India Pesticides Ltd

Bad set of results from IPL, with sales declining by 8% and EPS by 63%. There was really interesting commentary from management about newer products being lower margin (despite having higher realizations). Additionally, these products face more competition from China, unlike their current product basket. There is a material risk for IPL’s longer term margins as these newer products seem more competitive, and maybe company finds it hard to scale back to 25%+ margins. This being said, even 20%+ EBITDA margin is in the highest decile in this industry. Concall notes below:

FY24Q1

• 17 cr. of net realizable value was taken due to sharp drop in prices, 7.3 cr. was sold and 9.8 cr. inventory is still to be sold
• Technical prices dipped by ~20%, expect to grow by 10% in FY24
• Volume drop of 8-10%. New products have higher realizations, but margins are lower as Indian formulators try to offer same absolute rupee margins per kg
• Capacity utilization was lower at 51% (vs 70% in Q4)
• New product contribution was 40 cr. and should be 170 cr. in FY24
• High cost inventory will be consumed by Q2 and hope to get to 20% EBITDA margins by Q3. Current inventory is 190 cr. (from 225 cr. in March 2023). Do not expect any further inventory losses unless there is another round of price cuts
• FY24 capex: 50 cr. for IPL (1 intermediate + 1 technical block + power of 33 KVA) + 60 cr. for Shalvis. Asset turns will be 2.25-2.5x for newer capacity
• Local raw material sourcing increased from 58% in Q4 to 65% in Q1 (of imports, 50% comes from China)
• Newly launched herbicide has started being exported to Europe and plant has been stabilized. It can be “aclonifen”
• Have received 20 cr. order from USA customer for the new thiocarbamate product
• New launches: apart from the herbicide, have launched another product and 2 more products will be launched in FY24. Two technical are import substitute and 1 is for export. Also launching an intermediate for a herbicide they manufacture (backward integration)

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