm
orders in hand.
Besides earning the status of Export House, the company has been crowned with two
prestigious national awards for outstanding performances in exports, from the FIEO
and CHEMEXCIL, set up by the Union Ministry of Commerce and Industry.
Capex Plans:
In order to reduce dependency on China for imports and to achieve better margins,
company has done capex of around 40 Cr. in Dahej Plant to manufacture Intermediates
which are used for Manufacturing Technical Grade Pesticides.
Company has also decided to do Greenfield expansion with a Capex of around 200 Cr.
for manufacturing intermediates and technical’s. The rationale for not utilizing the
Dahej existing land space and setting up new plant at different location is to avoid one
plant one area risk. The Dahej plant successfully turnaround the company’s prospects in
past, where as for now, the green field plant along with CRAMS opportunity are
considered to be new growth drivers for company.
Product Portfolio
BRL has a wide product portfolio covering insecticides, herbicides, fungicides and
intermediates. The company has competitive advantage in synthetic pyrethroids and
intermediates. Company majorly produces molecules having low competition which
helps them to achieve higher margins at low volumes of production.
Whenever competitor enters-margins tend to fall, so the idea is to select molecules
where competition is low in order to take advantage of pricing in market.
The group has market leadership in many products which include Meta Phenoxy
Benzaldehyde (MPB), Lambda Cyhalothrin (LC), Piroxofoppropinyl, Thiamethoxam and
Cypermethrin among others for which the company is a preferred supplier in the
international markets.
During FY16, MPB (used in herbicide) contributed 21% of the sales while LC (Insecticide
catering to various crops) contributed 5 – 7% and Chlodina/Pendamethil (Herbicide)
contributed 5 – 7%. Company tries to commercialize 2-3 products every year.
Inter-party Transactions
Bharat Group comprises of three companies: Bharat Rasayan Ltd. (BRL), Bharat
Insecticides Ltd. and Bharat Agrotech Ltd.
Bharat Insecticides Ltd. (BIL) and BR Agrotech two Group Companies have formulation
facilities with a capacity of 25000 kls of liquids and 15000 mts of powders. BIL
manufactures broad array of products including fungicides, herbicides and Insecticides.
It is also an ideal partner for developing and distribution of new molecules in the
domestic market. BIL purchases molecules from Bharat rasayan ltd. and add inert
ingredients to manufacture finished formulated product.
BR Agrotech commenced operations with the commissioning of its pesticides unit at
Kathua in Jammu & Kashmir to tap the extensive capacity in toll manufacture (An
arrangement in which a company which has specialized equipment processes raw
materials or semi-finished goods for another company for a fee) and also cater to the
institutional customers. BR Agrotech is an ideal partner for several reputed companies
for formulating and packing their products in their trade names.
The group has a network of approximately 3,500 dealers and 30,000 distributors for
supplies spread across the country and have 23 branches in all the operating states. The
management maintains that the BRL is the flagship company of the Bharat group and
all the intercompany transactions (sales of technicals from BRL to group companies)
happen at the market price. Thus, the group derives cost advantage from the integrated
operations through lower dependence on import of technical grades. Company has also
taken loan from group companies in past for expansion in Dahej.
On 15th May, 1989 three veteran entrepreneurs - Mr. Sat Narain Gupta, Mr. Mahabir
Prasad Gupta and Mr. Rajender Prasad Gupta of Bharat Group set up the
conglomerate’s flagship company, Bharat Rasayan Ltd. (BRL) in New Delhi. It was a
backward integration project to manufacture Technical Grade Pesticides and
Intermediates confirming to International Standards.
Within two years, BRL commenced production at its fully equipped plant located in
Mokhra village of Rohtak district in Haryana. This plant has a capacity of 5000 MT per
annum and also facilities for bulk packaging of formulations. Another larger plant at
Dahej in Gujarat was set up to manufacture tech grade pesticides, intermediates and
bulk formulations.
Bharat Rasayan together with other Group Companies, happen to be one of the largest
manufacturers of technical grade pesticides, intermediates and formulations in India,
serving the cause of Indian agriculture for more than 38 years.
Management has effectively managed the shareholder capital in the past and is one of
the most conservative management when it comes to costing. At present, a Promoter
holding is 75% suggesting their confidence in Business. Company has not diluted share
capital in past and even had not issued any major warrants. Dividend payout ratio is
minimum as company needs capital for Capex and has been reducing debt by using
internal cash flows
Board of Directors
Mr. Sat Chairman & Mr. S. N. Gupta is a Post Graduate in Economics
Narain Gupta Managing having a rich experience of 38 years (approx.). Under
Director the esteemed guidance of Mr. S. N. Gupta, the
Company has earned the reputation of manufacturing
pesticides of world class quality and commitment to
fair dealings in our industry. S. N. Gupta is a Director
in the Company since its inception i.e. May 15, 1989
Mr. Mahabir Whole Time Mr. M.P.Gupta has an experience of more than 37
Prasad Gupta Director years in the Corporate Sector. He has to his credit, vast
experience in the field of Finance, Banking, Taxation,
Accounts and General Administration. Mr. M. P.
Gupta is a Director in the Company since inception,
i.e. May 15, 1989
Mr. Rajender Whole Time Mr. R.P.Gupta has vast experience of 28 years
Prasad Gupta Director (approx) in varied fields like
Manufacturing/Production, Procurement and General
Administration. He has been instrumental in setting
up the Company's plant at Dahej (Gujarat) and is also
involved in activities at other plant located at Rohtak
(Haryana).
Mr. Virender Executive Mr. V. K. Sharma has a rich experience of 29 Years
Kumar Director (approx.) in Agrochemical and Pharmaceutical
Sharma Industries. He is actively involved in the areas of
Production and General Administration of Company's
Unit located at Dahej, Gujarat. He has been on the
Board as an Executive Director since October 24, 2011.
Mr. Pankaj Independent Mr. Pankaj Gupta has an experience of 8 years in the
Gupta Director Legal field and Business Administration. Mr. Pankaj
Gupta is a Director in the Company since November
24, 2007.
Ms. Sujata Independent Mrs. Sujata Agarwal has a rich experience of 15 years
Agarwal Director as a financial consultant.
Mr. Suresh Independent Mr. Suresh Kumar Garg has a rich experience in the
Kumar Garg Director field of Insurance sector.
Mr. Ram Independent Mr. Ram Kanwar is a Post Graduate in Economics and
Kanwar Director has vast experience of 39 years (approx.) in the field of
Business Strategies. Mr. Ram Kanwar is associated
with the Company since July 10, 2008.
Moat Analysis

Management BRL Management has decades of experience in Wide moat
Agrochemical Industry. Apart from that, there
conservative nature has helped company to maintain
margins and allocate capital effectively.
Pricing Generic product doesn’t have much pricing power due Medium moat
Power to presence of large number of players.
Management tries to launch molecules with low

competition to achieve high margins till the time
competitor enters the space.
Management is aggressively expanding in CRAMS

Space which has much better pricing power than
generics technical molecules.
Product Company generally launches 2-3 molecules every year Wide moat
Portfolio and recent tie-up with Nissan for an innovative
fungicide in Rice with group company BIL will also
augur well for company in future.
Relationship Company is continuously engaging with various MNCs Medium Moat

with MNSs to receive contract manufacturing orders from them.
Recent problems in China have opened up opportunity

for company as MNCs are de-risking their supply of
molecules by diversifying i.e; signing contracts with
Indian Companies.
Company has successfully embarked upon the CRAMS

segment by leveraging group relationship with various
MNCs.
Bharat Rasayan Ltd. - Common Size P&L Account

Expenditure
(Increase)/Decrease in 5.7% -4.3% -7.3% -5.9% 1.4% -0.4% -2.5% 0.1%
Inventories
Other Expenses 17.2% 16.0% 11.6% 10.7% 9.5% 11.0% 9.6% 8.2%
Gross Profit 32.7% 33.9% 33.2% 34.9% 34.5% 35.8% 34.0% 34.3%
Other Income 0.4% 0.1% 0.3% 0.3% 0.2% 0.1% 0.4% 0.3%
Depreciation 1.9% 1.1% 3.7% 4.9% 4.0% 3.7% 2.6% 2.1%
Exceptional Income / Expenses 3.3% -0.3% -0.2% -0.6% 0.0% 0.0% -0.1% 0.2%
Total Tax 2.3% 3.2% 2.4% 2.7% 3.7% 3.9% 4.8% 4.7%
Profit After Tax 6.7% 6.8% 5.2% 5.6% 7.2% 7.4% 8.6% 12.4%
➢ Gross profit of the company has been fairly stable indicating that company has
managed to pass on any rise in raw material cost to end consumers.
• Company has undergone backward integration into Intermediates to
reduce their dependence on China for imports of basic raw material.

distribution expenses. Company has made significant reduction in its
manufacturing & administrative expenses by utilizing resources optimally.
• Operating leverage in Dahej plant also has helped company to increase
Revenue without utilizing much resource.
➢ Operating profits are increasing continuously as post commencement of the

Dahej plant in FY13, and with better product mix & higher realization, company
margins have expanded significantly.
• Reduction in other expenses has also led some improvement at EBITDA
level along with operating leverage kicked in at Dahej plant.
• It is expected that margin might further improve after increase in
capacity utilization at new plant and also because of management focus
on CRAMS which has better margins then generics.
➢ Depreciation is a continuously rising due to expansion in setting up new plants.

Company is also planning Greenfield expansion which will further increase
depreciation expense in coming years.
➢ Finance costs went up because company mostly funded their expansion with
debt. Company has been issuing commercial papers to reduce their overall
finance costs and also to repay long-term debts.
➢ Revenue: Bharat Rasayan Ltd. has grown its revenue at a CAGR of 35.66% from
last 8 years.
Net Sales
900
795
800
700
621
600
INR Cr.
500 439 456

400 361
300
188
200 142
94
100
-
➢ Bharat Rasayan Limited has been growing its sales at a CAGR around 30-40%
between 2012 and 2018
➢ The two consecutive years of FY15 & FY16 has suffered poor monsoons which
lead to decrease in sales. Also, increase in crude price impacted the revenue
growth in FY16 despite company achieved significant volume growth.
➢ Despite being exposed to vagaries of monsoon, company has been successful in
growing revenues at a tremendous growth rates in past.
➢ In Fy17, Insecticides and Fungicides molecule contribution was 50% to revenues
whereas, Intermediates and Herbicide proportion was around 20% and 30%
respectively.
➢ The top 10 products of BRL accounts for around 70% of total net sales of the
company in FY17.
Revenue Breakup:
Year / Rs Cr. FY11 FY12 FY13 FY14 FY15 FY16 FY17 CAGR
Domestic Sales 45 94 102 177 189 199 295
% of Total Revenue 49% 67% 55% 49% 43% 44% 48% 36.80%
Sales to Group Companies 19 18 26 64 125 127 165
% of Total Revenue 21% 13% 14% 18% 29% 28% 27% 43.37%
Exports 28 28 58 117 121 126 153
% of Total Revenue 30% 20% 31% 33% 28% 28% 25% 32.12%
➢ Domestic Sales: it covers sales to MNCs and domestic companies. Out of

around 50% domestic revenues, 25% contribution to total revenue comes from
MNCs contracts.
• The strategy of company is to increase contribution from contract
manufacturing as MNC contracts are sticky in nature, have higher
profitability margins and take a long time to develop.
o BRL supplies to agrochemical majors including Syngenta and Nissan but
the relationship with these giants is not exclusive.
➢ Sales to Group Companies: recently, Bharat Insecticide ltd. had tie-ups with
MNCs for distribution of Innovative products which in turn can prove to be
beneficial for BRL as group can leverage the relationship by winning contracts for
manufacturing of patented molecules.
• Company sell molecules to group companies at market prices, so increase
in sales from group companies is not a loss making activity for the
company. Moreover, if group companies are doing well, then it is kind of
stable revenue business for BRL as they will obviously buy from them only.
➢ Exports: Company is registering products in Brazil which is the world largest
Agrochemical Market. Company is focusing on winning contracts from
Innovators then selling products to dealers in the overseas markets.
• However, company generates 25% revenue from Asia and Middle East
which they will definitely try to maintain if even they don’t do any further
expansion in these markets.
➢ Bharat Rasayan Ltd. has equity of Rs 4.25 Cr. divided in 0.43 Cr. shares of Rs 10
each. The net worth stands at Rs 200.71 Cr. as on March’17.
➢ Company has total debt of Rs 115 Cr. Company has Interest Coverage Ratio of
13.75 suggesting company has 14 times EBITDA compare to interest payments.
➢ The ROE and ROCE are 31.40% and 34.10% for FY17. Despite being into capital
intensive business, company has managed to generate above average returns.
Fixed asset Turnover:
Fixed Asset Turnover 3.37 4.03 2.10 2.28 2.50 2.38 3.09
Source: ratestar.in
➢ Fixed asset turnover of company was low in FY13 as company commercialized its
new plant at Dahej, but turnover increased gradually as capacity utilization
picked up.
➢ Company is planning further expansion with approx 200 Cr. which might result
in low asset turnover for a year or two until capacity picks up.
➢ Management has focused on using the capacity at 100% utilization level in order
to squeeze maximum revenues from asset deployed.
Receivable Days 60 55 67 49 54 63 56
Inventory Days 44 34 48 49 48 43 38
Payable Days 32 38 43 32 38 30 16
Source: ratestar.in
➢ The operations of the company are working capital intensive with net operating
cycle of 60-80 days primarily on account of high inventory and receivables.
➢ Company increased its Inventory in FY18 in order to secure adequate raw
material as overall supply in Industry got impacted due to shutdown of plants in
china.
➢ Although BRL receives credit period of 90 days from its suppliers, the company
makes early payments to its suppliers on account of early payment discount,
resulting in average creditor period of around 16 days.
Cash Flow: Company has a checkered history with respect to operating cash flows. As
OCF was not enough to fund the expansion, Company mainly funded it through debt
from banks and group companies.
Risks & Concerns:
Regulatory Risks: Company is also registering its molecules abroad for exports; any
changes in regulatory requirement might impact the company’s aggressive foray into
foreign markets.
Linkage to crude oil prices: Company is into manufacturing of technicals in which

crude derivative is major raw material in some molecules. Any significant volatility in
crude oil price might have an adverse impact on the realizations and hence the
profitability of the company.
Intense Competition: There are many players in technical manufacturing segment of

Agrochemical sector; company constantly has to search new molecules where they can
enjoy pricing power for some period. In order to reduce dependence on B2C sales,
company has been aggressively moving towards contract manufacturing of molecules
where revenues are stable due to contract arrangements with MNCs.
Not much Information Available: There is not much information shared by

company, apart from annual reports and quarterly reports.
VALUATIONS:
➢ At Rs 6927, Bharat Rasayan ltd trades at a:

Source: screener.in
➢ Let’s try to calculate return by using Expected Return Model:

BHARAT RASAYAN LTD
Net Profit (Rs Cr.) 6 10 10 20 32 34 54 98 49% 59%
Return on Equity 13% 19% 15% 25% 28% 23% 27%
Assumptions: -
Calculations
of around 15%.
discounted market value is Rs. 2553 Cr. less than the current market cap of 2994
Cr.
Conclusion: BRL has turned around after Dahej expansion which helped them in
increase sales manifold and operating leverage has strengthened the margins of the
company. However, company is now working towards CRAMS Business segment for
Domestic MNCs along with focus on exports which can be considered new growth
drivers of BRL.
Excel Crop Care Limited

The Shroff family started chemicals and agrochemicals firm ‘Excel Industries Ltd’ in
1941. The agrochemicals business of this company was spun off in 2003 to create Excel
Crop Care so the management can focus more on the chemicals and agrochemicals units
independently.
Journey so far:
•Excel Industries was started in 1941 under the leadership of late Mr. C.C Shroff.
1941
•Devepoled Sulphir 80% WP for use as a fungicide.

1966 •Devepoled Zinc Phosphide for the first time in India
•First in Asia to develop Endosulfan Technical

1978
•Launched Glyphosphate Technical for the first time in India

1985
•Launched Chlorpyriphos Technical with backward Integration

1995
•Developed Profenofos Technical with Backward Integration

2001
•Excel Crop Care demerged from Excel Industries to form an Independent Entity.
2003
•Commercialization of Patented Process for manufacturing Garanular Ammonium

2005 Glyphosphate
•Export of Tebuconazole Technical

2007- •Launched Bio-inoculam for agri-waste composting-Madhyam
10
•Introduced Fenpyroximate and exported Fluroxypyr Technical.
2010- •Started Manufacturing Triazophos Technical
12
•Started Production of Quinalphos Technical
2013- •Commenced Manufacturing of bio-products Trichodema HR and Pseudomonas.
15
Business Model:
Company started off as a trading partner for global agrochemicals products. It then
transformed into a technical grade manufacturer of generic molecules in agrochemicals,
with a strong R&D backbone. Company also catered to pre & post-harvest farming, seed
treatment, and plant enhancement segments, and a few products for the fish Industry.
Excel’s Business model is quite similar to other players in Industry where company ties-
up with innovators and help them sell their products by leverage their extensive
distribution network. Company is also into manufacturing of generic molecules of some
products which caters to domestic and internal Institutional Players.
Manufacturing Facilities: The Company’s main manufacturing plant at Bhavnagar is
ISO 9002; ISO 14000 and OSHAS 18000 certified and meet statutory requirements on
quality and safety. The more recent plants at Gajod and Silvassa are equipped with state
of the art machinery and are in the process of obtaining the ISO certification. Each of
the company’s manufacturing locations has a well equipped R&D facility, which is
approved by Govt. of India, busy in exploring and reverse engineering eco-friendly
chemistries for formulations as well as for bulk products.
➢ Bhavnagar Facility: - Plant is spread over more than 75 acres of land, having
manufacturing facilities for technicals and formulations. R&D units equipped
with testing facilities for products from gram scale to field scale application are
also available at Bhavnagar facility.
• The site also manufactures Trichoderma and Pseudomonas based bio-
pesticides which demonstrate its wide range of capabilities to produce
chemical and non-chemical pesticides.
➢ Gajod Facility: - The Company employs technology involving pyrophoric
substances such as aluminum, Zinc and Phosphorous to manufacture Metallic
Phosphides. The technology to formulate, tablet and pack moisture sensitive
products like aluminum Phosphide (fumigate agent, which is also used to control
rodents and pests in grain storage facilities) has been mastered.
• Company has philosophy of preserving renewable resources, so, it has set
up on site and off site check dams for water harvesting. The site also
houses 5000 KWH solar Power Plant which currently meets 25% of Gajod
power requirement.
➢ Silvassa Facility: - The Union territory of Silvassa offers logistical advantage
for sourcing various formulation auxiliaries and packaging materials. The unit
which is spread over 3 acres of land manufactures formulations of Glyphosate
and other plant growth enhancers and adjuvant.
Exports:
‘Excel’s’ Technical Actives as well as bulk and branded formulations are presently
registered and marketed in Asia Pacific, Africa, Europe, CIS countries, Central & South
America & USA.
In the export segment, the Company expects to continue to perform well as East Africa
is expected to have good rainfall which is a key market for the company. However, in
some countries in West Africa, another major market for the Company, the Company’s
customers continue to experience currency volatility and unavailability of foreign
exchange. This could pose difficulties in growth of business in this region.
Company has Subsidiaries in Africa, Europe and Africa for increasing distribution,
registering brands and to increase the share of branded products in export market.
Year / Rs Cr. FY14 FY15 FY16 FY17
Bulk Sales 147 114 86 119
Y-o-y growth (%) -22% -25% 38%
Brand Sales 150 181 149 147
Y-o-y growth (%) 21% -18% -1%
Total Exports 297 295 235 266
exports as % of net sales 30% 29% 26% 27%
From FY15 onwards, the weather conditions in exports market especially Brazil has not
been quite favorable which has resulted in de-growth in total export sales (both branded
and bulk). However, rainfall has been good from last two years showing some
improvement in performance. Now, with Sumitomo acquiring excel crop care, having
several branded patents, there is huge growth potential to increase penetration by
registering products in these markets.
Distribution Network:
Its range of market leading brands are made available to farmers through the chain of
more than 30+ depots, 4500+ distributors and 40000+ dealers. In-spite of such an
extensive distribution network, the company was struggling to introduce new products
through tie-ups with International Players. Management understood their technology
and financial limitations and decided to sell stake to Japan Company Sumitomo.
Acquired by Sumitomo Chemical Company
In October, 2016, Sumitomo Chemical Company, Japan acquired majority stake and
management control of Excel Crop Care Limited. Sumitomo is one of the largest global
specialty chemical producers and owns around 65% in Excel Crop Care through which it
has gained strong market reach in India.
Till FY16, Excel Crop Care faced challenges due to low innovation in its product
portfolio and the management’s limited focus on agrochemicals. The growth trajectory
was unsteady, despite its market reach and brand recall. It also faced competition from
global and domestic players in post-patent market space in terms of better efficacy
products, expansion of product categories, and pricing pressures. Now with acquisition
by Sumitomo Chemicals, following synergies are expected from this venture:
1. Globally, Sumitomo Chemicals holds more than 10,000 patent registrations in

specialty chemicals. Annually, it files 500-600 new product registrations across
the board, with 80-85 patents in agrochemicals.
• Earlier, excel used to tie-up with International players for in-licensing
branded formulation products, now being acquired by Sumitomo,
company moves up in value chain as Parent company has enough products
in portfolio to leverage excel’s presence in India.
2. Cross-leveraging Portfolios: - Excel crop care is witnessing significant growth in
herbicide and fungicide segment which can be capitalized by Sumitomo having
large exposure to Insecticides. The product portfolio of Excel crop care does not
overlap with Sumitomo’s, which provides a stronger outlook for the combined
entity in the branded business.
3. Apart from leveraging distribution network, Sumitomo can effectively use
manufacturing facilities of Excel crop care in manufacture technicals at lowest
costs using their R&D and Managerial Efficiency.
4. The major exports markets for Excel are Africa, Europe, and Central America
with strong traction expected in its branded sales. It also has presence in the US,
largely for technical (bulk) sales to formulators. Sumitomo does not have market
exposure in MEA and Central America for its combined businesses of Pharma,
health and crop sciences, petrochem & plastics, energy & functional, and IT-
related chemical solutions. It is more likely to use Excel as a conduit for its MEA
and Central American branded markets.
The acquisition can be win-win for both players as this move will combine Excel’s brand
recall, sales and marketing reach in domestic and African markets, and manufacturing
capabilities with Sumitomo’s research strength – for new discoveries catering to the
growing needs of the global farmers.
Product Portfolio:
Bio-Product Insecticide Fungicide Herbicide
Nutrient –Mobilizer Acephate Hexaconazole 2,4-D
Organic Composter Chlorpyriphos Sulphur Atrazine
Organic manure Acetamiprid Tebuconazole Clodinafop-Propargyl
Organic Nutrient Emamectin Benzoate Tricyclazole Glyphosate
Organic Phosphate Fenpyroximate Imazethapyr
Imidacloprid Metribuzin
Monocrotophos Pendimethalin
Profenofos Pretilachlor
Thiamethoxam Sulfosulfuron
Triazophos
Company has not been active in new product launches especially innovative products.
They are not able to compete with domestic players on both front (off-patent technical
molecules and in-licensed products) and lost market share in last few years. But, after
acquisition, there is lot of expectations that the company might turnaround and be more
active on the product launches.
Board of Directors
Mr. Chetan Managing Mr. Chetan Shah was a promoter of New Chemi Industries
Shah Director Limited which was acquired by Sumitomo Chemical Company,
Limited, Japan (SCCL) in 2010 and integrated with Sumitomo
Chemical India Pvt. Ltd. (SCIPL). Mr. Chetan Shah served as
Joint Managing Director of SCIPL from 2010 till recently. Mr.
Shah is a commerce graduate from Mumbai University and holds
a Master’s degree in Business Administration from North Rope
University in the USA. Mr. Shah is an agrochemicals industry
veteran with over 40 years of experience.
Mr. Ninad Joint Mr. Ninad D. Gupte has long and rich experience of 41 years in
D. Gupte Managing the management of companies operating in the field of fine
Director chemicals, Performance chemicals, industrial chemicals and
agrochemicals. He is a chemical industry veteran. Mr. Gupte has
worked with Indian as well as Multinational Companies such as
Excel Industries Ltd., BASF India Ltd., Herdillia Chemicals Ltd.
(now SI International) in various senior positions.
Mr. Kiyoshi Executive Mr. Kiyoshi Takayama holds a bachelor’s degree in analytical
Takayama Director chemistry from Ritsumeikan University, Kyoto prefecture,
Japan. Mr. Kiyoshi Takayama has a rich experience of 30 years
in the chemical and pharmaceutical industries in the areas of
research and development, domestic and international sales,
supply chain and planning.
Mr. Tadashi Non- Mr. Tadashi Katayama holds a Master’s degree in Business
Katayama Executive Administration from U.S. University and also a Master’s degree
Directors from Kyoto University in Japan. He has been working with
Sumitomo, Japan since 1992 in the Health and Crop Science
business unit in various positions.
Mr. Dipesh Non- Mr. Dipesh K. Shroff holds Harvard degree in Owners/President
K. Shroff Executive Management Programme USA and Diploma in Civil
Directors Engineering, MEP - IIM, Ahmedabad. He was Managing
Director of Excel Crop Care Limited since 1st September, 2003
till 6th October, 2016. Mr. Shroff served as Joint Managing
Director of Excel Industries Ltd., until August 2003.
Dr. Mukul Independent Dr. Asher, a Professor of Public Policy at the National University
G. Asher Director of Singapore, was educated in India and USA. He has been a
consultant to several Governments in Asia on tax policy and
pension reforms, and to multilateral institutions including Asian
Development Bank, the World Bank, International Social
Security Organisation, and the World Health Organisation.
Mr. B. V. Independent Mr. B. V. Bhargava has brought an illuminating experience of
Bhargava Director Banking and Project Financing. In his career of over 40 years, he
has been associated with corporate brands such as ICICI,
Raymond etc., and is amongst the Board of Directors for CRISIL.
Mrs. Preeti Independent Mrs. Preeti Mehta, an arts and law graduate from Mumbai
Mehta Director University, is an advocate and solicitor by profession. She has
over 27 years of experience in practicing in corporate laws,
foreign investment and collaborations, mergers and acquisitions.
Moat Analysis

Management Company has been acquired by Sumitomo Chemical Wide Moat
Company, Japan. Mr. Chetan Shah now is holding the
reins along with Mr. Ninad D. Gupte. Both have more
than decades of experience in Agrochemical Industry.
Sumitomo Chemical Company also has decades of

experience in Agrochemical molecules, specialized
molecules, Pharma, etc. They will try to leverage excel’s
resources more effectively to derive maximum
synergies from this acquisition.
They have also made key changes in company’s Board

along with key managerial positions which might augur
well for the company’s future.
Product Till now, Company has not been aggressive in Medium Moat
Portfolio launching innovative products, which has also
impacted company’s performance as company has lost
market share.
Things might improve considering Sumitomo has

several patented molecules which the company may
launch in coming years to improve performance of
excel.
Distribution Though distribution reach is not one of the best in the Wide Moat
Industry, Sumitomo is in good position to leverage its
network in widening its reach in India.
R&D Company focuses on reverse engineering process of Medium Moat

technical’s and has expertise in various chemicals
which Sumitomo might use for contract manufacturing
in coming years.
Financial Analysis
Excel Crop Care Ltd. has grown its Revenue at a CAGR of 6.5% from last 8 years.
Company clocks around 70% of revenue from Domestic market and 30% from exports.
Net Sales
1,400
1,150
1,200
1,026
1,000 986 968
896
779
INR Cr.
800 739 695

600
400
200
-
Revenue Contribution (FY17)

Soil Nutri, Bio,PGR
8%
Fungicide
7%
Insecticides
Metal Phos. 38%
16%
Herbicides
31%
According to Management, there has been a significant growth in fungicides and

herbicides segment. In order to meet the growing demand in various export markets,
the Company has been steadily expanding production capacity for herbicides, fungicides
and their formulations.
Excel Crop Care Ltd. - Common Size P&L Account

Expenditure
(Increase)/Decrease in Inventories 1.1% -0.7% 2.6% -7.5% 0.1% -0.9% 0.1% -5.0%
Other Expenses 27.9% 26.3% 22.5% 19.9% 19.6% 21.9% 22.4% 16.2%
Gross Profit 46.5% 40.2% 35.5% 36.7% 36.1% 40.2% 40.9% 36.1%
Other Income 1.0% 1.0% 0.8% 0.5% 0.4% 0.4% 0.5% 0.2%
Depreciation 1.7% 2.0% 1.8% 1.4% 1.7% 2.0% 1.8% 1.5%
Exceptional Income / Expenses -1.4% -0.9% 0.0% 0.7% 0.7% 0.6% 1.7% 0.0%
Total Tax 2.4% 0.9% 1.2% 3.0% 2.6% 2.5% 2.5% 3.5%
Profit After Tax 5.7% 2.4% 2.7% 6.7% 6.0% 6.7% 7.7% 7.1%
➢ Gross profit: FY18 margins got impacted due to sudden spike in raw material
prices which the company could not fully pass on to the consumers. Otherwise,
they have been quite stable over the past few years.
➢ Employee cost has increased as company has hired talented personnels and
changed the whole team at Managerial level which has resulted in sudden hike in
employee cost in FY17.
➢ Operating profit has increased due to decrease in other expenses. The

Company has made improvement on cost level, but operating margins can only
improve once growth starts kicking in on top level.
➢ Exceptional Income: - Exceptional items of Rs. 1561.23 lacs for the year ended
March 31, 2017 represents profit on sale of non-core investments and other
assets.
➢ Excel Crop Care has equity of Rs 5.50 Cr. divided in 1.10 Cr. shares of Rs 5 each.
The net worth stands at Rs 434.99 Cr. as on March’17.
➢ Company is debt free and the ROE and ROCE are 15.20 % and 19.85 % for FY17.
➢ Contingent Liabilities of company are of Rs. 5.05 Cr. with respect to disputed Tax
Liability.

Receivable Days 74 80 70 53 57 67 67
Inventory Days 69 77 71 69 76 81 78
Payable Days 68 85 82 74 82 78 87
Source: ratestar.in
➢ Working capital days of company are better comparative to its peers in the
Industry. However, Inventory days are continuously rising along with receivable
days which needs to normalize in coming years to make overall improvement in
net working capital days.
Risks & Concerns:

Adverse currency movement: Exports constitute around 30% of total sales, and
company is planning an aggressive move in export markets to increase its reach in
branded products. Therefore sharp appreciation of Rupee might impact company’s
performance.
Increase in crude oil prices: Crude derivative is a major raw material used in the
manufacturing of technicals. Any significant volatility in crude oil price might have an
adverse impact on the realizations and hence the profitability of the company.
changes in regulatory requirement might impact the company’s aggressive foray into
foreign markets.
VALUATIONS
At Rs 3223, Excel Crop Care ltd trades at a:

Source: screener.in
discount rate (opportunity cost of capital) is 12% and terminal growth rate after
10 years is 4%.
by the market is 33%. i.e.; Market is expecting that Excel Crop care will be able to
grow their cash flow at 33% for next 10 years.
➢ If we look at the growth rate of cash flow for past 10 years, Excel Crop care has
grown their cash flow at 17%. Free cash flow= cash from operating activities
minus payment for purchase of fixed asset.


EXCEL CROP CARE LTD
Net Profit (Rs Cr.) 43 17 21 66 62 60 75 82 10% 6%
Return on Equity 19% 7% 9% 22% 18% 15% 17%
Assumptions: -
Calculations
➢ Current market cap is above the discounted market cap which suggests that
market has fully discounted the optimistic growth in profits.
of around 6%.
Cr.
Conclusion: Excel Crop Care limited being acquired by Sumitomo Chemical Ltd. is
poised to grow with synergies expected from the company. However, considering the
current valuation, there is not much margin of safety and looks like market has already
priced in expected growth from this merger.
UPL
Introduction:
UPL is India's biggest agrochemical company and ranks amongst the world's leading
generics companies. Started as a small-scale unit to manufacture phosphorus, the
company is today a leading global producer of crop protection products, intermediates,
specialty and other industrial chemicals.
Journey so far:
Source: Company Presentation
The company has a customer base in 130 countries, operates in all continents and ranks
among the top five post patent agrochemical industries in the world. Its manufacturing
operations have expanded from three units in India to 33 manufacturing units (14 in
India and 19 international) in 12 countries.
UPL is present in over 130 countries, categorized into five geographies – North America
(excluding Mexico), Europe, Latin America (including Mexico), India, and RoW (Rest of
the world). Such geographical diversification enables the company to mitigate the risk of
slowdown in a particular market.
Business Model:
UPL has end-to-end process competence with a presence across the entire value chain.
This includes research & development, product development for the global markets,
registration, active ingredient manufacturing, formulation and packaging and
marketing/distribution.
UPL’s formulation plants are located around the world while its synthesis plants are
located in India, as formulation plants require lower capex while technical synthesis
plants are capex intensive. India has the advantage of 30-40% lower capex than
required for equivalent facilities in western countries.
Backward integration enables 70-75% of its manufacturing to take place in-house (50-
55% in India and 20% overseas). It imports 10-15% from China and Europe (France and
UK). China shutdown of plants impact on company was comparatively less as major
raw material is manufactured in-house by company. In-house manufacturing not only
helped to reduce dependence but also contribute to high gross margins for company. A
strong in-house R&D capability has also helped company to improve innovation rates
Index as company is continuously launching and registering new products.
Segmental Performance:
Segmental Revenue FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
(INR Cr.)
North America 1,283 1,440 1,872 2,122 2259 2612 2888 3083
Growth % 12% 30% 13% 6% 16% 11% 7%
Europe 1225 1421 1697 2016 2033 1925 2148 2305
Growth % 16% 19% 19% 1% -5% 12% 7%
Latin America 0 1985 2507 2856 3406 4273 5,396 5693
Growth % 0% 26% 14% 19% 25% 26% 6%
India 1494 1719 1784 2245 2622 2992 2963 3189
Growth % 15% 4% 26% 17% 14% -1% 8%
ROW 1896 1199 1326 1532 1770 2542 2,914 3108
Growth % -37% 11% 16% 16% 44% 15% 7%
Total 5898 7764 9186 10771 12090 14344 16309 17378
Growth % 32% 18% 17% 12% 19% 14% 7%
1. North America:
Revenue from North America has grown at a CAGR of 7% in FY18. UPL has a strong
presence in key crops of the region like rice, fruits and vegetables. Company has a
subsidiary- Riceco in North America, focusing only on rice herbicide products like
Interline, Blazer, Shutdown and Satellite. UPL Growth of 7% against the industry
growth of 3% was mainly driven by Rice herbicide portfolio as acreages which were
reduced last year, increased this year.
2. Europe
Sales in European region grew by 7% in FY18 despite the industry registering negative
growth of 2%. The company launched 4 new herbicides and 9 new insecticides in the
region. Business in Germany has witnessed decent signs of revival, while very dry
conditions prevailing in Italy and Spain have resulted in low disease pressure, thus
leading to lower use of herbicides in the region.
To support European growers and processors, the sugar sector was originally subject to
production quotas and a minimum price. However, From 30 September 2017, the EU
(European Union) has abolished the quota system for sugar. Sugar beet is a key crop for
UPL; hence, the policy changes have helped to drive UPL’s Europe revenue. Growth in
the region was primarily driven by herbicide portfolio due to increase in the acreage of
Sugar Beet crop.
UPL has diversified presence across countries in the geography, with Germany, France,
Italy, Spain, UK and Netherlands contributing over 60% of revenue. The company also
has strong presence in major corps of the geography – sugar beet, oilseeds, and fruits
(grapes and others) & vegetables. However, there exists a gap to bridge as far as cereals
are concerned.
Europe is one of the toughest markets from the perspective of registration approval. The
entire process required a total timeframe of 4-5 years; hence, UPL has already started
applying for registrations for various fungicides and herbicides focusing on cereals. The
company expects to get approvals for some of the applied registrations by FY20.
3. LATAM
The LATAM region, which contributed 33% of UPL’s overall revenue in FY18, has grown
at a CAGR of 6% in FY18 compare to LATAM market de-growth of 4% YoY. The year
started with high channel inventory in the region whereas delayed rains in North Brazil
and dry season in South Cone/ Argentina remain a cause for concern. Also, pre-
placement activities were delayed as channel partners waited for the start of the season
before placing new orders.
Tie-up with Bayer in Brazil:
According to UPL's management, Bayer has developed a product which is more effective
if used in conjunction with UPL's product Unizeb. Bayer has agreed to collaborate with
UPL and take advantage of the synergies created. The collaboration will help UPL to
increase their presence in the field and touch points with the farmers.
4. India
India sales grew by 8% in FY18. India is the second largest revenue contributor for UPL
after Latin America, contributing 18% of overall revenue as of FY18. For UPL, India is
one of the geographies, where it has presence across all crops and across all regions.
Rice pesticides contribute 25% to its revenue, cotton pesticides 31%, and fruits &
vegetables 16%.
UPL’s brands Ullala, Saaf and Phoskill have crossed a turnover of INR1b, and going
forward, its strategic focus on fruits & vegetables is expected to deliver sustainable
growth in the foreseeable future.
The company witnessed significant growth in new fungicides, Avancer Glow and
Cuprofix, which was launched last year. UPL introduced 3 new nutritional
specialty/biological products in Q4FY18 which are received well in market. Mixed
rainfall in the country, with southern states receiving less/delayed rains, has led to an
unfavorable demand environment.
5. Rest of the World (ROW)
Rest of the World (ROW) sales grew by 7% in FY18, led by double-digit growth and
improved performance in South East Asia and Africa. The major countries constituting
this geography are Australia, Turkey, Japan, Indonesia and China.
The company has grown in different countries owing to its strong distribution network.
Of late, UPL has created a regional base in Kenya, with a focus to improve its presence
in the African continent.
The company has a presence across key crops – rice across Asia; cotton, wheat and
sugarcane in South Asian countries; and pulses in Africa. The new product launches
have significantly contributed to the overall sales in the region. The company has
successfully launched two new products, Satellite and Lifeline in Turkey, while a decent
improvement in the local business in China was also evident. Dry weather in Australia
compared to last year is likely to undermine the growth prospects of the summer crop in
this region.
Product Mix:
The product mix for FY18 comprised 28% Insecticides as against 26% in FY17 while the
share of Fungicides and Herbicides stood at 28% and 32%, respectively as against 31%
and 32% in FY17.
Revenue Contribution (FY18)

Others
12%
Insecticides
28%
Fungicides
28%
Herbicides
32%
Capex spend in FY18

UPL spent 50% of the Rs14.2bn capex on new products as well as plants. For FY19, the
management has guided for a capex of Rs15 bn, of which Rs 3-3.5 bn will be towards
registration of new molecules/products.
60%
50%
50%
40%
30%
20%
12% 10% 10%
9%
10% 4% 4%
0%
New Products Supply Sustainability Cost Maintenance Infrastructure Others
/ Plants Security & Safety Reduction
UPL is focusing on introducing combination of products that address unmet needs of

farmers. Over the past few years, UPL has increased its R&D spend to launch
differentiated off-patent products (unique combination products) globally. Products
such as Sperto, Triziman and Tripzin are examples. The contribution of differentiated
products to total revenue (measured as the innovation rate) steadily increased to 19% in
FY19 from 2.5% in FY14.
Product Innovation Rate

20.0% 19.0%
18.0%
16.0% 15.0%
14.0%
14.0%
12.0%
10.0%
8.0%
6.0% 5.0%
4.0% 2.5%
2.0%
0.0%
FY14 FY15 FY16 FY17 FY18
Off Patent Opportunity:

Generic pesticides account for ~66% of the global crop protection market in 2016, while
proprietary off-patent and patented pesticides account for the remaining share. Several
patented active ingredients expected to go off patent (around worth of $ 4.1 bn (over Rs
26,000 Cr.)) form an attractive opportunity for post patent/off patent companies. UPL
has been a frontrunner in identifying and registering products with robust demand even
after they go off-patent, and this is reflected in the continuous rise in its number of
registrations across geographies.
Considering the off-patent opportunity and consolidation of post patent players in the
market, new product launches and registration will be the key driver for success in the
future. Management has also guided that they will be aggressively working on new
product registration and product launches in the upcoming year.

The story of UPL’s growth in the last decade is an inspiring one; from a 200-million-
USD company to a 2-billion-USD company within a span of 10 years. In this story, the
growth was made possible by the strategic decisions taken by the family. This includes a
spree of acquisitions made by company. The growth was both organic as well as
inorganic and it dealt with it by developing its man management capabilities.
Jai Shroff, Global CEO and the eldest son of the founder, is the driving force behind this
inspiring journey. His father, Rajnikant D Shroff, who was more of a chemist than a
businessman, in Jai’s own words, started the company and built the plant, processes
and systems. Jai joined the company in the mid-80s when the company decided to enter
the branded agrochemical business. Those were tough times with issues such as
prolonged payment cycles of small-time dealers, too much spent on creating
manufacturing platforms, anticipating demand pick-up which didn’t happen, etc. But
the turnaround was not too far away. The decision of taking the business global while
keeping India as the manufacturing hub finally paid off.
“In the mid 90s, UPL started acquiring companies for distribution access. While they set
up our own organic business in the US, company also acquired a business in Europe.”
Today, UPL operates in almost all the agricultural markets in the countries around the
world with manufacturing facilities across the globe.
Company has worked on succession planning and being a second-generation family
business, UPL is now run by Jai and his brother, Vikram. However, Promoter holding in
the company is mere 28%. Company has also been maintaining a healthy dividend
payout of 20.56%
Board of Directors
Mr. R. D. Chairman & He is a graduate in Chemistry from the Bombay University. He
Shroff Managing established a novel process of manufacturing mercury salts in a plant at
Director UK and was paid royalty for it by the British company. He mastered red
phosphorous and quickly moved on to the production of other
chemicals like aluminum Phosphide (fumigant) and zinc Phosphide
(rodenticides) for agriculture.
Mrs. S. R. Vice- Mrs. Sandra Rajnikant Shroff has been associated with Uniphos
Shroff Chairman Enterprises Ltd. (erstwhile United Phosphorus Ltd.) since its inception.
She has held various important positions in commercial, educational
and social fields.
Mr. J. R. Shroff Global CEO of Mr. Jaidev Rajnikant Shroff is a science graduate. He is Global CEO of
the Group the Group and he has worked with the Group for more than 23 years.
He has vast experience in various areas of the Group’s operations
Mr. V. R. Executive He is a Chemistry graduate from the University of Mumbai, with a
Shroff Directors professional post-graduate degree from the Harvard Business School of
Management. He is instrumental in making strategic decisions for the
company, leads many of the functions, and has been responsible for the
execution of several projects of the group.
Mr. Pradeep Independent Mr Pradeep Goyal is an engineer. He completed his BTech (Metallurgy)
Goyal Director from Indian Institute of Technology, Kanpur (1978) and obtained his
SM (Materials Science and Engineering) from the world-renowned
Massachusetts Institute of Technology, Cambridge, MA, USA, (1980).
Dr. Reena Independent A D.Sc. in Organic Chemistry (1971) from the University of Nantes
Ramachandran Director (France) and Ph. D. in Chemistry (1967), University of Allahabad, India.
Has over nine years of research experience in the field of natural
product chemistry, medicinal chemistry, textile chemistry and physical
organic chemistry.
Mr. Pradip Independent Mr. Pradip Pranjivan Madhavji, B.A., B.Com., L.L.B., serves as a
Madhavji Director Director of IDFC Asset Management Company Limited. Mr. Madhavji
has many years of experience in the fields of finance and
administration.
Mr. Hardeep Independent Mr. Hardeep Singh is BA Hons in Economics from Pune University and
Singh Director Advanced Management Programme Kellogg School of Management.
Mr. Hardeep Singh started his carrer with the Tata Group and rose
through the ranks to be Director – Agrochemicals Rallis India Limited.
During his stewardship Rallis Agrochemicals become the largest
Agrochemicals business in India with unique assets and capabilities.
Mr. Vasant P. Independent Vasant P. Gandhi is Professor at the Indian Institute of Management,
Gandhi Director Ahmedabad (IIMA). He has researched and published extensively in
the domain of agriculture and food and has been Chairman or member
of the Editorial Boards of a number of national and international
journals.
Mr. Vinod Independent He is a graduate in Chemical Engineering and also holds a BTech from
Sethi Director Indian Institute of Technology (IIT), Mumbai and an MBA in Finance
from Stern School of Business, New York University. Mr Vinod Sethi
served as Managing Director of Morgan Stanley Investment
Management Inc until February 2001 and served as its Chief
Investment Officer and Portfolio Manager for 12 years
Moat Analysis

Management Management has decades of experience in Wide Moat
Agrochemical Industry and has played a crucial role in
turning around the company’s prospects.
UPL has managed to become one of the world’s top

players in branded generic segment mostly due to
management’s decision to pursue aggressive
acquisition strategy in order to increase International
presence while keeping India as a manufacturing hub
to manage costs.
Product Company has been quite consistent in launching Wide Moat

Portfolio products which has significantly improved its
innovation Index. UPL has a broad portfolio with
products catering to more than 10 major crop sectors.
Company is also aggressively spending and also
planning to increase their spending on new product
launches and registration of molecules.
Distribution Despite the dominance of existing MNCs in the key Wide Moat
markets of LATAM, Europe and North America, UPL
has been able to make significant inroads in these
markets by engaging with many large distributors with
established channel and through acquisition, giving
UPL deeper penetration for its existing brands.
R&D Company focuses on reverse engineering process of Wide Moat

technicals and has expertise in various chemicals.
They are strategically positioned to benefit from off

patent opportunities due to their strong R&D skills
which can help them to reverse engineer products
quickly and get benefit of early registration across
markets.
Financial Analysis
UPL Ltd. has grown its Revenue at a CAGR of 17% from last 8 years. Company clocks
around 20% of revenue from Domestic market and 80% from exports with branded
sales contribution of 86% of total sales.
Net Sales
20,000
17,378
18,000 16,312
16,000 14,048
14,000 12,091
12,000 10,771
10,000 9,186
7,671
8,000
5,761
6,000
4,000
2,000
0
UPL Ltd. - Common Size P&L Account

Year / Rs Cr. FY12 FY13 FY14 FY15 FY16 FY17 FY18
Expenditure
Cost of Raw Material Consumed and 52.9% 51.0% 50.5% 49.8% 48.3% 47.9% 46.7%
Purchase of Traded Goods
Employees Benefit Expenses 8.9% 9.3% 8.8% 8.6% 10.2% 10.0% 9.9%
Other Expenses 20.2% 21.7% 21.9% 22.1% 24.5% 23.8% 23.2%
Total Operating Expenditure 82.0% 82.0% 81.2% 80.5% 83.0% 81.7% 79.8%
Gross Profit 47.1% 49.0% 49.5% 50.2% 51.7% 52.1% 53.3%
Operating Profit / EBITDA 18.0% 18.0% 18.8% 19.5% 17.0% 18.3% 20.2%
Other Income 1.2% 1.1% 1.2% 0.0% 2.2% 2.7% 2.4%
Depreciation 3.8% 3.9% 3.8% 3.5% 4.8% 4.1% 3.9%
Profit Before Interest & Tax (PBIT) 15.4% 15.3% 16.2% 16.0% 14.5% 16.9% 18.7%
Interest/Finance Costs 5.4% 4.7% 4.5% 4.3% 5.0% 4.5% 4.5%
Exceptional Income / Expenses -0.5% -0.4% -0.9% -0.1% -1.5% -0.6% -0.4%
Profit Before Tax 9.5% 10.2% 10.8% 11.7% 8.0% 11.8% 13.8%
Current Tax 1.5% 2.4% 1.1% 2.5% 2.4% 1.8% 1.3%
Other Taxes 0.1% -0.2% 0.9% -0.5% -1.3% -0.7% 0.2%
Total Tax 1.7% 2.2% 2.0% 2.0% 1.2% 1.2% 1.6%
Profit After Tax 7.9% 8.0% 8.7% 9.6% 6.8% 10.6% 12.2%
➢ Gross profit: Company has been maintaining gross margins above 50% even in
challenging environment due to their extensive presence in manufacturing of
technical molecules.
• The management stated that the business environment in China continues
to be challenging with implementation of stringent environmental norms
and new measures on industrial safety in the chemical industry.
• The management highlighted that the company is securing its supplies
through backward integration besides migrating to strategic suppliers in
India to mitigate risks. The company is also looking at working with some
suppliers in China, who would supply RM exclusively to UPL.
➢ Operating profit has increased due to better product mix, cost rationalization
and operating efficiency in manufacturing, sourcing of raw material and
distribution.
➢ Finance Cost includes net exchange differences on account of profit/loss

arising on foreign currency loans, mark to mark losses on Forex contracts related
to borrowing and loans & advances.

➢ UPL has equity of Rs 101 Cr. divided in 50.84 Cr. shares of Rs 2 each. The net
worth stands at Rs 7315 Cr. as on March’17.
➢ Company has debt of 6361 Cr. with Interest coverage ratio of 4.06. Company did
some repayment of debt (around 1629 Cr. in Q4FY18) using internal cash flows
and now holds Rs 2966 Cr. in cash & Investments.
➢ Company also has been diluting equity along with raising debt in past to secure
funds for organic and inorganic expansion.
➢ ROE and ROCE are 37.96 % and 19.57 % for FY18.

Receivable Days 93 102 102 100 106 113 118 124
Inventory Days 76 78 78 77 82 86 87 97
Payable Days 79 75 90 101 110 113 124 137
Cash Conversion Cycle 82 98 90 76 77 86 87 84
Source: ratestar.in
The overall working capital cycle has remained fairly constant at 88-90 days over the
past four years despite an increase in contribution from Brazil which has a high
receivables cycle (150-180 days). The global crop protection industry has high working
capital requirements with 90-120 receivable days in the USA and 120-150 days in the
EU. But, tight working capital cycle of UPL shows strong financial discipline by the
management.
Risks & Concerns:

Adverse currency movement: Exports constitute around 80% of total sales, and
UPL operates in different geographies in various currencies. Therefore, sharp
appreciation of Rupee might impact company’s performance.
Increase in crude oil prices: Company is into manufacturing of technicals in which

crude derivative is major raw material in some molecules. Any significant volatility in
crude oil price might have an adverse impact on the realizations and hence the
profitability of the company.
changes in regulatory requirement might impact the company’s performance.
VALUATIONS
At Rs 623, UPL ltd trades at a:

Source: screener.in
discount rate is 12% and terminal growth rate after 10 years is 4%.
➢ By doing reverse DCF with above assumptions, I found that the implied growth
rate by the market is 21%. i.e.; Market is expecting that UPL will be able to grow
their cash flow at 21% for next 10 years.
➢ If we look at the growth rate of cash flow for past 8 years, UPL has grown their
cash flow at 13%. Free cash flow= cash from operating activities minus payment
for purchase of fixed asset.
UPL LTD
Net Profit (Rs Cr.) 558 556 775 950 1144 940 1727 2123 21% 22%
Return on Equity 16% 14% 16% 18% 20% 46% 24%
Assumptions: -
1. Taking optimistic scenario that Net Profit will grow at 12%.
Calculations
of around 15%.
discounted market value is Rs. 29515 Cr. Less than current market cap of 31591
Cr.
Conclusion: UPL has shown tremendous growth in last decade and is one of the
leading players in generic branded space. UPL has also been increasing market share
with consistent introduction of new products coupled with aggressive branding of
products. With significant off-patent opportunities in the coming years, presence across
countries and low income of farmers leading them to down trade to generic products,
UPL is bound to get benefited with these developments.
Scuttlebutt Finding:
I have approached few dealers and farmers in Udaipur, South Gujarat (Surat &
Ankleshwar) and in some villages of Maharashtra in order to collect information about
various pesticides used at ground level by farmers. Following are my findings of the
scuttlebutt I conducted on the agrochemical industry but there might be some errors
because of sampling bias.
1. In Udaipur, PI and Dhanuka are more active and farmers sometimes demand
products referring to their products name due to their field work. Rallis and Insecticide
India are not very active in this region. While Syngenta has became very active since last
year and their staff is often paying a visit to distributors and dealers to push sales of
their products.
➢ Distributors play a pivotal role in generating sales for the companies as the
farmers usually ask for their recommendation before buying the product.
➢ Dealers stated that they hardly buy products of Rallis India. They only buy their
products when the products of same molecule are unavailable. The only product
that has shown traction in Udaipur is Tafgor (Dimetheoate Molecule). It is highly
effective in controlling the sucking and caterpillar pests.
➢ Syngenta has done aggressive marketing over the last couple of years, but the
sales has not increased in proportionate manner due to their higher prices
compared to other available products.
➢ Bayer products are better in quality and are sold at same price compare to other
players so farmers prefer Bayer products over Syngenta.
➢ Insecticide India product Monocil used to have good sales in Udaipur but was
recently banned by Government. Management also stated that they will get hit on
their top-line due to ban on some of the products of the company.
➢ Excel Crop Care product Endosulfan was widely used but was also banned by
Government. Quality of excel products is very good but company is not very
active in approaching farmers and distributors in this region.
➢ UPL sales is also good and product named Ulala-a systemic insecticide for
controlling the sucking pests is widely sold.
➢ Profenofos Super Molecule (Used for protecting the crops and plants from any
damage caused by the insects) - products available from Syngenta, Insecticide
India, PI Industries, Excel Crop Care, etc is a popular product in Udaipur.
➢ Insecticide Products of PI Industries like SIMBAA - effective on different mites
through its contact and fumigant action on a wide range of vegetable and
plantation crops and COLT- Controls wide range of sucking, biting, chewing pests
on wide range of economically important crops widely used.
➢ Sales of products like Targa Super and Dhanzyme Gold of Dhanuka is good in
Udaipur.
➢ Overall, Insecticides and Fungicides are more sold in this region.
2. In Maharashtra, UPL is more active and make a visit once in a year. Since, these
villages are very far and small, companies rarely do field work here. Rallis and UPL- two
old companies have penetration in these regions and no listed companies are making
efforts to penetrate in these regions till now.
➢ Syngenta has also reached to these villages but same reason was given by dealers
for not much sales that prices of Syngenta products are higher than other
products and quality is almost same. Infact, they prefer selling Bayer products
because of good quality and reasonable price.
➢ Rallis old products like Tata Mida for cotton and vegetable is sold and no new
products have sales here. While UPL is active and do try to sell new products
along with old products in this region, like UPL Phoskill Monocrotophos
Insecticide is widely sold.
➢ In these regions, farmers completely depend on dealers for products and do not
have much knowledge about products and company’s name. So, basically dealers
push products to farmers based on their availability and margins.
3. In south Gujarat, herbicides are sold more. We can say that 70% sale is of herbicides
and 30% is of Insecticides. Again field work of Bayer and Syngenta is quite promising
and dealers prefer their products because of high quality.
➢ I had a Conversation with Insecticide India salesmen, he said that though
Insecticide India’s products have good sales, but it can never be good in
comparison to these MNCs because of their specialized products.
➢ Insecticide India’s “Green Label” product (same molecule as Nominee gold) is
extensively used by the farmers because of price advantage compared to Nominee
gold, both having same effectiveness – farmer prefer Green label due to low price.
➢ Insecticide India’s products have better sales than Rallis, although Rallis old
products like Rallis Panida (a pre-emergence Herbicide), Atrataf (Pre-emergence
Herbicide used for the control of annual grasses and broad leaved Weeds) and
Tata Metri (pre- and post-emergence herbicide recommended for use in Wheat,
Soybean, Potato, Tomato & Sugarcane) sales is comparatively better in
Ankleshwar side though Surat dealers don’t sell much of Rallis products.
➢ According to one distributor ( with experience of more than 50 years in this
sector) claims that their (Rallis) sales is negligible and company is not interested
in either launching new products nor doing any field work like putting efforts to
educate the farmers.
➢ Farmer demand products of Bayer, excel crop care and Monsanto by taking their
products name. Excel crop care product quality is really good and field work is
better than Insecticide India, Dhanuka and Rallis but not better than Bayer,
Syngenta and UPL. Products like Excel mera and Glycel are demanded by the
farmers.
➢ UPL has very good presence in these regions with their product like Uniquat 250
(herbicide used only for the control of a wide range of grasses and broad leaf
weeds) is demanded by farmers.
➢ Dhanuka product sales is average and Targa super sales is good in Saurashtra
(North Gujarat side of Gujarat). Their field work in south Gujarat is poor and
dealers don’t prefer their products due to same.
➢ PI field work is also not good and in south Gujarat, their products are hardly sold.
The distributors are inclined to push the products of the company which offers them
higher credit period and decent margins. The top MNCs like Bayer, UPL and Syngenta
give lesser margins to the distributors as they excel in field work. The margins of Excel
crop care are comparatively better than Bayer, UPL and Syngenta but are less than other
companies like Dhanuka, Insecticides India and PI Industries. All these companies
extend the credit period for 60-90 days but the farmers usually take a year’s time to pay
them back.
The local dealers still prefer to push the products of local players as they extend better
credit period and higher margins to them. But some distributors focus on products of
listed entities and MNCs only as their product quality is better.
According to an experienced distributor, the situation of farmers has worsened as the
young generation is not interested in farming activities. In the last decade or so, there
has been a significant rise in land value, the young generation doesn’t hesitate in selling
a piece of their land to sustain. Hardly 20%-30% farmers are still interested in farming
and are inclined towards trying out new crops on their land. These farmers prefer
quality products and generally pay on time. The other category is not serious about
improving their farm productivity. The dealers find it tough to collect their payments
from some of these farmers as well. Overall, situation isn’t rosy on the ground level,
MNCs are active in field work and focus on bring quality products to the market while
their Indian counterparts are trying to come up with specialized products but are still
finding it difficult to compete with global MNCs like Bayer, Syngenta, Monsanto and
UPL.
References:-
1. Annual Reports and Conference call.
2. www.valuepickr.com
3. Agrochemical Knowledge report: ficci
Disclaimer: - I have taken an initial position in PI Industry, so my views may be

biased. This is not a recommendation to Buy, Sell or Hold. I am not a SEBI registered
analyst. I wrote this document to organize my thoughts and deepen my understanding
about the companies and industry.
Author: Divya Chawla

Twitter: @divyachawla0093
Website: - equityunravelled.wordpress.com
Date: 9th July’18

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Indian Agrochemical Industry

Indian Agrochemical Industry-

Indian Agrochemical Market (USD Billion)

Domestic (USD bn) Export (USD bn)

Source: Analysis by Tata Strategic

MARKET SHARE OF AGROCHEMICALS(FY15)

➢ Indian crop protection market is dominated by insecticides which command 60%

State-wise Consumption of Pesticides in India(fy15)

Understanding Value chain of Agrochemical Industry:

➢ Generics are a commodity business consisting of a large number of players

The technical grade products registration can be obtained in three ways:

i. Provisional registration u/s 9(3b)

ii. Regular registration u/s 9(3)

iii. “Me-Too” Registration u/s 9(4)

Innovator Companies Launch Innovator Companies Launch

During Patent Phase Post Patent Phase

Indian Entity Applies for permission to launch

Factors impacting Agrochemical Industry:

2. Limited farm availability: As per Indian agriculture census 2010-11, per

Per Capita Arable

Source: Analysis by Tata Strategic

India’s crop yields significantly lower than world average

3. Government’s impetus to boost farm income: Prime Minister Narendra

4. Growth of horticulture & floriculture: India has witnessed a massive

5. Lower per capita consumption in India Vs Global counterparts: India’s

Pesticide Consumption (kg/ha) Comparison (FY15)

Source: Analysis by Tata Strategic

Major Risks and Challenges:

3. Dependence on vagaries of Crude oil prices: Crude oil is an essential raw

4. High working capital requirement: The industry dictates large working

5. Lack of awareness among farmers: There is a general lack of awareness

6. Inefficient Distribution systems: The agrochemical industry caters to large

7. Low Research and Development (R&D) spending: In India, the average

8. Threat from Genetically Modified (GM) seeds: Genetically modified seeds

9. Rising demand for organic farming: The Indian government is taking

10. Regulatory risks: The agrochemical Industry is catering to politically

➢ Recently, the government has set up a committee for reduction/control in prices

PORTER’S FIVE FORCES ANALYSIS: -

KEY POINTS DETAILS CONCLUSION

THREAT OF Backward Integration has ensured that the LOW THREAT

Supply chain management is very important to

There is no substitute for pesticides available in

Dhanuka Agritech Ltd

Though management is interested in contract manufacturing but considering the

Ad & Sales Promotion Spend

Source: annual reports

➢ Dhanuka is a family run enterprise with management focus on core business.

➢ At present, Promoter holdings are 75% suggesting their confidence in Business.

Key point Details Conclusion

Source: annual reports

➢ Company is the market leader in Insecticide segment with contribution to

REVENUE CONTRIBUTION (FY17)

➢ Company’s contribution to revenue from south is significant around 32% in FY18.

Dhanuka Agritech Ltd. - Common Size P&L Account

➢ Employee cost has increased as company continuously hire talented

➢ Other expenses include mainly manufacturing, administrative and selling &

Cash Conversion Cycle

Risks & Concerns:

Dependency on global innovators for technical sourcing: Dhanuka is

Dependence on domestic market: Dhanuka is completely focused on domestic

Price-earnings ratio 21.17 Price to Cash Flow 42.31

Expected Return model

Insecticides India Limited