Kalpesh’s Portfolio

India Pesticides Ltd

Hi @thakurvi,
First of all I have invested big chunk of my NetWorth in Agrochemical sector, but I must confess that I’m newbie in this sector, don’t understand much but trying to learn.

I think comparing IPL with PI is not fair, PI serves mostly big MNC’s and its business is in different orbit. PI has proved time and again that its not a cyclical business. I would have certainly invested in PI at this PE but I know returns will be not great. at least will not serve my expectations.

Also I would recommend you to calculate PE at normalised earning and not depressed earnings(Also check forward PE of both with 4 year forward earnings). You can also check P/B which is more stable and reliable metric.

Dharmaj Crop is a formulation focused company, while IPL is Technical and intermediate focussed company. As per my view formulation is a difficult business to be in, because you have to constantly launch new formulations every few years as corps develop resistance to it.

Technical/intermediate is also difficult products to develop but once you develop that you can sell it for many years and keep scaling up manufacturing capacity, where your chances of winning(at scaling up) are very high.

Dharmaj is trying to backward integrate into Intermediates, where they do not have much prior experience, so my take on them succussing in it is 50-50 chance(I do not track Dharmaj, so take my view with pinch of salt).

Margin profile :

• IPL is highly backward integrated and their main competitor is not in China not even in EU or US or Japan but in Israel, you know how forward Israel is in developing technologies, you can guess what kind of work IPL is doing.
• Dharmaj is into formulations so they buy technical and intermediates from others and just mix them and sell, their main job is to market it and develop distribution/retailer network.

You can see the difference between margin profiles of both companies.

Whats discounted in price :

• IPL is facing worst demand side issue in history, and their revenues and margins are at low level(margins at historically low levels)

• Dharmaj is india focused business where it is not going through revenue & margins declines, also India Agchem is not facing any demand side issues.
  So i’ll not bet on any expectations of big PE expansion for this company.

Recently launches of IPL are into import substitute from China, that is where they are facing hit at their face at the moment. Agchem industry has suggested for anti dumping duty, gov may do it, that will be first trigger,
Second trigger will come from global demand come back, people behave irrationally so does corporates, they will bring down inventory to the unsustainably low level out of fear and because competitors are doing so. and once the demand come back there will come huge demand out of nowhere, and companies like IPL can make great margins and huge revenue growth, and so huge PE expansion.

Risk: Some of Indian peers are doing capex for products where IPL is market leader.

Disc: Invested and heavily biased, these are my views and I can be wrong, not a investment advice.