PL Stock Report: Insecticides India (INST IN) - Q2FY24 Result Update – Decent results in challenging times - Accumulate

Insecticides India (INST IN) - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd.

Rating: ACCUMULATE | CMP: Rs519 | TP: Rs600

Q2FY24 Result Update – Decent results in challenging times

Quick Pointers:

§ Capex of Rs1.1bn largely behind; likely to reap benefits 2HFY24 onwards.

§ Launched 5 new products during 1HFY24.

Insecticides India (INST) reported Revenue/EBITDA/PAT growth of 20%/20%/19% amid challenging times largely led by higher sales of value added products. B2C/B2B/exports contribution stood at 71%/26%/3%, as against 73%/25%/2% in the same period last year. Further, Maharatna products contributed 65% of overall revenues in 2Q’24 as against 59% in 1Q’24. Going forward, management remains confident on achieving revenue growth of 10-12% YoY in FY24E aided by a) commencement of new facilities; b) new product launches; and c) significant export registrations. However, remains cautious on margins and guided for 9-10% EBITDA margins. We largely keep our estimates unchanged for FY24/25E/26E. Maintain ‘Accumulate’ rating on the stock with an revised TP of Rs600/share (Rs550 earlier) based on 12XFY26 EPS.

High cost inventory provisions resulted in margin contraction: INST reported Revenue/EBITDA/PAT growth of +20%/+20%/+19% YoY better than our estimates. B2C/B2B/exports contributed 71%/26%/3% in 2QFY24. Gross margins declined by 180bps YoY to 24.9% led by lower price realizations coupled with provisioning of high cost inventory in 2QFY24. During 1HFY24, company reduced inventory by Rs2,670Mn. Lower GM has been offset by lower other expenses down by 170bps YoY to 8.3%, resulting into flat EBITDA margin YoY to 11.8% (PLe 11.4%). PAT up by 19% YoY to INR530mn better than our estimates of INR457mn.

New launches gaining traction: Over past couple of years, contribution of new product launches has been on an increasing trend to overall revenues (34% of overall revenues in 1HFY24). During the quarter, company launched 4 new products (Supremo SP – Insecticide, Nakshatra – 9(3) Herbicide, Green Expert – 9(3) Herbicide and Bouncer – Non-selective herbicide). Further, the management alluded that focused Maharatna products like Torry, Hachiman, Shinwa, Green Label, Izuki, Dominant and Kunoichi will likely contribute around Rs6bn revenues going forward with Shinwa to lead the pack.

Capex largely behind; likely to reap benefits going forward: INST commenced a major capacity expansion program aimed at increasing capabilities at both technical and formulation units in Chopanki (Rajasthan) and Dahej- SEZ (Gujarat) with a budget of Rs1.1bn (revised amount of Rs1.62bn) and likely to contribute to the topline from 2HFY24. Expansion at Dahej facility is delayed and expected to be operational by November 2023. Further, INST has bought additional land bank for further capacity additions (to be done in 3 phases) in Rajasthan for formulations followed by Bio-logical and then technical capacity expansions. Company is looking to invest around Rs1.5bn over next two years.

Maintains cautious stance on exports: The company expects revenue of Rs1.5bn (previous guidance Rs2bn) from export market. However, higher channel inventory coupled with pricing pressure will likely persist over near-medium term in the exports market.

Guided 10-12% revenue growth with 9-10% EBITDA margin for FY24E: With commencement of new facilities coupled with new product introductions (combination molecules with higher margin profile as compared to generic molecules with lower margin profile) and significant registrations in export market, management has guided revenue growth of 10-12% and expects EBITDA margins within 9-10% range in FY24E.

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