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India Pesticides IPO opens today: Should you subscribe?

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Given India Pesticides’ strong R&D capabilities, diversified product portfolio, positioning in the industry, loyal customer base, reasonable valuations and healthy financials, analysts have given a ‘Subscribe’ rating to the IPO.

India Pesticides IPO opens today: Should you subscribe?
The initial public offering (IPO) of agrochemical manufacturer India Pesticides opened for subscription on Wednesday. The price band for the offer has been fixed at Rs 290-296 per equity share. The issue closes on Friday.
The Rs 800-crore public issue includes a fresh issue of shares worth Rs 100 crore and an offer for sale of shares worth Rs 700 crore by promoters and shareholders.
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Given the company’s strong R&D capabilities, diversified product portfolio, positioning in the industry, loyal customer base, reasonable valuations and healthy financials, analysts have given a ‘Subscribe’ rating to the IPO.
“At the upper end of the IPO price band, it is offered at 25.3x of its FY21 earnings, demanding Rs 34,091 million market cap as compared to its other listed peers like Dhanuka Agritech, Bharat Rasayan and Rallis India which are currently trading at a PE of 31.7x, 36.2x and 32.9x respectively,” said Anand Rathi.
The brokerage believes that due to the lower valuations as compared to its peers, India Pesticides is placed at an attractive valuation.
Despite the COVID-19 pandemic, India Pesticides reported a robust financial performance characterised by profitable business growth.
Going forward with the planned expansion and lowering debt, analysts are confident that the company will maintain the growth levels which is mirroring in the pricing of the IPO.
“Further in the recent past, the company has a robust track record of performance and has been generating positive cash flow. We are positive on the long-term prospects of the Company. Hence, we recommend a ‘Subscribe’ rating to this IPO,” Anand Rathi said.
ICICI Direct also assigned a ‘Subscribe’ rating to the issue.
“Since the company caters to a few large formulators globally, the upcoming capacity expansion is likely to improve the economies of scale. Further, technicals being a higher margin segment compared to formulations, increase in revenue share bodes well for return ratios and thereby valuations,” it said.
As for its technical product, India Pesticides is globally cost-competitive which helps the company in posting superior margins.
“With company’s focus on increasing its product portfolio, expanding geographical presence, onboarding more customers for newer molecules apart from molecules which are under implementation &  already lined up as some of them will be going on stream sometime in Sept/Oct, future prospects of the company look strong,” said Hem Securities.
The brokerage recommends “Subscribe” on the issue both for listing gain and long-term purpose.
Choice Broking believes the agro-chemical sector has witnessed various regulatory actions (like the ban of specific set of pesticides and actions from the Pollution Control Board) in recent years, which is a concern. Thus, it has assigned a “Subscribe with Caution” rating for the issue.
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