India Pesticides Ltd

My notes from the last two concalls are below. IPL has been able to do good growth in sales, however margins have been lower due to raw material and power cost inflation.

FY23Q3

• Hamirpur commercialization will happen in FY24, as plant must be operational in FY24 for tax benefits. Will start with intermediate manufacturing as it doesn’t have much regulatory requirements
• Not facing any demand problems
• New product contribution was 25 cr. this quarter, expect 250 cr. from incremental capacities in FY24
• New product contribution: 12% of sales in 9MFY23
• 8% volume growth + 8% price growth in Q3FY23
• Major competitors are based in Israel, very limited Chinese presence in their molecules. Customers are unable to increase product prices, but pricing have been very stable
• Export increase was driven by expanding global reach and customer base
• Have not completely used the high cost inventory, it should be consumed by Q4
• Not sure of reaching 50% gross margins, expect it to stabilize at 46-47%
• Projecting EBITDA margin of 23-25%
• Capex: 54 cr. in 9MFY23. Will maintain 100 cr. annual capex for next 3-4 years. Expect to maintain 2.5x fixed asset turns in incremental capex
• By FY24, can easily reach 1000-1100 cr. sales
• Technical volumes this quarter: 4000 tons (vs 3900 last year)
• Rice husk cost is around 850-900 currently, still carrying some high cost inventory
• Major portion of new herbicide sales will start coming in Q1FY24, must build inventory for that as it’s a Kharif product
• FY24: will launch 4 products

FY23Q4

• Guidance: 1200 cr. by FY25
• Newly launched herbicide received TEQ certification in the European Union
• Obtained registration for one thiocarbamate product in USA (will contribute 15 cr. in FY24 and has potential of 50 cr.). Will be launched by August. Received with a customer who started working with them in last 4-years
• USA currently contributes 30 cr.
• FY23 product launches: 10 formulations + 3 technical + 1 intermediate. New launches contributed 120 cr. to sales in FY23 and will contribute 175 cr. in FY24. New products are import substitutes and faces competition from China unlike current list of products where China is not a major player
• Expect fixed asset turns of 2.25-2.5x on newer capacity
• FY23 capex: Expanded installed capacity in Sandila by 2,500 MTPA to 24,000 MTPA (@ cost of 68 cr.). Running at 70-75% capacity utilization
• FY24 capex: Will incur 50 cr. capex at new plot in Sandila unit (2 blocks; to be commercialized by end of 2023; will have dedicated blocks for new molecules) + 60 cr. in Shalvis Specialities
• Indian Registrations: Received 6 technical registrations and 100 formulations
• Hamirpur: Will commence operations of first plant by Q4FY24
• Looking to supply a pharma intermediate to a Japanese multinational
• FY23 R&D: 12 cr. Making arrangements for some vapor-phase reactions, started nitration and hydrogenation. Expanding into stabilizer, additive products, and fluoro specialties
• Have long-term supply arrangements with major customers, based on a formula of conversion cost plus raw material costs adjusted every 3 months. Doesn’t include fuel or manpower costs
• High cost inventory prevails as inventories bought in February have seen 10-12% price decrease by May
• Reason for higher inventory is for a Kharif season product (45 cr. finished inventory)
• Hard to get back to 50% gross margins in near term
• Product ban: Ziram and Captan were not banned in India
• Legal: Out of 9 cases, 2 have been decided in company’s favor. All these are in relation to formulation business
• Captan & Folpet: Adama controls large part of volume, but IPL supplies low quantity to Adama. Very backward integrated compared to Adama, starting from chlorine

Disclosure: Not invested (no transactions in last-30 days)