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India Pesticides IPO: Facts, Stats, Opportunities and Risks

Jun 28, 2021 5:45 AM 4 min read

After a week that saw four IPOs (Shyam Metalics, Sona Comstar, Dodla Dairy and KIMS), India Pesticides opened its ₹800cr ($107.9m) public issue.

About the Company

Incorporated in 1984, India Pesticides is one of the biggest agrochemical manufacturers in the country. It operates along two business verticals - technicals and formulations.

FYI: In the Pesticides and Agrochemicals (PAC) sector, manufacturing involves the production of a basic active ingredient aka the “technical” that acts as the base or building block for the “formulation”, which is the finished pesticide, formed by mixing the technicals with relevant solvents and additives.

Currently, the manufacturer has registrations and licenses for 22 agrochemical technicals and 125 formulations for sale in India and 27 agrochemical technicals and 35 formulations for export purposes.

The company commands a domestic monopoly over the manufacturing of technicals like Folpet and Thiocarbamate (of which it is among the top five producers globally). It also produces 30+ formulations of fungicides, herbicides and insecticides.

While its technicals mainly head to 25+ countries in Asia, Africa, Oceania and Europe, the bulk of its formulations are sold domestically. It also manufactures API's of anti-scabies and anti-fungal drugs and houses R&D facilities.

India Pesticides has two manufacturing plants, both in Uttar Pradesh (Lucknow and Hardoi). Negotiations with the state government for a greenfield expansion at a new site are ongoing.


Fast Stats

  • The IPO opened today and closes on June 25th. The listing date is July 5th
  • It includes a fresh issue of ₹100cr ($13.5m) and an offer for sale of ₹700cr ($94.44m)
  • IPO price: ₹290-296 ($3.91-3.99) per equity share
  • Promoter holding change post-issue: From 82.68% to 72%
  • Proceeds are expected to be used to fund working capital requirements and for general corporate purposes
  • As of market close last week, the IPO was subscribed 1.05x times: 2.06x in the retail category, 0.00x in the QIB category and 0.10x in the NII category.
  • Link to DRHP


Money Matters

The IPO is priced at 46x the company's FY20 earnings. Listed peers as identified by management on Page 106 of the DRHP trade at an average of 51.01x and a median of 37.15. However, this does not capture the 40%+ EBITDA growth that India Pesticides is seeing. On a forward basis, the IPO appears to be priced at 25.3x.

FYI: In January, the pesticide manufacturer had allocated 3.7 lakh shares to two investors at ₹33.70 ($0.45)/share via the private placement route. This indicates that the price sought from public shareholders today is nine times higher.


Sector Analysis

India has more arable land than any other country in the world. And the second-biggest population. However, penetration levels of pesticide usage in the country have historically been moderate, whether due to popular apprehension about such chemicals or due to lack of adequate awareness about their uses. India is also the third-largest pesticide exporter by volume behind China and Germany. 

The Indian pesticides market was worth $3.13bn in 2020. The near-term prospects of the sector are invariably intertwined with the agricultural industry. On the one hand, rising urbanisation has reduced the extent of arable land in the country. On the other hand, a growing population means growing food demand. Ergo, the need for pesticides to boost crop yields will become all the more important.

Furthermore, India’s level of farm mechanisation of about 45% stands fairly low and significantly below countries such as the United States, Brazil and China with 95%, 75% and 57% respectively. The growth runway here can drive a meaningful uptick for the entire agriculture ecosystem which as such should bode well for all ancillary verticals. 

This will undoubtedly receive a boost from private sector incentives and Government initiatives to provide credit facilities to farmers to encourage increased - and proper - usage of pesticides.


Reading the IPO Room

Coming to India Pesticides, both its business verticals contribute more or less evenly to its books, indicating a low risk concentration. The near-term outlooks looks rather promising, given that as many as 19 technicals are expected to go off-patent between before 2026 - a $4.2bn opportunity.

Its numbers are impressive. Through FY18-21, the company’s revenue, EBITDA and net profit rose at a CAGR of 37%, 48% and 60% respectively. It also boasts of an industry-leading return ratio (RoE) at 35% (in FY21).

Unless there’s an abrupt downtick in pesticide demand or the company’s products are found to be unsafe or unhygienic, India Pesticides looks like a good bet.

That said, there are risks involved. The regulatory environment for pesticides is explicably stringent and ever-evolving. The Pesticide Management Bill 2020 could regulate even the advertisement of pesticides while a Government-proposed measure could ban the import, manufacturing and sale of as many as 27 pesticides. Furthermore, the contribution of the export of technicals to revenues was more than 65% in 6MFY21. This makes the company's dependence on foreign deals and regulatory trends more than ideal.


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