PL Stock Report: Insecticides India (INST IN) - Q1FY24 Result Update - Subdued results; all hopes pinned on 2Q’24 - Accumulate

Insecticides India (INST IN) - Himanshu Binani - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: ACCUMULATE | CMP: Rs470 | TP: Rs550

Q1FY24 Result Update - Subdued results; all hopes pinned on 2Q’24

Quick Pointers:

§ Capex of Rs1.1bn largely behind; likely to reap benefits FY24 onwards.

§ Product pipeline remains healthy; launch of 4-5 new products in FY24.

Insecticides India (INST) reported subdued results largely led by lower price realizations coupled with high cost inventory provisioning in 1QFY24. B2C/B2B/exports contribution stood at 66%/31%/3%, as against 66%/29%/5% in the same period last year. Further, Maharatna products contributed 61% of overall revenues in 1Q’24 as against 55% in 1Q’23. 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. Maintain ‘Accumulate’ rating on the stock with an unchanged TP of Rs550/share based on 12XFY25 EPS.

High cost inventory provisions resulted in EBITDA margin contraction: INST reported Revenue/EBITDA/PAT growth of +14%/-22%/-24% YoY in-line with our estimates. B2C/B2B/exports contributed 66%/31%/3% in 1QFY24. Gross margins declined by 320bps YoY to 20.8% led by lower price realizations coupled with provisioning of high cost inventory in 1QFY24. Lower gross margins have in turn resulted into EBITDA margin contraction of 330bps YoY to 7.1%(Ple 7.7%). PAT declined by 24% YoY to INR290mn in-line with our estimates of Rs284mn.

New launches gaining traction: Contribution of new product launches have been on an increasing trend to overall revenues (40% of overall revenues in 1QFY24). New products launched in 1QY24 recorded a revenue of Rs2.6bn (contributing to ~40% of the revenues) as compared to Rs1.6bn (contributing to ~28% of the revenues) in 1QFY23. During the quarter, company launched liquid version of Mission- insecticide. INST expects to launch 3 new herbicides under section 9(3) and 1insecticide under section 9(4) in Q2’24 and Q3’24. Further, the management alluded that focused Maharatna products like Torry, Hachiman, Shinwa, Green Label, Izuki, Dominant and Kunoichi will likely contribute around Rs6bn of 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: Exports revenue declined by 32% YoY to Rs192mn primarily led by subdued demand in key export regions like NAFTA, LATAM and African countries. However, company is observing encouraging developments in export market, including the reception of numerous orders from dealers. For FY24E company is expecting 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: 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% in FY24E. However, they remain cautious on the margin profile in near term led by high cost inventory provisions in the subsequent quarter. Management expects EBITDA margins to stay within the range of 9-10% in FY24E.

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