Market_agrochemicals_religare_10.01.17

India Agrochemicals On fertile ground January 2017

Manish Mahawar | +91 22 6766 3471

Saurabh Rathi | +91 22 6766 3451

[email protected]

[email protected]

Sector Report INDIA AGRICULTURE 9 January 2017

India Agrochemicals On fertile ground India’s agrochemicals sector, riding on its inherent structural drivers and strong entry barriers, is set to grow at a 12% CAGR over FY16-FY19E. Besides, products worth US$ 6.3bn would go off-patent by 2020, offering an attractive opportunity for generic players. While stricter regulations could cap return ratios, we are

REPORT AUTHORS

fundamentally positive on the sector and like Dhanuka Agritech

Manish Mahawar

for its improving product mix, UPL for its diversified presence

+91 22 6766 3471 [email protected]

and Rallis India for its improving business traction.

Saurabh Rathi

 Structural growth levers in place: The Indian agrochemicals market is on a strong footing and set to touch US$ 7.5bn by FY19E (FY14: US$ 4.25bn), growing at a 12% CAGR versus 8-10% CAGR historically. Domestic/export (50-50 of industry) markets should grow at 8%/16% CAGR over this period. Growth would be fuelled by structural drivers such as rising farmer income, declining arable land, low agrochemical penetration, mounting labour costs and poor crop yields (vs. global avg).

+91 22 6766 3451 [email protected]

 Mature industry, but attractive for generic players: The global agrochemicals industry has matured and is now in a consolidation phase. Patented products contribute only ~20% of the global market, while off-patented products (generics) a significant 80%. However, 25% of the generic space is still marketed by innovators, offering an opportunity for generic players to garner a larger share of this pie. Besides, products worth US$ 6.3bn are set to go off-patent by 2020, favourably placing generic players to scale up their market presence.

Company

Ticker

Bayer CropScience

Recommendation summary CMP (Rs)

TP (Rs) Rating

BYRCS IN

4,126

4,660 HOLD

Dhanuka Agritech

DAGRI IN

775

890 BUY

PI Industries

PI IN

842

910 HOLD

Rallis India

RALI IN

204

290 BUY

Sharda Cropchem

SHCR IN

474

490 HOLD

UPL

UPLL IN

660

820 BUY

 Stricter regulations to cap return ratios: The Central Insecticide Board (CIB) is set to frame guidelines for the time-bound registration of technicals (with formulations registered) post expiry of the exclusivity period. Non-registration has so far kept competition (generics) at bay, even after the exclusivity period, leading to higher margins for innovators for an extended period. However, we expect near-term profitability and return ratios to drop once generics are allowed to register products against innovator products. Assuming an exclusivity period of three years, the move could also hurt IRRs of new launches.  Strong entry barriers to support sector valuations: The agrochemical sector’s dynamics (branding, distribution) are similar to FMCG’s; also, the long-drawn out product registration process matches that of the pharma industry, creating a strong barrier for entrants. Consequently, the sector trades at premium valuations (13-27x one-year fwd. PE), which should sustain even as weather-related issues play spoilsport.  View: We are positive on the Indian agrochemicals sector and prefer Dhanuka Agritech (DAGRI; improving product mix), UPL (UPLL; diversified global play) and Rallis India (RALI; at an inflection point, upgrade to BUY) in that order. We also like Bayer CropScience (BYRCS), PI Industries (PI) and Sharda Cropchem (SHCR) for their robust business models, but initiate them with HOLD due to rich valuations. This report has been prepared by Religare Capital Markets Limited or one of its affiliates. For analyst certification and other important disclosures, please refer to the Disclosure and Disclaimer section at the end of this report. Analysts employed by non-US affiliates are not registered with FINRA regulation and may not be subject to FINRA/NYSE restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.

India Agrochemicals

Sector Report INDIA

On fertile ground

AGRICULTURE

Recommendation synopsis Bayer CropScience – Steady business, but valuations rich, HOLD A richer product mix, innovative products and superior operating leverage should spur BYRCS’s EBITDA margins and help it post a 13%/22% sales/PAT CAGR over FY16-FY19E (15%/22% over FY08-FY16). While the company has a robust earnings growth trajectory, debt-free balance sheet and strong cash flows with healthy ROEs (ex-cash: >30%), valuations at 31xFY18E/27xFY19E are expensive. Initiate with HOLD; Mar’18 TP Rs 4,660. Dhanuka Agritech – Superior product mix to boost growth, BUY DAGRI has an exciting launch pipeline, with the revenue share of innovative products estimated to rise from 16% in FY16 to 25% in FY19, supporting an overall sales/PAT CAGR of 14%/19% over this period (16%/25% over FY08-FY16). The company has robust operating cash flows, a debt-free balance sheet and healthy ROE/ROCE (>30%) with good dividend payout (>25%). Initiate with BUY; Mar’18 TP Rs 890. PI Industries – Valuations cap upside, HOLD PI’s sales/PAT grew by 24%/63% CAGR over FY08-FY16, led by the domestic (18% CAGR) and custom synthesis and manufacturing (CSM; 36% CAGR) segments. However, we expect sales/PAT growth to drop to 13%/18% over FY16-FY19E due to a slowdown in the global agrochemicals market and competition in Nominee Gold. We estimate domestic/ CSM revenue CAGR of 6%/18% over FY16-19E. Initiate with a Mar’18 TP of Rs 910 and a HOLD rating as valuations (at 23xFY19E) cap upside. Rallis India – At an inflection point, upgrade to BUY Our analysis suggests that RALI has regained domestic market share in H1FY17 after reporting market share losses over FY12-FY16. The company’s exports and seed businesses also continue to perform well. We think RALI is an inflection point with domestic market share gains, better export traction and higher seeds margins likely to spur growth ahead. The recent price correction (15% in last three months) provides a good entry point into the stock. Upgrade to BUY from HOLD with a Mar’18 TP of Rs 290. Sharda Cropchem – Divergent play, HOLD We estimate SHCR to deliver revenue/PAT CAGR of 14%/18% over FY16-FY19E (23%/34% over FY11-FY16), with ex-cash ROE/ROCE of >25%. The stock is trading at a discount to domestic peers (and at par with UPLL/global peers), which should sustain given SHCR’s registration-based model and absence of manufacturing. Initiate with HOLD and a Mar’18 TP of Rs 490 set at 16x FY19E EPS – at a discount to domestic peers and at par with UPLL. UPLL – Diversified global play, BUY We initiate UPLL with BUY and a Mar’18 TP of Rs 820 set at 16x FY19E EPS. UPLL has been outperforming global peers on account of (1) a balanced presence across geographies, product segments and crops, (2) rising market share in high-growth countries like Brazil and India, and (3) a presence across the value chain. We expect sustained market share gains and model for a 16%/23% revenue/ PAT CAGR over FY16-FY19E.

9 January 2017

Page 2 of 65

India Agrochemicals

Sector Report INDIA

On fertile ground

AGRICULTURE

Fig 1 - RCML Agrochemicals universe: Financial snapshot Financials (Rs mn) Company

Rating Price Mcap Year Absolute (Rs) (Rs bn)

Bayer HOLD Cropscience

Dhanuka Agritech

BUY

PI Industries HOLD

Rallis India

Sharda Cropchem

UPL

BUY

HOLD

BUY

4,126

775

842

204

474

660

Revenue EBITDA

Growth (%)

EBITDA margin (%)

PAT

EPS Revenue EBITDA

PAT

EPS

P/E (x)

146 FY15

37,233

5,155

13.8

3,830

104.6

14.7

22.9

28.1

28.1

39.4

FY16

37,429

4,192

11.2

3,009

85.0

0.5

(18.7)

(21.4)

(18.8)

48.5

FY17E

41,122

5,340

13.0

3,728

105.3

9.9

27.4

23.9

23.9

39.2

FY18E

47,143

6,571

13.9

4,667

131.8

14.6

23.0

25.2

25.2

31.3

FY19E

54,124

7,660

14.2

5,499

155.3

14.8

16.6

17.8

17.8

26.6

39 FY15

7,851

1,317

16.8

1,061

21.2

6.3

9.3

14.0

14.0

36.6

FY16

8,288

1,398

16.9

1,070

21.4

5.6

6.1

0.9

0.9

36.2

FY17E

9,265

1,705

18.4

1,218

24.4

11.8

21.9

13.8

13.8

31.8

FY18E

10,655

2,014

18.9

1,474

29.5

15.0

18.1

21.0

21.0

26.3

FY19E

12,253

2,377

19.4

1,785

35.7

15.0

18.0

21.1

21.1

21.7

116 FY15

19,403

3,727

19.2

2,332

17.1

21.6

29.0

24.0

24.0

49.3

FY16

20,968

4,347

20.7

3,061

22.3

8.1

16.6

31.2

31.2

37.5

FY17E

23,642

5,265

22.3

4,032

29.4

12.8

21.1

31.7

31.7

28.5

FY18E

26,472

5,849

22.1

4,235

30.9

12.0

11.1

5.0

5.0

27.1

FY19E

30,311

6,806

22.5

4,981

36.3

14.5

16.4

17.6

17.6

23.1

40 FY15

18,218

2,815

15.5

1,616

8.3

4.3

3.3

(0.9)

(0.9)

24.6

FY16

16,279

2,349

14.4

1,362

7.2

(10.6)

(16.6)

(15.7)

(15.7)

28.2

FY17E

19,328

2,832

14.7

1,836

9.4

18.7

20.5

34.8

34.8

21.6

FY18E

22,131

3,356

15.2

2,207

11.3

14.5

18.5

20.2

20.2

18.0

FY19E

25,259

3,932

15.6

2,526

13.0

14.1

17.2

14.5

14.5

15.7

43 FY15

10,611

1,895

17.9

1,416

15.7

34.2

22.8

52.5

52.5

30.2

FY16

12,186

2,649

21.7

1,660

18.4

14.8

39.8

17.2

17.2

25.8

FY17E

13,681

3,147

23.0

1,991

22.1

12.3

18.8

20.0

20.0

21.5

FY18E

15,716

3,693

23.5

2,321

25.7

14.9

17.4

16.6

16.6

18.4

FY19E

18,088

4,341

24.0

2,757

30.6

15.1

17.5

18.8

18.8

15.5

334 FY15

120,905

23,626

19.5

11,519

26.9

12.3

17.0

9.6

9.6

24.6

FY16

133,015

27,163

20.4

13,851

32.3

10.0

15.0

20.2

20.2

20.4

FY17E

163,491

35,018

21.4

18,299

36.4

22.9

28.9

32.1

12.5

18.1

FY18E

183,969

40,404

22.0

21,714

43.2

12.5

15.4

18.7

18.7

15.3

FY19E

207,339

46,576

22.5

25,840

51.4

12.7

15.3

19.0

19.0

12.9

Source: Company, RCML Research

9 January 2017

Page 3 of 65

Sector Report

India Agrochemicals

INDIA

On fertile ground

AGRICULTURE

Fig 2 - RCML Agrochemicals universe: Valuation snapshot Company

CMP Target (Rs) Price

Rating

Bayer CropScience

HOLD

Dhanuka Agritech

Target multiple

Potential Upside (%)

Mcap (Rs bn)

EPS CAGR (FY16-19E) (%)

P/E (x)

EV/EBITDA (x)

FY16 FY17E FY18E FY19E

RoE (%)

FY16 FY17E FY18E FY19E

Ex-cash RoE (%)

FY16 FY17E FY18E FY19E

FY16 FY17E FY18E FY19E

4,126

4,660

30x FY19EPS

13.0

146

22.3

48.5

39.2

31.3

26.6

32.9

25.4

20.2

17.0

15.9

19.6

20.9

20.9

32.8

38.0

44.0

46.8

BUY

775

890

25x FY19EPS

14.8

39

18.6

36.2

31.8

26.3

21.7

27.4

22.2

18.4

15.2

24.0

23.5

24.3

25.0

30.4

31.0

35.1

39.9

PI Industries

HOLD

842

910

25x FY19EPS

8.1

116

17.6

37.5

28.5

27.1

23.1

26.6

21.5

19.1

16.0

29.6

30.0

24.9

23.7

30.9

32.5

29.2

30.6

Rallis India

BUY

204

290

22x FY19EPS

42.1

40

21.5

28.2

21.6

18.0

15.7

17.2

14.0

11.5

9.5

16.8

19.2

20.4

20.5

16.7

19.7

21.8

23.7

Sharda Cropchem

HOLD

474

490

16x FY19EPS

3.4

43

18.4

25.8

21.5

18.4

15.5

15.6

13.1

11.0

9.1

22.6

22.3

21.8

21.6

28.5

26.9

26.5

27.7

UPL

BUY

660

820

16x FY19EPS

24.2

334

16.7

20.4

18.1

15.3

12.9

11.6

10.4

8.8

7.4

22.3

22.8

21.4

21.3

26.2

27.1

25.3

25.4

Source: RCML Research

Fig 3 - Global peers: Valuation snapshot Mcap (Rs bn)

P/E (x)

EV/EBITDA (x)

RoE (%)

EPS CAGR (FY16-19E) (%)

FY16

FY17E

FY18E

FY19E

FY16

FY17E

FY18E

FY19E

FY16

FY17E

FY18E

FY19E

9.5

9.3

8.6

8.0

13.6

14.1

15.0

15.8

Global Agrochemicals BASF

5,688

2.9

17.4

18.4

17.2

16.0

Bayer CropScience

5,759

8.1

14.3

13.2

12.3

11.3

9.2

8.8

8.2

7.5

18.5

23.3

21.2

21.7

Dow Chemical

4,445

8.9

17.8

16.0

14.4

13.8

11.1

8.7

8.0

7.5

36.7

17.3

17.7

17.4

Dupont

4,419

17.1

28.6

23.0

20.2

17.8

15.8

13.1

11.6

10.6

17.0

30.6

32.5

32.1

Monsanto

3,131

13.9

23.9

22.4

19.2

16.2

17.3

13.8

12.1

10.8

23.2

41.0

40.2

36.4

Syngenta

2,495

7.0

23.6

23.9

21.2

19.3

18.3

15.1

13.5

12.4

15.5

17.2

19.0

19.8

FMC Corp

515

15.9

24.3

20.1

17.1

15.6

22.9

13.4

11.7

10.8

28.8

17.0

17.0

17.4

Nufarm (Global)

118

24.3

24.8

17.4

14.3

12.9

11.4

7.9

7.2

6.6

1.2

7.9

10.0

10.4

Global Generic Players

Source: Bloomberg, RCML Research

9 January 2017

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India Agrochemicals

Sector Report INDIA

On fertile ground

AGRICULTURE

RCML estimates vs. consensus projections Our earnings estimate for UPLL, SHCR, RALI and DAGRI are broadly in line with consensus. However, we are anti-consensus in our estimates for PI and BYRCS.



For BYRCS, we believe the street is optimistic in its EBITDA margin estimates, while we expect consensus is expected to cut estimate in H2FY17 as well as FY18/19.



For PI, we anticipate the impact of competition in Nominee-Gold to play out in FY18. Hence, our FY18/19 estimates are lower than consensus by ~10%.

Fig 4 - Our estimates versus consensus FY17E (Rs mn)

RCML Consensus

FY18E Difference (%)

RCML Consensus

FY19E Difference (%)

RCML Consensus

Difference (%)

Sales Bayer CropScience Dhanuka Agritech

41,122

36,375

13.0

47,143

42,238

11.6

54,124

48,809

10.9

9,265

9,619

(3.7)

10,655

11,419

(6.7)

12,253

13,079

(6.3)

PI Industries

23,642

24,700

(4.3)

26,472

29,365

(9.9)

30,311

34,376

(11.8)

Rallis India

19,328

18,428

4.9

22,131

21,065

5.1

25,259

24,293

4.0

Sharda Cropchem

13,681

14,032

(2.5)

15,716

16,372

(4.0)

18,088

NA

-

1,63,491

1,58,822

2.9

1,83,969

1,78,870

2.9

2,07,339

2,04,516

1.4

Bayer CropScience

5,340

5,536

(3.5)

6,571

6,789

(3.2)

7,660

8,006

(4.3)

Dhanuka Agritech

1,705

1,758

(3.0)

2,014

2,158

(6.7)

2,377

2,577

(7.7)

PI Industries

5,265

5,435

(3.1)

5,849

6,570

(11.0)

6,806

7,623

(10.7)

Rallis India

2,832

2,801

1.1

3,356

3,308

1.4

3,932

3,909

0.6

Sharda Cropchem

3,147

3,048

3.2

3,693

3,572

3.4

4,341

NA

-

35,018

32,449

7.9

40,404

37,288

8.4

46,576

43,010

8.3

Bayer CropScience

3,728

4,016

(7.2)

4,667

5,008

(6.8)

5,499

5,911

(7.0)

Dhanuka Agritech

1,218

1,255

(2.9)

1,474

1,546

(4.7)

1,785

1,863

(4.2)

PI Industries

4,032

3,985

1.2

4,235

4,732

(10.5)

4,981

5,544

(10.2)

Rallis India

1,836

1,877

(2.2)

2,207

2,124

3.9

2,526

2,525

0.0

Sharda Cropchem

1,991

2,003

(0.6)

2,321

2,319

0.1

2,757

NA

-

18,299

17,663

3.6

21,714

21,518

0.9

25,840

26,170

(1.3)

UPLL EBITDA

UPLL PAT

UPLL

Source: Bloomberg, RCML Research

9 January 2017

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India Agrochemicals

Sector Report INDIA

On fertile ground

AGRICULTURE

Contents Structural levers in place ..................................................................................... 7 Matured industry, but attractive for generic players ......................................... 9 Stricter regulations to cap return ratios ........................................................... 11 Premium valuations to sustain .......................................................................... 14 Key risks .............................................................................................................. 15 Comparative financial analysis over FY11-FY16 ............................................. 15

Companies.....................................................................................20 Bayer CropScience .......................................................................................... 21 Dhanuka Agritech ............................................................................................ 26 PI Industries ...................................................................................................... 32 Rallis India ........................................................................................................ 37 Sharda Cropchem ............................................................................................ 42 UPL .................................................................................................................... 46 Excel Crop Care ............................................................................................... 51 Insecticides India ............................................................................................. 55 Syngenta India .................................................................................................. 59

9 January 2017

Page 6 of 65

India Agrochemicals

Sector Report INDIA

On fertile ground

AGRICULTURE

Structural levers in place According to industry sources, India’s agrochemicals sector posted a 15-year CAGR (FY01FY16) of 8-10% and is worth US$ 2.25bn (Rs 130-140bn) currently. Besides, India exports agrochemicals worth US$ 2bn. Hence, overall market stood at US$ 4.25bn as of FY14. The sector is expected to grow at a 12% CAGR to reach US$ 7.5bn by FY19E from US$ 4.25bn in FY14. Domestic and export markets (50% of India’s overall industry) are pegged to grow at 8% and 16% respectively by FY19E. Fig 5 - India’s agrochemical market Domestic

(US$ bn) 8

Fig 6 - India’s agrochemical exports (US$ bn) 4.5

Export

4.2

4.0

7

3.5

6

3.0

4.20

5

2.5

4 3

1.5

2

1.1

1.2

FY10

FY11

1.4

1.0

3.30 2.25

1

2.0 1.7

2.0

2.00

0.5

0

0.0 FY14

FY19E

Source: FICCI

FY12

FY13

FY14

FY19E

Source: FICCI

We think structural long-term growth drivers for India’s agrochemicals industry are in place. These include rising farmer income, declining arable land, low penetration of agrichemicals, mounting labour costs and poor crop yields (vs. global average). Fig 7 - Consumption pattern of agrochemicals(FY14)

Fig 8 - Declining arable land (Per Capita Arable

(Per Kg/Hectare) 17.0 18

0.4

0.34

16 13.0

14

12.0

0.3

12 10 7.0

8

0.2

7.0 5.0

6

0.15

5.0

0.1

4 2

0.08

0.07

2025E

2030E

0.5

0

0.0 Taiwan

China

Japan

USA

Korea

France

India

UK

1951

Source: XII year plan, Ministry of agriculture, RCML Research

2001

Source: FICCI

Fig 9 - Rising labour cost has led to a spurt in herbicide consumption (Rs) 300 250 200 150 100 50

Apr-16

Apr-15

Apr-14

Apr-13

Apr-12

Apr-11

Apr-10

Apr-09

Apr-08

Apr-07

Apr-06

Apr-05

Apr-04

Apr-03

Apr-02

Apr-01

Apr-00

Apr-99

Apr-98

0

Source: RBI

9 January 2017

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India Agrochemicals

Sector Report INDIA

On fertile ground

AGRICULTURE

Fig 10 - India’s crop yield significantly lower vs world avg.

(MT/Hectare)

India's yield

3.5

12

3.0

10

2.5

8

10.0 9.0 7.5

7.0

6.5 5.0

6

2.0

4.4

4.0

4.0

4

1.5

3.3

3.0

3.0

India

World's yield

Pakistan

(MT/Hectare)

Fig 11 - Yield comparison

2

1.0

Source: USDA

Brazil

World

Sri Lanka

Bangladesh

Indonesia

China

Germany/ UK/USA

France

FY60 FY62 FY64 FY66 FY68 FY70 FY72 FY74 FY76 FY78 FY80 FY82 FY84 FY86 FY88 FY90 FY92 FY94 FY96 FY98 FY00 FY02 FY04 FY06 FY08 FY10

0.0

Netherlands

Belgium

0

0.5

Source: FICCI

As per DAGRI, avoidable losses on account of pests in India range from 8-90%, with the highest being in cotton (49-90%) and then in pulses (40-88%). Overall, every rupee spent on agrochemicals saves an average produce of five rupees. Based on industry sources, agrochemicals help save 18-20% of crops cultivated in India each year. Fig 12 - Loss due to pests (FY16)

Rats 8%

Storage 10%

Avoidable losses on account of pests in India range from 8-90%

Others 6%

Weeds 28%

Insects 23%

Diseases 25%

Source: IARI, Global Hunger Index, DAGRI

Andhra Pradesh (Seemandhra and Telangana), Maharashtra and Punjab are the top three states contributing 48% of pesticide consumption in India, with Andhra Pradesh leading with a 24% share. The top seven states together account for more than 75% of crop protection chemicals usage in India. Paddy (rice) followed by cotton are major agrochemical consuming crops. Fig 13 - State-wise agrochemical consumption (FY15)

Tamil Nadu 5%

Others 15%

Andhra Pradesh 24%

Fig 14 - Crop-wise agrochemical consumption (FY15)

Others 40%

Paddy 35%

Haryana 5% West Bengal 5% Gujarat 7% Karnataka 7%

Source: FICCI

Maharashtra 13% MP and Chhattisgarh 8%

Punjab 11%

Cotton 25%

Source: XII year plan, Ministry of Agriculture, RCML Research

9 January 2017

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AGRICULTURE

Matured industry, but attractive for generic players The global agrochemicals (excluding non-crop) industry grew at a 5% CAGR over CY01-CY15 and is currently worth US$ 51bn. As per Phillip Mcdougall, the global agrochemicals industry is likely to grow at a 2.7% CAGR over CY15-CY20 in US$ terms with emerging countries likely driving growth. Fig 15 - Global agrochemical industry Industry size

(US$ bn)

YoY growth (R)

Global agrochemicals industry to grow at a 2.7% CAGR over CY15-CY20 in US$ terms

(%)

65

23

60

18

55 13

50 45

8

40

3

35

(2)

30 (7)

25

(12)

CY20

CY15

CY14

CY13

CY12

CY11

CY10

CY09

CY08

CY07

CY06

CY05

CY04

CY03

CY02

CY01

20

Source: Phillips McDougall

The global agrochemicals industry is well diversified in terms of geographies as well as product segments. Fig 16 - Product-wise share (CY15)

Fungicide 27%

Insecticide 27%

Source: Industry, RCML Research

Others 3%

Fig 17 - Geography-wise share (CY15)

Herbicide 43%

NAFTA 17%

Middle East/Africa 4%

Asia 28%

Europe 25%

Latin America 26%

Source: Industry, RCML Research

Global agrochemical players are categorised into innovators and generics. Innovators are R&D patented product-based players like BYRCS, Syngenta, BASF, Monsanto, Dow and Dupont. Off-patented products-based players are termed generic players. Their key strength is low-cost manufacturing and a wide distribution network.

Patented products form only ~20% of the global market, while off-patented (generics) a significant 80%

The global agrochemicals industry has matured and is now in a consolidation phase. Patented products form only ~20% of the global market, while off-patented products (generics) a significant 80%. However, 25% of the generic market is still marketed by innovator companies, offering an attractive opportunity for generic players to garner a larger share of this pie.

9 January 2017

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AGRICULTURE

Fig 18 - Global patented and off-patented market (CY15)

Fig 19 - Share of innovators in off-patented market (CY15)

Patented 20%

Innovators 25%

Off patented 80%

Generic Players 75%

Source: Phillips McDougall, RCML Research

Source: Phillips McDougall, RCML Research

One of the defining characteristics of the crop protection industry over the last few decades has been the degree of consolidation. This can be attributed to several factors, but largely to an apparent lack of growth opportunities. Fig 20 - Global agrochemical industry structure (CY15) Market share Region

>15%

5-15%

1-5%

0.5-1%

<0.5%

Europe

Bayer, Syngenta

BASF

Cheminova

Sipcam, Oxon

Isagro, Helm, Phyteurop, Agriphor

Dow, Monsanto, DuPont

FMC, Platform, Albaugh

Chemtura, Amvac, Gowan

Japan

Sumitomo, Arysta

Ishihara, Nihon Nohyaku, Agro Kanesho, SDS Nippon Soda, Nissan, Biotech, Nippon Nayaku, Mitsui, Kumiai, Hokko Kyoyu Agri, Oat Agrio

Others

Adama, Nufarm, UPLL, Sinochem

Redsun, Wynca, Rotam

USA

Rallis, Sinon, Excel, Gharda, Nutrichem

Source: Phillips McDougall

Fig 21 - Recent M&As in the global agrochemicals market Year

Acquirer

Seller

Transaction value Rationale

2015

Platform

Arysta

US$3.5bn

Complementary product portfolio

2014

Platform

Chemtura

US$1bn

Distribution reach and entry in specialty chemical business

2014

Platform

Agriphor

€300mn

Product and distribution foot print complement

2015

FMC

Cheminova

US$1.8bn

Strengthens portfolio on agriculture, health and nutrition market

2016

Chemchina

Syngenta

US$43bn

Foray into seeds segment and access to US and Europe markets

Global market

2016

Dow

Dupont

US$59bn

Value unlocking by splitting the merged entity into three broadly unrelated businesses i.e. Agriculture, Specialty Products and Materials Science. Split will lead to efficient capital allocation and avoid conglomerate discount

2016

Bayer

Monsanto

US$66bn

World’s biggest agriculture conglomerate

2011

Chemchina

Makhteshim Agan*

US$2.4bn

Technological and distribution network

2016

Sumitomo

Excel Crop Care

US$206mn

EXCC’s distribution network will complement Sumitomo presence in India

2014

Nihon Nohyaku

Hyderabad Chemicals -

Cost-competitive production system and utilisation of technology

2015

Godrej Agrovet

Astec Lifescience

Expansion of agriculture inputs business

Indian market

US$5mn

Source: Industry, RCML Research *now Adama

9 January 2017

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On fertile ground

AGRICULTURE

Based on FICCI, products worth US$ 6.3bn are expected to get off-patent by 2020, providing significant export opportunities for India’s generic agrochemical companies. Fig 22 - Agrochemicals going off-patent over CY2014-CY2020E (US$ bn) 2.0

Market size 1.6

1.6

1.3

1.2

1.2 0.9 0.7

0.8 0.4 0.4

0.2

CY20E

CY19E

CY18E

CY17E

CY16

CY15

CY14

0.0

Source: FICCI, RCML Research

Stricter regulations to cap return ratios The Gujarat High Court has instructed the Central Insecticide Board (CIB) to frame guidelines for time-bound registrations of technicals (with formulations registered) which have not been registered even after expiry of their exclusivity period. Non-registration of technicals has prevented competition (generics) from entering a molecule even after expiry of its exclusivity period, thus enabling incumbents/innovators to enjoy higher margins for extended periods. However, we expect near-term profitability and return ratios of innovators to moderate once generics are allowed to register their products against the former’s products. Assuming the exclusivity period is restricted to three years, the move could also hurt IRRs of new launches. Nevertheless, we feel incumbents/ innovators would continue to enjoy the first-mover advantage.

Near-term profitability and return ratios of innovators to moderate once generics register their products

Note that CIB is yet to announce detailed guidelines on time-bound registration of chemicals. We await the court’s final verdict for more clarity on these guidelines. Impact on existing products Innovators whose existing products have already enjoyed benefits of extended exclusivity would face competition from generics post CIB’s move. However, generic players would need 1-2 years for scaling up their products/brands after the final guidelines are announced. Based on our discussions with industry sources, we have compiled a list of probable products that would be affected by the new regulation. Fig 23 - Products currently enjoying extended exclusivity Company name

Name of the product/brand

Technical

Registration date

Bayer CropScience

Nativo

Tebuconazole 50% + Trifloxystrobin 25% WG

Nov-10

Bayer CropScience

Sectin

Fenamidone 10% +Mancozeb 50% WDG

Dec-07

PI Industries

Osheen

Dinotefuran 20% SG

Feb-12

PI Industries

Nominee Gold

Bispyribac Sodium 10% SC

Dec-08

UPLL

U-la-la

Flonicamid 50% WG

Jan-11

Dhanuka Agritech

Targa Super

Quizalofop Ethyl 5% EC

-

Dhanuka Agritech

Sempra

Halosulfuron Methyl

Jul-14

BASF India

Headline

Pyraclostrobin

-

Dow

Granite

Penoxsulam 21.7% SC

Nov-12

Insecticide India

Hakama

Quizalofop Ethyl 5% EC

Mar-13

Source: RCML Research

9 January 2017

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AGRICULTURE

Impact on new products We believe the new regulation could bring down the exclusivity period currently enjoyed by innovative products. This will reduce IRRs of new product launches as new molecules would have a shorter exclusivity period (assuming the new exclusivity period is notified as three years; guidelines awaited).

IRRs of new product launches to come down as new molecules would have a shorter exclusivity period

The typical lifecycle of a molecule is as follows:



Four years each for obtaining registration and product development.



One year for brand promotion.



2-3 years for scaling up the brand.



Generation of significant returns from the fifth year.

Fig 24 - Product lifecycle

Product research and development

Conducting tests and obtaining registration approval

Product branding

Scaling up of the product brand

3-4 years

3-4 years

1 Year

2-3 Years

Product attains maturity

Source: RCML Research

Deciphering the Deemed Registration conundrum Fig 25 - Case history Import of formulations without registering the technical had been allowed based on recommendations of CD Mayee committee After expiry of 3 years from the date of obtaining registration the importer will automatically get the technical registered which will

registrations of technicals not registered even after expiry of exclusivity period

allow entry of competition

2008

Guj HC directs CIB to frame guidelines for time bound

2011

Sep-13

Mar-16

Agrochemical regulatory body laid down guidelines which allowed

Gujarat HC strikes down the concept of deemed

players to register imported formulation of innovative products

registration. Thus exclusivity period for in licensed

without registering its technical

molecules not specified

Source: RCML Research

9 January 2017

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AGRICULTURE

The story so far



In FY08, the agrochemical regulatory body laid down guidelines which allowed players to register imported formulations of innovative products without registering its technical.



Later, as per the C D Mayee Committee recommendations (report dated 8 Nov’10), the import of formulations without registering the technical was allowed based on the situation of pests, diseases, weeds etc. in the country.



The committee recommended that after three years post registration, the importer should automatically get the technical registered. In other words, the certificate of registration of the technical would come into effect after three years post the original registration was issued for the formulation. This was known as Deemed Registration. The intent of this regulation was to allow Indian farmers to benefit from global R&D and innovation, and access formulations developed outside India.



Indian generic players, led by the Pesticide Manufacturers and Formulators Association of India, appealed to the Gujarat High court, pleading that Deemed Registration allowed innovators and other importers enjoy a monopoly for three years. Generic players sought registration of the technical along with registration of the formulation.



However, the Gujarat High Court, vide its order dated 5 Sep’13, struck down the concept of Deemed Registration. It cited that the registration committee was formed under the Insecticides Act, 1968, which does not provide for grant of Deemed Registration; thus, the registration committee had no powers to create its own procedures. The court, however, directed the CIB to ensure integrity of the technical of the formulation being imported. Thus, CIB allowed formulation imports subject to verification of the underlying technical.



Current guidelines are ambiguous over the exclusivity period to be allowed to innovators. Hence, innovators are currently enjoying extended periods of exclusivity benefits, resulting in superior margins, profitability and return ratios.

Product registrations process in India To introduce any new product in the Indian agrochemicals market, a company has to seek registration under The Central Insecticide Act, 1968. If the product is new or has to be launched for the first time in India, registration has to be under Section 9(3) of the Act. For the new product, data on various parameters like bio-efficacy, toxicology, chemistry and packaging is generated and submitted to the CIB. After the registration committee approves the product, a registration certificate is issued, only post which the product can be marketed in India. The entire registration process takes 48-60 months depending on availability of the international toxicity standard and number of crops on which the data is being generated. Once the product is registered under Section 9(3), competition cannot seek registration for the same product for typically three years. Hence, we believe products can enjoy the first-mover advantage as well as market leadership over 3-4 years. If a product is already registered under Section 9(3), anyone can directly apply for registration under Section 9(4). Every company has to register individual technicals/ formulations for each crop in India. We think the long-drawn out product registration process acts as a strong entry barrier for players in the domestic agrochemicals industry.

9 January 2017

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On fertile ground

AGRICULTURE

Premium valuations to sustain We believe the agrochemical sector’s business dynamics are similar to that of the FMCG and pharma sectors, in terms of R&D, product innovation/introduction, registration, branding and distribution. Further, the profitability and balance sheets of agrochemical players have consistently improved over the years. Hence, we believe the sector should continue to command rich valuations, which however would continue to depend on weather-related issues and climatic conditions.

Premium valuations stem from strong entry barriers and business dynamics akin to FMCG and pharma sectors

Forward PE charts Fig 26 - Bayer CropScience (Rs) 6,000

Price

Fig 27 - Dhanuka Agritech

4x

12x

22x

(Rs)

35x

Price

4x

16x

10x

28x

1,000

5,000

800

4,000

600 3,000

Source: Bloomberg, RCML Research

Source: Bloomberg, RCML Research

Fig 28 - PI Industries

Fig 29 - Rallis India

(Rs)

Price

10x

4x

16x

(Rs)

25x

1,000

Price

4x

12x

Dec-16

Apr-16

Jul-15

Nov-14

Mar-14

Jun-13

Oct-12

Feb-12

May-11

Sep-10

Jan-10

Apr-09

Aug-08

Mar-07

Dec-16

Apr-16

Jul-15

Mar-14

Nov-14

Jun-13

Oct-12

Feb-12

May-11

Sep-10

Aug-08

Jan-10

0

Apr-09

0

Dec-07

200

Mar-07

1,000

Dec-07

400

2,000

25x

18x

350 300

800

250 600

200

400

150 100

200

50

0

Source: Bloomberg, RCML Research

Source: Bloomberg, RCML Research

Fig 30 - Sharda Cropchem

Fig 31 - UPL

(Rs)

Price

8x

12x

(Rs)

18x

600

Price

4x

8x

12x

Dec-16

Apr-16

Jul-15

Nov-14

Mar-14

Jun-13

Oct-12

Feb-12

May-11

Sep-10

Jan-10

Apr-09

Aug-08

Dec-07

Mar-07

Dec-16

Apr-16

Jul-15

Nov-14

Mar-14

Jun-13

Oct-12

Feb-12

May-11

Sep-10

Jan-10

Apr-09

Aug-08

Dec-07

Mar-07

0

16x

800

500

600 400 300

400

200

200 100 0

Source: Bloomberg, RCML Research

Dec-16

Apr-16

Jul-15

Nov-14

Mar-14

Jun-13

Oct-12

Feb-12

May-11

Sep-10

Jan-10

Apr-09

Aug-08

Dec-07

Mar-07

Dec-16

Aug-16

May-16

Feb-16

Nov-15

Jul-15

Apr-15

Jan-15

Sep-14

0

Source: Bloomberg, RCML Research

9 January 2017

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AGRICULTURE

Key risks



Weather changes: Demand for agrochemicals is highly dependent on seasonal weather conditions. Weather can trigger pest infestations and affect demand for agrochemicals. In India, sales are highly seasonal and seen mainly during the monsoon. A delayed or adverse monsoon could hit the collection of receivables.



Genetically modified (GM) crops: The use of agrochemicals is much lower in GM crops. Hence, growth and acceptance of GM crops by consumers may adversely affect the domestic industry.



Adverse currency movement: Since most players source 25-30% of raw material through imports, any sharp INR movement could affect their earnings. However, we believe the industry can pass through RM cost inflation with a lag.



Regulatory risks: Any negative regulatory announcement could cloud the industry’s growth prospects.

Comparative financial analysis over FY11-FY16 Most players consistently post robust sales growth Most domestic agrochemical players have shown consistent growth over the years driven by both, domestic and export markets. Except RALI, all players have posted double-digit growth in domestic revenues over FY11-FY16. While BYRCS and RALI discontinued toxic products worth Rs 1bn per annum during FY11 and FY12, respectively, BYRCS offset this by way of aggressive product launches. PI has grown off a low base and its growth was driven by the CSM business. UPLL has grown primarily via the inorganic route.

Except RALI, all players posted doubledigit growth in domestic revenues over FY11-FY16

Fig 32 - Sales CAGR CAGR (%) FY16 (RS mn) Bayer CropScience Dhanuka Agritech

1Yr

3Yr

5Yr Overall

Domestic

Export

37,429

0.5

11.2

11.9

10.3

13.5

8,288

5.6

12.5

11.0

11.0

NA 39.0

PI Industries

20,968

8.1

22.1

23.8

15.7

Rallis India

16,279

(10.6)

3.7

8.4

1.9

9.4

Sharda Cropchem

12,186

14.8

16.1

22.5

NA

22.5*

1,33,015

10.0

13.1

18.2

12.7

19.2*

UPLL

Source: Company, RCML Research; * Overseas sales

UPLL gains highest domestic market share, RALI the biggest loser



Our analysis suggests that UPLL, PI, DAGRI, BYRCS and Insecticide India (INST) gained domestic market share over FY11-FY16. However, RALI and Excel Cropcare (EXCC) have lost share over the same period.



RALI discontinued toxic products in FY11/FY12, which led to a sharp decline in its market share in FY12. Even post FY12, the company has consistently lost market share on account of (1) absence of impressive or blockbuster product launches and (2) price erosion in existing products due to increased competition. However, its recent product launches like Origin should do well in the near term.



EXCC lost market share of 129bps over FY11-FY16, primarily due to the ban imposed on the molecule Endosulfan in May’11. During FY12, the company lost market share of 140bps.

UPLL, PI, DAGRI, BYRCS and INST gained domestic market share over FY11-FY16

9 January 2017

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AGRICULTURE

Fig 33 - Domestic market share of key players Company (%)

FY11

BASF

FY12

FY13

FY14

FY15

FY16

Change over FY11-FY16 (bps)

7.9

9.0

9.4

8.9

6.9

4.8

(315)

Bayer Cropscience

12.9

12.3

11.6

13.1

12.3

13.7

79

Dhanuka Agritech

6.2

6.0

5.9

6.3

6.0

6.4

21

Excel Crop Care

6.1

4.7

4.6

5.6

5.3

4.8

(129)

Insecticide India

5.4

5.3

5.6

6.6

6.2

6.6

121

Monsanto

1.3

1.3

1.6

2.0

1.7

1.6

34

PI

5.1

5.6

5.6

5.5

6.1

6.5

136

10.4

9.2

9.2

8.9

7.8

7.0

(340)

NA

NA

9.6

9.1

9.8

10.4

83

18.8

19.5

18.2

19.2

20.2

20.9

208

Total - Key players

-

-

81.4

85.3

82.3

82.7

(102)

Others

-

-

18.6

14.7

17.7

17.3

-

Total

-

-

100.0

100.0

100.0

100.0

-

Rallis India Syngenta India UPL

Source: Company, RCML Research. Note: We have considered domestic sales of players for above analysis. Further, we have considered only formulation sales wherever possible. However, most players have B2B or institutional sales (in both active ingredients and formulations) which we have not considered due to unavailability of data.

Gross margin analysis



BYRCS’s gross margins look benign (33-35%) versus domestic peers (38-45%) despite the company being one of the largest players and having a solid branded portfolio. We believe the company’s soft margins could be attributed to its low-margin (2425%) seeds business which generates only distribution/trading profits. Otherwise, our detailed analysis of the company’s annual report suggests that its gross margin in the agrochemical business is at par or at a marginal premium to domestic peers.



RALI’s gross margin has improved both in the agrochemicals and seeds businesses led by product mix changes and lower raw material prices.



PI’s margins have risen led by an increasing share of the CSM business, which we believe, enjoys superior margins. Its CSM contribution in consolidated revenue has gone up from 37% in FY11 to 60% in FY16.



DAGRI’s gross margins have improved since FY13, primarily of account of a rising share of innovative products.

Gross margins for most players improved over FY11-FY16 on product mix changes and lower RM costs

Fig 34 - Gross margin analysis (%)

FY11

FY12

FY13

FY14

FY15

FY16

Bayer CropScience

35.7

35.9

36.0

35.6

35.2

33.5

Dhanuka Agritech

33.6

35.3

34.6

36.8

37.3

39.0

PI Industries

41.6

44.0

41.4

42.4

42.5

44.7

Rallis India

41.7

41.7

39.8

42.3

45.4

48.5

Sharda Cropchem

30.0

31.7

30.0

35.0

33.1

35.0

UPL

49.6

47.0

49.0

49.5

50.2

51.8

Source: Company, RCML Research

9 January 2017

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AGRICULTURE

BYRCS most aggressive in selling, distribution spends BYRCS incurred 5-6% of its domestic sales in selling and distribution expenses over FY08FY16 versus an average 3-4% for peers. Fig 35 - Selling and promotion expenses Sales and promotion (Rs mn)

As % of revenue

FY11

FY12

FY13

FY14

FY15

FY16

FY11

FY12

FY13

FY14

FY15

FY16

1,064

1,132

1,190

1,591

1,543

1,687

5.5

5.5

5.3

5.8

5.0

5.3

Dhanuka Agritech

179

202

207

290

291

298

3.6

3.8

3.6

3.9

3.7

3.6

PI Industries

157

225

229

216

285

330

3.9

4.5

4.2

3.2

3.6

3.9

Rallis India

182

254

323

480

580

433

2.2

2.8

3.1

3.8

4.4

3.5

Sharda Cropchem

NA

NA

NA

40

67

93

NA

NA

NA

0.5

0.6

0.8

UPL

464

512

642

1,117

1,390

1,979

0.8

0.7

0.7

1.0

1.1

1.5

Bayer CropScience

Source: Company, RCML Research Note: We have excluded export sales of PI, RALI and BYRCS from total sales so as to do appropriate comparison.

EBITDA margins better for export-focused players



Players such as UPLL (80% overseas revenues), SHCR (100%) and PI (60%) cater to US/Europe/Japan markets, which have lower competition amid a more stringent regulatory environment. Hence, these companies command superior EBITDA margins vs. domestic peers.



Indian players with global exposure also have superior EBITDA margins versus global players due to their manufacturing base in low-cost countries such as India or China.



BYRCS’s EBITDA margins appear lower than its domestic peers, primarily on account of its seeds business (a) which fetches only distribution margins and (b) has led to higher selling and distribution expenses versus peers. Otherwise, we believe its agrochemical gross/EBITDA margins are comparable to peers.



RALI’s EBITDA margins have consistently declined over FY11-FY16 on account of rising share of the low-margin seeds business and lower prices in key products due to increased competition.

UPLL, SHCR and PI command higher margins versus peers

Fig 36 - EBITDA margin analysis FY16 EBITDA (Rs mn)

FY11

FY12

FY13

FY14

FY15

FY16

Bayer CropScience

4,192

10.4

11.1

12.7

12.9

13.8

11.2

Dhanuka Agritech

1,398

15.5

15.0

14.1

16.3

16.8

16.9

PI Industries

4,347

16.2

16.8

15.7

18.1

19.2

20.7

Rallis India

2,349

17.6

16.7

14.7

15.6

15.5

14.4

Sharda Cropchem

2,649

18.2

20.0

18.0

19.5

17.9

21.7

27,163

18.6

17.9

18.0

18.8

19.5

20.4

16.1

16.2

15.5

16.9

17.1

17.6

EBITDA margin (%)

Domestic Players

UPL Average Global Players Monsanto

2,07,091

26.3

27.9

28.2

30.1

28.3

23.0

Dupont

2,89,463

14.1

15.0

13.7

14.4

19.4

18.0

Dow Chemical

5,17,081

11.0

11.5

8.9

12.2

14.0

16.5

Syngenta

1,54,098

19.8

20.0

20.1

18.2

17.9

17.9

Bayer CropScience

6,82,451

17.9

18.9

17.4

19.5

20.1

20.7

BASF

7,66,983

17.6

16.4

13.4

13.9

14.6

15.3

4,202

21.8

22.0

22.9

21.6

20.3

17.5

13,922

4.3

9.6

11.4

8.7

8.4

10.3

16.0

17.6

16.9

17.2

17.3

15.5

FMC Corp Nufarm (Global) Average

Source: Bloomberg, RCML Research

9 January 2017

Page 17 of 65

India Agrochemicals

Sector Report INDIA

On fertile ground

AGRICULTURE

BYRCS, DAGRI and SHCR have highest fixed asset turnover ratio BYRCS, Dagri and SHCR have highest the fixed asset turnover (FAT) ratio due to a higher proportion of outsourced manufacturing and formulation business. However, UPLL, RALI and PI have a lower FAT ratio as they are also involved in manufacturing of active ingredients, a capital- intensive business. Key observations



BYRCS outsources its manufacturing, and had outsourced 70% of its formulation business till FY12. During FY12, the company sold its Ankleshwar plant to Deccan Fine Chemicals and Bayer Material Science, which improved its FAT ratio further.



DAGRI has a presence only in formulations, leading to an asset-light model and thus a high FAT ratio.



SHCR doesn’t have any manufacturing facilities as it sources products from China. Further, it also sources formulations from European suppliers.

Higher outsourced manufacturing and formulation business led to better FAT ratios for BYRCS, DAGRI and SHCR

Fig 37 - Fixed asset turnover ratio comparison (x)

FY11

FY12

FY13

FY14

FY15

FY16

6.7

7.6

11.7

14.5

13.5

11.7

12.8

13.7

11.5

11.4

11.4

8.1

PI Industries

3.2

3.2

3.0

3.2

3.7

3.0

Rallis India

4.3

2.9

2.7

3.0

3.0

2.6

Sharda Cropchem

4.5

8.4

12.7

12.3

13.9

11.2

UPL

2.8

2.7

2.6

2.9

3.0

2.9

Bayer CropScience Dhanuka Agritech

Source: RCML Research

Working capital days SHCR and PI have the lowest cash conversion days. In contrast, DAGRI has the highest number of cash conversion days on account of lower payable days as it takes cash discount from suppliers by paying before the due date. Fig 38 - Debtor days (Days)

FY11

FY12

FY13

FY14

FY15

FY16

Bayer Cropscience

41

43

39

41

48

52

Dhanuka Agritech

87

100

95

79

85

84

PI Industries

71

72

69

59

60

68

Rallis India

31

30

34

35

42

50

205

194

178

180

147

161

85

94

102

100

104

117

FY11

FY12

FY13

FY14

FY15

FY16

Bayer Cropscience

104

117

105

92

84

90

Dhanuka Agritech

142

149

143

146

151

131

PI Industries

106

119

114

111

114

122

Rallis India

109

123

112

108

133

174

Sharda Cropchem UPL Source: RCML Research

Fig 39 - Inventory days (Days)

Sharda Cropchem UPL

68

89

62

62

57

69

152

148

154

153

164

175

Source: RCML Research

9 January 2017

Page 18 of 65

India Agrochemicals

Sector Report INDIA

On fertile ground

AGRICULTURE

Fig 40 - Payable days (Days)

FY11

FY12

FY13

FY14

FY15

FY16

Bayer CropScience

74

70

48

43

42

38

Dhanuka Agritech

50

54

48

36

41

46

PI Industries

72

75

91

105

106

113

Rallis India

136

132

108

101

109

122

Sharda Cropchem

193

202

184

207

164

184

UPL

131

117

141

161

179

201

FY12

FY13

FY14

FY15

FY16

Source: RCML Research

Fig 41 - Net cash conversion days (Days) Bayer CropScience

FY11 71

91

95

90

90

104

Dhanuka Agritech

179

195

190

189

195

169

PI Industries

104

116

92

65

69

76

Rallis India Sharda Cropchem UPL

3

21

38

42

66

101

81

81

56

35

39

46

106

124

115

91

89

91

SHCR and PI had the lowest cash conversion days, and DAGRI the highest over FY11-FY16

Source: RCML Research

Huge balance sheet cash suppress ROEs All players have strong return ratios (ROEs) of over 20%. However, since most have a debt-free and net-cash balance sheet, their ROEs look suppressed. Fig 42 - Strong ROEs (%)

FY11

FY12

FY13

FY14

FY15

FY16

Bayer CropScience

22.0

26.9

19.5

16.3

20.3

15.9

Dhanuka Agritech

38.3

29.7

27.0

31.3

28.5

24.0

PI Industries

35.3

31.7

22.9

30.7

29.3

29.6

Rallis India

27.0

23.1

21.0

24.2

21.1

16.8

Sharda Cropchem

12.9

18.6

17.7

18.2

23.4

22.6

UPL

18.0

15.7

16.7

20.1

20.7

22.3

FY11

FY12

FY13

FY14

FY15

FY16

Bayer CropScience

34.2

58.5

40.2

27.0

35.9

32.8

Dhanuka Agritech

39.3

33.6

31.0

32.6

32.4

30.4

PI Industries

36.7

32.7

23.6

32.3

30.8

30.9

Rallis India

31.9

23.6

21.9

25.1

21.5

16.7

Sharda Cropchem

14.7

22.1

22.8

26.4

32.8

28.5

UPL

24.2

25.5

28.2

31.1

25.4

26.2

Source: RCML Research

Fig 43 - ROEs ex-cash (%)

All players have strong return ratios (ROEs) of over 20%

Source: RCML Research

9 January 2017

Page 19 of 65

India Agrochemicals On fertile ground

Sector Report INDIA AGRICULTURE

Companies

9 January 2017

Page 20 of 65

Company Initiation INDIA AGRICULTURE 9 January 2017

HOLD

Bayer CropScience

TP: INR 4,660.00  13.0%

BYRCS IN

Steady business, but valuations rich We initiate coverage on BYRCS with HOLD and a Mar’18 TP of Rs 4,660. BYRCS leads India’s agrochemicals market with a dominant 45-50% share in hybrid rice seeds and a 14% share in agrochemicals. A comprehensive REPORT AUTHORS

distribution network, branded portfolio, innovative launches ahead and strong R&D capabilities of parent should help it outstrip industry growth; we expect BYRCS to post 13%/22% sales/PAT CAGR over FY16-FY19E. However, valuations at 27xFY19E are rich and leave limited room for upside.

 Innovative product launches to spur market share: BYRCS is set to launch 15-20 innovative products by 2020 led by robust R&D capabilities of its parent, Bayer AG. This coupled with an extensive distribution network and robust brand recall should facilitate market share gains for the company. BYRCS plans to enhance the share of herbicides in its revenue mix from 17% now to 40% by 2020. This should help drive a 14% CAGR in its domestic agrochemicals business over FY16-FY19E (FY08-FY16: 13%), thus outpacing the estimated industry growth of 10-12% over this period.

 Sowing seeds for a rich harvest: In India, an abysmal 2mha of the total 40mha rice crop is cultivated using hybrid seeds. BYRCS, besides enjoying an emphatic 45-50% market share in hybrid rice seeds, has a formidable presence in cotton, pearl millet, corn, sorghum and mustard. The company is also set to launch 35-40 hybrid seed products by 2020. We expect BYRCS to post a 14% CAGR in its seeds business over FY16-FY19E (FY08-FY16: 13%) versus estimated industry growth of 12-15%.  Initiate with HOLD: A richer product mix, innovative products and better operating leverage should spur BYRCS’s EBITDA margins and help it post a 13%/22% sales/PAT CAGR over FY16-FY19E (15%/22% over FY08-FY16). While the company has a robust earnings growth trajectory, debt-free balance sheet and strong cash flows with healthy ROEs (ex-cash: >30%), valuations at 27xFY19E are rich. Initiate with HOLD; Mar’18 TP Rs 4,660 set at 30x FY19E EPS (5-yr avg. P/E 23x, high/low 40x/10x).

Manish Mahawar +91 22 6766 3471 [email protected]

Saurabh Rathi +91 22 6766 3451 [email protected]

PRICE CLOSE (06 Jan 17)

INR 4,125.50 MARKET CAP

INR 145.9 bln USD 2.1 bln SHARES O/S

35.4 mln FREE FLOAT

31.4% 3M AVG DAILY VOLUME/VALUE

0.0 mln / USD 0.7 mln 52 WK HIGH

52 WK LOW

INR 4,627.00

INR 3,110.00

Financial Highlights Y/E 31 Mar

FY15A

FY16A

FY17E

FY18E

FY19E

Revenue (INR mln)

37,233

37,429

41,122

47,143

54,124

(INR)

EBITDA (INR mln)

5,155

4,192

5,340

6,571

7,660

4700

Adjusted net profit (INR mln)

3,830

3,009

3,728

4,667

5,499

3700

Adjusted EPS (INR)

104.6

85.0

105.3

131.8

155.3

2700

Adjusted EPS growth (%)

28.2

(18.8)

23.9

25.2

17.8

1700

DPS (INR)

21.0

17.0

20.0

23.0

26.0

700

ROIC (%)

30.0

26.7

32.1

36.9

39.1

Adjusted ROAE (%)

20.3

15.9

19.6

20.9

20.9

Adjusted P/E (x)

39.4

48.5

39.2

31.3

26.6

EV/EBITDA (x)

28.3

32.1

25.9

20.7

17.4

7.4

8.3

7.1

6.1

5.1

P/BV (x) Source: Company, Bloomberg, RCML Research

Stock Price

Index Price 30,020 25,020 20,020 15,020

HOLD

Bayer CropScience

TP: INR 4,660.00  13.0%

BYRCS IN

Company Initiation INDIA AGRICULTURE

Fig 1 - Five key products Brand

Technical name

Product category

Crops

Fame

Flubendiamide

Insecticide

Rice, cotton

Confidor/Confidor Super/Admire

Imidacloprid

Insecticide

Cotton, rice

Regent

Fipronil

Insecticide

Rice, cole crops, chilli, sugarcane

Whipsuper

Fenoxaprop p ethyl

Herbicide

Soybean, rice

Nativo

Tebuconazole + Trifloxystrobin

Fungicide

Rice

Source: RCML Research

Fig 2 - Products launched over FY14-FY17 YTD Year

Product name

Product category

Crops

FY14

Lesenta

Insecticide

Sugarcane

Soloman

Insecticide

Okra, brinjal, fruits

FY15

Raxil Easy

Seed treatment

Wheat

FY16

Profiler

Fungicide

Grapes

Belt Expert

Insecticide

Chilli, fruits

Laudis

Herbicide

Corn

Luna Experience

Fungicide

Grapes

Fitrest

NA

NA

FY17

Source: Company, RCML Research

Fig 3 - Revenue and revenue growth trend Active Ingredients

(Rs mn)

Formulation

Fig 4 - Domestic and export revenue trend

Seeds

(Rs mn)

Others

Domestic

Export

60,000

60,000

6,000 5,000 4,000

(Rs mn) 6,000 5,000

10

4,000

8

3,000

6

3,000

2,000

FY11

FY19E

FY18E

FY17E

FY16

0

FY15

1,000

0

FY14

2

0

FY13

1,000

FY12

4

FY11

2,000

Source: Company, RCML Research

FY19E

12

FY19E

7,000

FY18E

14

FY18E

8,000

FY17E

16

FY14

(%)

EBITDA margin (R)

FY13

EBITDA

9,000

FY12

(Rs mn)

FY17E

Fig 6 - Robust PAT growth

FY16

Fig 5 - Consistent improvement in EBITDA

FY16

Source: Company, RCML Research

FY15

Source: Company, RCML Research

FY15

FY11

FY17E

FY14

0

FY13

0

FY19E

10,000

FY18E

10,000

FY16

20,000

FY15

20,000

FY14

30,000

FY13

30,000

FY12

40,000

FY11

40,000

FY12

50,000

50,000

Source: Company, RCML Research

9 January 2017

Page 22 of 65

HOLD

Bayer CropScience

TP: INR 4,660.00  13.0%

BYRCS IN

Company Initiation INDIA AGRICULTURE

Fig 7 - Return ratios look suppressed due to high cash balance (%)

RoE

RoE -Ex cash

RoCE

50

42

34

26

18

FY19E

FY18E

FY17E

FY16

FY15

FY14

FY13

FY12

FY11

10

Source: Company, RCML Research

9 January 2017

Page 23 of 65

HOLD

Bayer CropScience

TP: INR 4,660.00  13.0%

BYRCS IN

Company Initiation INDIA AGRICULTURE

Per Share Data Y/E 31 Mar (INR)

FY15A

FY16A

FY17E

FY18E

FY19E

Reported EPS

104.6

85.0

105.3

131.8

155.3

Adjusted EPS

104.6

85.0

105.3

131.8

155.3

21.0

17.0

20.0

23.0

26.0

554.6

496.0

577.3

681.4

805.5

FY15A

FY16A

FY17E

FY18E

FY19E

3.9

3.6

3.4

2.9

2.5

EV/EBITDA

28.3

32.1

25.9

20.7

17.4

Adjusted P/E

39.4

48.5

39.2

31.3

26.6

7.4

8.3

7.1

6.1

5.1

FY15A

FY16A

FY17E

FY18E

FY19E

EBITDA margin

13.8

11.2

13.0

13.9

14.2

EBIT margin

13.2

10.5

12.3

13.3

13.5

Adjusted profit margin

10.3

8.0

9.1

9.9

10.2

Adjusted ROAE

20.3

15.9

19.6

20.9

20.9

ROCE

17.4

13.5

17.6

18.6

18.4

DPS BVPS

Valuation Ratios Y/E 31 Mar (x) EV/Sales

P/BV

Financial Ratios Y/E 31 Mar Profitability & Return Ratios (%)

YoY Growth (%) Revenue

14.7

0.5

9.9

14.6

14.8

EBITDA

22.9

(18.7)

27.4

23.0

16.6

Adjusted EPS

28.2

(18.8)

23.9

25.2

17.8

(29.3)

12.5

4.8

10.1

10.4

Receivables (days)

48

52

46

45

45

Inventory (days)

84

90

92

91

91

Payables (days)

32

28

26

26

26

Current ratio (x)

3.4

3.4

3.5

3.6

3.8

Quick ratio (x)

1.6

1.2

1.4

1.6

1.7

Gross asset turnover

8.5

8.9

9.1

9.4

9.8

Total asset turnover

1.4

1.4

1.6

1.6

1.5

106.6

54.0

72.4

125.4

146.6

(0.6)

(0.4)

(0.5)

(0.5)

(0.6)

FY15A

FY16A

FY17E

FY18E

FY19E

66.8

65.0

66.0

66.0

66.0

117.0

117.3

111.4

112.8

113.6

Invested capital Working Capital & Liquidity Ratios

Turnover & Leverage Ratios (x)

Net interest coverage ratio Adjusted debt/equity

DuPont Analysis Y/E 31 Mar (%) Tax burden (Net income/PBT) Interest burden (PBT/EBIT) EBIT margin (EBIT/Revenue)

13.2

10.5

12.3

13.3

13.5

Asset turnover (Revenue/Avg TA)

144.3

143.6

156.8

155.1

152.6

Leverage (Avg TA/Avg equities)

136.8

137.7

138.1

136.4

134.7

20.3

15.9

19.6

20.9

20.9

Adjusted ROAE

9 January 2017

Page 24 of 65

HOLD

Bayer CropScience

TP: INR 4,660.00  13.0%

BYRCS IN

Company Initiation INDIA AGRICULTURE

Income Statement Y/E 31 Mar (INR mln)

FY15A

FY16A

FY17E

FY18E

FY19E

Total revenue

37,233

37,429

41,122

47,143

54,124

EBITDA

5,155

4,192

5,340

6,571

7,660

EBIT

4,902

3,945

5,069

6,271

7,332

Net interest income/(expenses)

(46)

(73)

(70)

(50)

(50)

Other income/(expenses)

879

757

650

850

1,050

Exceptional items EBT Income taxes

0

0

0

0

0

5,735

4,629

5,649

7,071

8,332

(1,905)

(1,620)

(1,921)

(2,404)

(2,833)

Extraordinary items

0

0

0

0

0

Min. int./Inc. from associates

0

0

0

0

0

3,830

3,009

3,728

4,667

5,499

Reported net profit Adjustments Adjusted net profit

0

0

0

0

0

3,830

3,009

3,728

4,667

5,499

FY15A

FY16A

FY17E

FY18E

FY19E

2,681

2,453

2,698

3,081

3,547

0

0

0

0

0

4,407

3,714

4,282

4,845

5,500

Balance Sheet Y/E 31 Mar (INR mln) Accounts payables Other current liabilities Provisions Debt funds Other liabilities Equity capital

0

0

0

0

0

319

657

657

657

657

366

354

354

354

354

Reserves & surplus

19,934

17,205

20,081

23,768

28,159

Shareholders' fund

20,300

17,559

20,435

24,122

28,513

Total liabilities and equities

27,707

24,383

28,072

32,705

38,217

Cash and cash eq.

11,304

7,632

10,015

12,623

15,789

Accounts receivables

5,711

4,963

5,408

6,200

7,118

Inventories

5,647

6,582

7,269

8,302

9,558

Other current assets

1,466

1,488

1,488

1,488

1,488

288

398

398

398

398

3,210

3,156

3,385

3,585

3,757 100

Investments Net fixed assets CWIP

2

67

100

100

Intangible assets

12

28

28

28

28

Deferred tax assets, net

96

69

(18)

(18)

(18)

Other assets

0

0

0

0

0

Total assets

27,736

24,383

28,072

32,705

38,217

FY19E

Cash Flow Statement Y/E 31 Mar (INR mln)

FY15A

FY16A

FY17E

FY18E

Net income + Depreciation

4,083

3,256

3,999

4,967

5,827

Interest expenses

(636)

(498)

(650)

(850)

(1,050)

Non-cash adjustments Changes in working capital Other operating cash flows

0

0

0

0

0

(1,671)

(754)

(318)

(879)

(1,053)

228

(40)

0

0

0

2,004

1,964

3,031

3,238

3,724

Capital expenditures

970

(270)

(533)

(500)

(500)

Change in investments

382

488

650

850

1,050

Cash flow from operations

Other investing cash flows

0

0

0

0

0

Cash flow from investing

1,352

218

117

350

550

Equities issued

0

(5,060)

0

0

0

Debt raised/repaid

0

0

0

0

0

Interest expenses

0

0

0

0

0

(406)

(747)

(852)

(980)

(1,108)

Dividends paid Other financing cash flows

(9)

(48)

87

0

0

Cash flow from financing

(415)

(5,855)

(765)

(980)

(1,108)

Changes in cash and cash eq

2,941

(3,673)

2,383

2,608

3,166

Closing cash and cash eq

7,803

7,631

10,015

12,623

15,789

9 January 2017

Page 25 of 65

Company Initiation INDIA AGRICULTURE 9 January 2017

BUY

Dhanuka Agritech

TP: INR 890.00  14.8%

DAGRI IN

Superior product mix to boost growth We initiate coverage on DAGRI with BUY and a Mar’18 TP of Rs 890 set at 25x FY19E EPS. DAGRI has a unique asset-light business model underpinned by an extensive marketing network (7,000 dealers/distributors selling to 75,000+ retailers across India), giving it an edge over competitors. The company has an exciting launch pipeline, with the revenue share of innovative products estimated to rise from 16% in FY16 to 25% in FY19E, supporting an overall sales/PAT CAGR of 14%/19% over this period.

REPORT AUTHORS

Manish Mahawar +91 22 6766 3471 [email protected]

 Unique asset-light model; preferred partner of global innovators: DAGRI produces a wide range of agrochemicals such as herbicides, insecticides, fungicides and plant growth regulators. The company is present only in formulations manufacturing and this exclusive focus helps it to (1) enhance sales with minimal investment on assets and (2) clock a higher asset turnover ratio versus competitors, which ensures superior ROE/ROCE. Moreover, core focus on distribution renders it the preferred partner of global innovators looking to venture into the fast-growing Indian market.

Saurabh Rathi

 Innovative product launches to catapult growth to next level: Anchored by tie-ups with global innovators, DAGRI is set to launch two innovative products each year going forward, which we think will amplify its growth trajectory. We estimate that the revenue share of innovative agrochemical products will rise from 16% in FY16 to 25% in FY19E. New product launches in conjunction with a wide distribution reach and strong brand recall are bound to facilitate market share gains.

INR 775.45

 Initiate with BUY: We expect a sales/PAT CAGR of 14%/19% over FY16-FY19E (16%/25% over FY08-FY16), bolstered by new launches and further supported by capacity expansion in Rajasthan. The company has robust operating cash flows, a debt-free balance sheet and healthy ROE/ROCE (>30%) with good dividend payout (>25%). We value it at 25x FY19E EPS (5-year average P/E 15x, high/low 30x/5x) and initiate coverage with BUY.

FREE FLOAT

+91 22 6766 3451 [email protected]

PRICE CLOSE (06 Jan 17) MARKET CAP

INR 38.8 bln USD 570.7 mln SHARES O/S

50.0 mln 25.0% 3M AVG DAILY VOLUME/VALUE

0.0 mln / USD 0.3 mln 52 WK HIGH

52 WK LOW

INR 782.00

INR 467.55

Financial Highlights Y/E 31 Mar

FY15A

FY16A

FY17E

FY18E

FY19E

Revenue (INR mln)

7,851

8,288

9,265

10,655

12,253

EBITDA (INR mln)

1,317

1,398

1,705

2,014

2,377

Adjusted net profit (INR mln)

1,061

1,070

1,218

1,474

1,785

Adjusted EPS (INR)

21.2

21.4

24.4

29.5

35.7

Adjusted EPS growth (%)

14.0

0.9

13.8

21.0

21.1

270

20,020

DPS (INR)

4.5

6.5

7.5

8.5

9.5

70

15,020

ROIC (%)

26.5

24.0

26.0

29.1

32.2

Adjusted ROAE (%)

28.5

24.0

23.5

24.3

25.0

Adjusted P/E (x)

36.6

36.2

31.8

26.3

21.7

EV/EBITDA (x)

29.7

27.8

22.8

19.0

15.8

9.4

8.1

7.0

5.9

5.0

(INR)

P/BV (x) Source: Company, Bloomberg, RCML Research

Stock Price

Index Price 30,020

670 470

25,020

BUY

Dhanuka Agritech

TP: INR 890.00  14.8%

DAGRI IN

Company Initiation INDIA AGRICULTURE

Fig 1 - Innovative products registered or launched so far Matured products

Registered/launched but yet to mature

Product pipeline

Lustre Sempra Targa Super

Continue to launch 2-3 exclusive products per annum over the next 3-4 years.

Mortar Sakura Conika

Source: Company, RCML Research

Fig 2 - DAGRI’s technical tie-ups with global innovators Company

Category

Products

Chemtura, US

Insecticide

Omite

Fungicide

Vitavax,Vitavax Ultra

Insecticide

Dimlin

Insecticide

Dunet

Herbicide

Qurin

Fungicide

Lustre

Insecticide

Dhawa Gold

Fungicide

Cursor

Fungicide

Hi Dice

Herbicide

Hook

Insecticide

Brigade

Insecticide

Aatank

Insecticide

Markar

Herbicide

Nabood

Insecticide

Caldan

Fungicide

Sheathmar

Insecticide

Bombard

Insecticide

Nukil

Nissan Chemical Industries, Japan

Herbicide

Targa Super

Hokko Chemical, Japan

Fungicide

Kasu-B

Arysta Life Science, US

-

-

Oat Agri, Japan

-

-

Oro Agri, US

-

-

Dupont , US

FMC, US

Sumitomo Chemicals, Japan

Mitsui Chemicals, Japan

Source: Company, RCML Research

Fig 3 - Five key products Brand

Technical name

Product category

Crops

Targa Super

Quizolofop ethyl

Herbicide

Soybean, cotton, groundnut, green gram, black gram, sesamum, jute and all other broad leaf crops and vegetables

Caldan

Cartap Hydrochloride

Insecticide

Rice, sugarcane, onion, garlic

Seed Treatment

Paddy, wheat, sugarcane, vegetable crops, soybean, potato

Dhanzyme Granule Markar

Bifenthrin

Insecticide

Cotton, rice, wheat, barley, gram, maize, groundnut, sugarcane, chilli, tomato, brinjal, okra, tea

Omite

Propargite

Insecticide

Multiple crops

Source: RCML Research

9 January 2017

Page 27 of 65

BUY

Dhanuka Agritech

TP: INR 890.00  14.8%

DAGRI IN

Company Initiation INDIA AGRICULTURE

Fig 4 - Products launched over FY14-FY17 YTD Year

Product Name

Product Category

Crops

FY14

Danufron

Insecticide

Horticulture crops

Defend

Insecticide

Cotton, chilly, grapes, horticulture

Media Super

Insecticide

Cotton, rice, vegetables

Protocol

Fungicide

Potato, chilly, black gram, vegetables crops

Maxyld

Plant growth regulator

Paddy, sugarcane, cotton, groundnuts, fruits & vegetables

Sempra

Herbicide

Sugarcane

Oxykill

Herbicide

Onion

Dhanuchlor Super

Herbicide

Rice

Pager

Insecticide

Cotton

Sakura

Herbicide

Multiple crop

Cover

Insecticide

Rice

Dhanvarsha

Organic bio complex

-

Dozo

Herbicide

Cotton

Goldy

Fungicide

Potato, Grapes

Maxx-soy

Herbicide

-

Fujita

Fungicide

-

Conika

Fungicide

-

Hi- Dice Super

Fungicide

-

Bullon

Insecticide

-

Aashito

Insecticide

-

Delight

Fungicide

-

FY15

FY16

FY17

Source: Company, RCML Research

Fig 5 - Revenue growth trend

Fig 6 - Consistent improvement in EBITDA margin

(Rs mn)

(Rs mn)

14,000

2,500

25

2,000

20

8,000

1,500

15

6,000

1,000

10

12,000

EBITDA

(%)

EBITDA margin (R)

10,000

4,000

Source: Company, RCML Research

Fig 7 - Robust PAT growth

Fig 8 - Healthy return ratios

(Rs mn)

(%)

1,920

40

RoE

FY19E

FY18E

FY17E

FY11

FY19E

FY18E

FY17E

FY16

FY15

FY14

FY13

FY12

FY11

Source: Company, RCML Research

FY16

0

FY15

0

0

FY14

5

FY13

500

FY12

2,000

RoCE (pre-tax)

1,600

35 1,280 960

30

640

25

Source: Company, RCML Research

FY19E

FY18E

FY17E

FY16

FY15

FY14

FY13

20

FY12

FY19E

FY18E

FY17E

FY16

FY15

FY14

FY13

FY12

FY11

0

FY11

320

Source: Company, RCML Research

9 January 2017

Page 28 of 65

BUY

Dhanuka Agritech

TP: INR 890.00  14.8%

DAGRI IN

Company Initiation INDIA AGRICULTURE

Fig 9 - Exclusive and non-exclusive revenue mix Exclusive products sales

Non-exclusive product sales

100% 90% 80%

85%

84%

82%

78%

75%

15%

16%

18%

22%

25%

FY16

FY17E

FY18E

FY19E

60%

FY15

70%

50% 40% 30% 20% 10% 0%

Source: Company, RCML Research

9 January 2017

Page 29 of 65

BUY

Dhanuka Agritech

TP: INR 890.00  14.8%

DAGRI IN

Company Initiation INDIA AGRICULTURE

Per Share Data Y/E 31 Mar (INR)

FY15A

FY16A

FY17E

FY18E

FY19E

Reported EPS

21.2

20.5

24.4

29.5

35.7

Adjusted EPS

21.2

21.4

24.4

29.5

35.7

4.5

6.5

7.5

8.5

9.5

82.4

96.1

111.4

130.6

154.8

FY15A

FY16A

FY17E

FY18E

FY19E

5.0

4.7

4.2

3.6

3.1

EV/EBITDA

29.7

27.8

22.8

19.0

15.8

Adjusted P/E

36.6

36.2

31.8

26.3

21.7

9.4

8.1

7.0

5.9

5.0

FY15A

FY16A

FY17E

FY18E

FY19E

EBITDA margin

16.8

16.9

18.4

18.9

19.4

EBIT margin

16.0

16.2

17.0

17.6

18.2

Adjusted profit margin

13.5

12.9

13.1

13.8

14.6

Adjusted ROAE

28.5

24.0

23.5

24.3

25.0

ROCE

25.8

21.3

21.4

22.0

22.1

Revenue

6.3

5.6

11.8

15.0

15.0

EBITDA

9.3

6.1

21.9

18.1

18.0

14.0

0.9

13.8

21.0

21.1

3.0

5.8

5.4

7.4

7.5

DPS BVPS

Valuation Ratios Y/E 31 Mar (x) EV/Sales

P/BV

Financial Ratios Y/E 31 Mar Profitability & Return Ratios (%)

YoY Growth (%)

Adjusted EPS Invested capital Working Capital & Liquidity Ratios Receivables (days) Inventory (days)

85

84

78

77

77

151

131

120

117

117

Payables (days)

31

33

32

31

31

Current ratio (x)

2.7

3.0

3.4

3.6

3.8

Quick ratio (x)

0.0

0.0

0.3

0.7

1.0

Gross asset turnover

7.8

6.0

5.2

5.5

5.8

Total asset turnover

1.4

1.3

1.3

1.3

1.3

48.4

121.3

143.1

170.2

202.3

0.0

0.0

(0.1)

(0.2)

(0.3)

FY15A

FY16A

FY17E

FY18E

FY19E

82.0

76.2

71.0

71.0

71.0

102.8

104.9

109.0

110.9

113.0

Turnover & Leverage Ratios (x)

Net interest coverage ratio Adjusted debt/equity

DuPont Analysis Y/E 31 Mar (%) Tax burden (Net income/PBT) Interest burden (PBT/EBIT) EBIT margin (EBIT/Revenue)

16.0

16.2

17.0

17.6

18.2

Asset turnover (Revenue/Avg TA)

142.3

133.8

133.4

132.4

129.0

Leverage (Avg TA/Avg equities)

148.2

138.8

133.8

133.0

133.1

28.5

24.0

23.5

24.3

25.0

Adjusted ROAE

9 January 2017

Page 30 of 65

BUY

Dhanuka Agritech

TP: INR 890.00  14.8%

DAGRI IN

Company Initiation INDIA AGRICULTURE

Income Statement Y/E 31 Mar (INR mln)

FY15A

FY16A

FY17E

FY18E

FY19E

Total revenue

7,851

8,288

9,265

10,655

12,253

EBITDA

1,317

1,398

1,705

2,014

2,377

EBIT

1,259

1,339

1,574

1,872

2,225

(26)

(11)

(11)

(11)

(11)

61

77

153

214

300

0

0

0

0

0

EBT

1,294

1,405

1,716

2,075

2,514

Income taxes

Net interest income/(expenses) Other income/(expenses) Exceptional items

(233)

(380)

(498)

(602)

(729)

Extraordinary items

0

0

0

0

0

Min. int./Inc. from associates

0

0

0

0

0

1,061

1,024

1,218

1,474

1,785

Reported net profit Adjustments Adjusted net profit

0

46

0

0

0

1,061

1,070

1,218

1,474

1,785

FY19E

Balance Sheet Y/E 31 Mar (INR mln)

FY15A

FY16A

FY17E

FY18E

Accounts payables

622

640

677

779

896

Other current liabilities

825

721

865

1,038

1,246 0

Provisions

0

0

0

0

Debt funds

161

77

0

0

0

Other liabilities

174

242

290

348

417

Equity capital

100

100

100

100

100

Reserves & surplus

4,023

4,704

5,471

6,432

7,645

Shareholders' fund

4,123

4,804

5,571

6,533

7,745

Total liabilities and equities

5,906

6,483

7,403

8,698

10,305

Cash and cash eq.

39

22

533

1,225

2,150

Accounts receivables

1,939

1,858

2,082

2,394

2,753

Inventories

1,917

1,726

1,882

2,164

2,488

Other current assets

490

706

706

706

706

Investments

470

921

921

921

921

Net fixed assets

679

1,313

1,332

1,341

1,338

CWIP

385

1

10

10

10

23

20

20

20

20

(34)

(83)

(83)

(83)

(83)

Intangible assets Deferred tax assets, net Other assets

0

0

0

0

0

Total assets

5,906

6,483

7,403

8,698

10,305

FY15A

FY16A

FY17E

FY18E

FY19E

1,119

1,083

1,349

1,615

1,937

23

(27)

(142)

(203)

(289)

0

0

0

0

0

(36)

307

(150)

(262)

(290)

Cash Flow Statement Y/E 31 Mar (INR mln) Net income + Depreciation Interest expenses Non-cash adjustments Changes in working capital Other operating cash flows

(8)

34

0

0

0

Cash flow from operations

1,099

1,397

1,058

1,150

1,359

Capital expenditures

(253)

(271)

(159)

(150)

(150)

Change in investments

(459)

(447)

0

0

0

Other investing cash flows

9

61

153

214

300

Cash flow from investing

(703)

(656)

(6)

64

150

0

0

0

0

0

Debt raised/repaid

(237)

(84)

(77)

0

0

Interest expenses

(26)

(11)

(11)

(11)

(11) (572)

Equities issued

Dividends paid

(117)

(662)

(452)

(512)

Other financing cash flows

0

0

0

0

0

Cash flow from financing

(380)

(758)

(540)

(523)

(583)

Changes in cash and cash eq

16

(17)

512

691

925

Closing cash and cash eq

39

22

533

1,225

2,150

9 January 2017

Page 31 of 65

Company Initiation INDIA AGRICULTURE 9 January 2017

HOLD

PI Industries

TP: INR 910.00  8.1%

PI IN

Challenging year ahead, valuations cap upside We initiate coverage on PI with HOLD and a Mar’18 TP of Rs 910. PI has posted a stellar 24%/63% sales/PAT CAGR over FY08-FY16 driven by both domestic (18% CAGR) and CSM (36% CAGR) segments. However, we expect growth to moderate to 13%/18% over FY16-FY19E due to a slowdown in the global agrochemicals market and competition in the herbicide, Nominee

REPORT AUTHORS

Manish Mahawar

Gold. Valuations at 23xFY19E are rich and leave limited room for upside.

+91 22 6766 3471 [email protected]

 Robust order book provides CSM visibility: PI’s current CSM order book stands at US$ 800mn, providing revenue visibility for the next 3-4 years; however, sluggish global demand could hurt near-term growth. At present, PI has 18-20 CSM products and is likely to commercialise 2-3 products per annum going forward. We have built in CSM revenue CAGR of 18% over FY16-FY19E vs. 36% over FY08-FY16E. PI is also venturing into the CSM pharma space with an initial investment of Rs 250-300mn. Any material traction in CSM pharma could pose as an upside risk to our estimates.

Saurabh Rathi

 Nominee Gold to hurt domestic business in FY18…: While FY17 saw several competitors for Nominee Gold enter the domestic market, the impact should play out only in FY18. Our stress case suggests an EPS impact of 8-10% due to higher competition in Nominee Gold.

INR 841.50

 …but new product launches to offset the impact: PI’s products like Osheen, Biovita, Vibrant and Keefun continue to perform well. Besides, the company is expected to launch 2-3 innovative products each year going ahead. We build in 6% revenue CAGR over FY16-FY19E (versus 18% over FY08-FY16E) into our estimates.

SHARES O/S

 Initiate with HOLD: We are positive on PI’s long-term prospects given strong CSM earnings visibility led by a healthy order book and a robust pipeline of in-licensed products. However, valuations at 23xFY19E are rich. Initiate with HOLD and a Mar’18 TP of Rs 910 set at 25x FY19E EPS (5-year avg. P/E: 16x; high/low 27x/8x).

3M AVG DAILY VOLUME/VALUE

+91 22 6766 3451 [email protected]

PRICE CLOSE (06 Jan 17) MARKET CAP

INR 115.8 bln USD 1.7 bln 137.1 mln FREE FLOAT

48.3% 0.1 mln / USD 1.4 mln 52 WK HIGH

52 WK LOW

INR 921.85

INR 495.35

Financial Highlights Y/E 31 Mar

FY15A

FY16A

FY17E

FY18E

FY19E

Revenue (INR mln)

19,403

20,968

23,642

26,472

30,311

EBITDA (INR mln)

3,727

4,347

5,265

5,849

6,806

880

Adjusted net profit (INR mln)

2,332

3,061

4,032

4,235

4,981

680

Adjusted EPS (INR)

17.1

22.4

29.5

31.0

36.5

480

Adjusted EPS growth (%)

24.0

31.2

31.7

5.0

17.6

280

DPS (INR)

1.3

3.1

3.5

3.5

4.0

80

ROIC (%)

25.0

26.0

28.0

26.1

27.3

Adjusted ROAE (%)

29.3

29.6

30.0

24.9

23.7

Adjusted P/E (x)

49.3

37.5

28.5

27.1

23.1

EV/EBITDA (x)

31.2

26.7

22.0

19.5

16.4

P/BV (x)

12.8

9.8

7.6

6.1

5.0

(INR)

Source: Company, Bloomberg, RCML Research

Stock Price

Index Price 30,020 25,020 20,020 15,020

HOLD

PI Industries

TP: INR 910.00  8.1%

PI IN

Company Initiation INDIA AGRICULTURE

Fig 1 - Key five domestic products Brand

Technical name

Product category

Crops

Nominee gold

Bispyribac sodium

Herbicide

Rice

Osheen

Dinotefuran

Insecticide

Paddy, Cotton

Vibrant

Thiocyclam Hydrogen Oxalate

Insecticide

Rice

Biovita

-

Plant growth nutrients

Multiple

Carina

Profenophos

Insecticide

Cotton, Tea

Source: RCML Research

Fig 2 - Product launches in the past three years Year

Brand

Product category

Crops

FY14

Melsa

Herbicide

Wheat

Pimix

Herbicide

Rice

Keefun

Insecticide

Okra, Cabbage

Bunker

Herbicide

Wheat, Rice, Cotton

Vibrant

Insecticide

Rice

Biovita - Granule

Plant growth nutrient

Multiple

Perido

Fungicide

Rice, Wheat, Groundnut, tea, Soyabean

FY15

FY16

Source: Company, RCML Research

Fig 3 - Domestic revenue to grow at 6% over FY16-FY19E

Fig 4 - CSM revenue to grow at 18% over FY16-FY19E

(Rs mn)

(Rs mn)

12,000

25,000

10,000

20,000

8,000

15,000

6,000

10,000 4,000

5,000

2,000

FY19E

FY18E

FY17E

FY16

FY15

FY14

FY13

FY11

FY19E

FY18E

FY17E

FY16

FY15

FY14

FY13

FY12

FY11

FY12

0

0

Source: Company, RCML Research

Source: Company, RCML Research

Fig 5 - Healthy CSM order book of US$ 800mn

Fig 6 - Limited scope of EBITDA margin improvement

(US$ mn)

Order book

(%)

Growth (R)

1,000

60

8,000

50

7,000

40

6,000

600

30

5,000

400

20

800

10

EBITDA

(Rs mn)

EBITDA margins (R)

(%) 25 20 15

4,000 10

3,000 2,000

Source: Company, RCML Research

FY19E

FY18E

FY17E

FY16

FY15

0

FY14

0

FY13

1HFY17

FY16

FY15

FY14

FY13

(10)

FY12

0

5

1,000

FY12

0

FY11

200

Source: Company, RCML Research

9 January 2017

Page 33 of 65

HOLD

PI Industries

TP: INR 910.00  8.1%

PI IN

Company Initiation INDIA AGRICULTURE

Fig 7 - Robust PAT performance

Fig 8 - Consistent improvement in return ratios

(Rs mn)

(%)

6,000

40

ROACE

ROAE

35

5,000

30 4,000

25 3,000

20

2,000

Source: Company, RCML Research

FY19E

FY18E

FY17E

FY16

FY15

FY14

FY13

FY12

FY11

FY10

FY09

FY07

FY19E

FY18E

FY17E

FY16

FY15

FY14

FY13

FY12

5

FY11

10

0

FY08

15

1,000

Source: Company, RCML Research

9 January 2017

Page 34 of 65

HOLD

PI Industries

TP: INR 910.00  8.1%

PI IN

Company Initiation INDIA AGRICULTURE

Per Share Data Y/E 31 Mar (INR)

FY15A

FY16A

FY17E

FY18E

FY19E

Reported EPS

17.1

22.4

29.5

31.0

36.5

Adjusted EPS

17.1

22.4

29.5

31.0

36.5

1.3

3.1

3.5

3.5

4.0

65.6

85.8

111.1

137.9

169.5

FY15A

FY16A

FY17E

FY18E

FY19E

6.0

5.5

4.9

4.3

3.7

EV/EBITDA

31.2

26.7

22.0

19.5

16.4

Adjusted P/E

49.3

37.5

28.5

27.1

23.1

P/BV

12.8

9.8

7.6

6.1

5.0

FY15A

FY16A

FY17E

FY18E

FY19E

EBITDA margin

19.2

20.7

22.3

22.1

22.5

EBIT margin

16.6

18.1

19.2

18.9

19.3

Adjusted profit margin

12.0

14.6

17.1

16.0

16.4

Adjusted ROAE

29.3

29.6

30.0

24.9

23.7

ROCE

24.5

25.6

26.5

22.7

21.5

DPS BVPS

Valuation Ratios Y/E 31 Mar (x) EV/Sales

Financial Ratios Y/E 31 Mar Profitability & Return Ratios (%)

YoY Growth (%) Revenue

21.6

8.1

12.8

12.0

14.5

EBITDA

29.0

16.6

21.1

11.1

16.4

Adjusted EPS

24.0

31.2

31.7

5.0

17.6

Invested capital

27.2

26.9

10.0

11.9

11.8

Working Capital & Liquidity Ratios Receivables (days) Inventory (days)

60

68

63

62

61

114

122

119

113

113

Payables (days)

75

79

71

66

65

Current ratio (x)

1.5

1.7

1.8

2.2

2.5

Quick ratio (x)

0.1

0.1

0.2

0.5

0.8

Gross asset turnover

2.8

2.3

2.0

1.9

1.9

Total asset turnover

1.4

1.2

1.2

1.1

1.1

33.2

39.9

72.8

100.3

117.0

0.1

0.1

(0.1)

(0.2)

(0.3)

FY15A

FY16A

FY17E

FY18E

FY19E

65.7

75.4

82.1

77.1

77.1

110.0

106.7

108.0

109.6

110.5

Turnover & Leverage Ratios (x)

Net interest coverage ratio Adjusted debt/equity

DuPont Analysis Y/E 31 Mar (%) Tax burden (Net income/PBT) Interest burden (PBT/EBIT) EBIT margin (EBIT/Revenue)

16.6

18.1

19.2

18.9

19.3

Asset turnover (Revenue/Avg TA)

135.2

119.2

115.5

111.3

107.2

Leverage (Avg TA/Avg equities)

180.4

170.1

152.2

139.9

134.7

29.3

29.6

30.0

24.9

23.7

Adjusted ROAE

9 January 2017

Page 35 of 65

HOLD

PI Industries

TP: INR 910.00  8.1%

PI IN

Company Initiation INDIA AGRICULTURE

Income Statement Y/E 31 Mar (INR mln)

FY15A

FY16A

FY17E

FY18E

FY19E

Total revenue

19,403

20,968

23,642

26,472

30,311

EBITDA

3,727

4,347

5,265

5,849

6,806

EBIT

3,229

3,804

4,551

5,014

5,852

Net interest income/(expenses)

(97)

(95)

(63)

(50)

(50)

Other income/(expenses)

237

216

425

530

662

Exceptional items

184

134

0

0

0

3,369

3,924

4,914

5,494

6,463

EBT Income taxes

(1,093)

(904)

(881)

(1,260)

(1,483)

Extraordinary items

0

0

0

0

0

Min. int./Inc. from associates

0

0

0

0

0

2,459

3,153

4,032

4,235

4,981

Reported net profit Adjustments

(127)

(92)

0

0

0

Adjusted net profit

2,332

3,061

4,032

4,235

4,981

Balance Sheet Y/E 31 Mar (INR mln)

FY15A

FY16A

FY17E

FY18E

FY19E

Accounts payables

3,538

3,661

3,489

3,920

4,456

Other current liabilities

2,075

2,307

2,758

2,827

2,791

Provisions

0

0

0

0

0

Debt funds

1,148

1,250

0

0

0

238

291

291

291

291

Other liabilities Equity capital Reserves & surplus Shareholders' fund

137

137

137

137

137

8,828

11,581

15,037

18,696

23,019

8,965

11,718

15,175

18,833

23,156

15,963

19,228

21,713

25,872

30,695

341

561

1,491

3,491

5,975

Accounts receivables

3,826

3,978

4,210

4,714

5,398

Inventories

3,782

3,948

3,988

4,480

5,093

Other current assets

1,718

1,835

1,835

1,835

1,835

5

5

5

5

5

Net fixed assets

5,296

8,702

9,987

11,152

12,197

CWIP

1,332

713

713

713

713

31

50

49

49

49

(369)

(563)

(565)

(567)

(570)

Total liabilities and equities Cash and cash eq.

Investments

Intangible assets Deferred tax assets, net Other assets

0

0

0

0

0

Total assets

15,963

19,228

21,713

25,872

30,695

Cash Flow Statement Y/E 31 Mar (INR mln)

FY15A

FY16A

FY17E

FY18E

FY19E

Net income + Depreciation

2,957

3,696

4,747

5,069

5,935

Interest expenses

(126)

(117)

(363)

(480)

(612)

(37)

9

0

0

0

(971)

10

7

(496)

(796)

Non-cash adjustments Changes in working capital Other operating cash flows

19

(60)

0

0

0

1,841

3,539

4,391

4,093

4,527

(1,692)

(3,215)

(1,999)

(2,000)

(2,000)

6

34

0

0

0

Other investing cash flows

223

212

377

530

662

Cash flow from investing

(1,462)

(2,969)

(1,622)

(1,470)

(1,338)

43

70

0

0

0

Debt raised/repaid

(153)

249

0

0

0

Interest expenses

(111)

(109)

(63)

(50)

(50)

Dividends paid

(658)

Cash flow from operations Capital expenditures Change in investments

Equities issued

(300)

(603)

(576)

(576)

Other financing cash flows

(4)

(7)

(981)

2

2

Cash flow from financing

(526)

(399)

(1,619)

(624)

(706)

Changes in cash and cash eq

(147)

170

1,150

2,000

2,483

171

342

1,491

3,491

5,975

Closing cash and cash eq

9 January 2017

Page 36 of 65

Company Update INDIA AGRICULTURE 9 January 2017

BUY

Rallis India

TP: INR 290.00  42.1%

RALI IN

At an inflection point – upgrade to BUY Our analysis suggests that RALI has regained domestic market share in H1FY17 after reporting market share losses over FY12-FY16. The company’s exports and seeds businesses also continue to perform well. We think RALI REPORT AUTHORS

is an inflection point with domestic market share gains, better export traction and higher seeds margins likely to spur growth ahead. The recent price correction (15% in last three months) provides a good entry point into the stock. Upgrade to BUY from HOLD with a Mar’18 TP of Rs 290.  Domestic business – regaining traction: Based on our analysis, RALI lost 120bps in domestic market share over FY12-FY16, but gained back some share in H1FY17. Further, recent products launches, viz. Origin, Mark, Summit and Hunk, have been well accepted by the market. We anticipate 13% domestic revenue CAGR over FY16-FY19E, which is sharply higher than 5% seen over FY08-FY16E.  Exports – new contracts to drive sales, margins: In FY16, RALI tied up with global innovators for contract manufacturing of two molecules. Consequently, we expect revenue to scale up in FY18/FY19 and capacity utilisation to improve at the company’s Dahej plant, leading to superior operating leverage. We estimate 15% export revenue CAGR over FY16-FY19E versus 12% over FY08-FY16.  Seeds – healthy growth in sales, margin expansion the key: While RALI’s seeds business (Metahelix) EBITDA margin has been in single digit over the years, we estimate a gradual improvement led by superior operating leverage. We build in an EBITDA margin of 12% in FY19E vs. 6.5% in FY16. Further, we anticipate 21% seeds revenue CAGR over FY16-FY19E vs. 42% over FY12-FY16 (post acquisition).  Upgrade to BUY: We estimate sales/PAT CAGR of 15%/23% over FY16-FY19E (11%/12% over FY08-FY16), with a gradual improvement across businesses over the next 12-18 months. Upgrade to BUY with a Mar’18 TP of Rs 290 (Sep’17 TP: Rs 245) set at 22x FY19E EPS (five-year avg. 21x, high/low 30x/14x).

Manish Mahawar +91 22 6766 3471 [email protected]

Saurabh Rathi +91 22 6766 3451 [email protected]

PRICE CLOSE (06 Jan 17)

INR 204.10 MARKET CAP

INR 39.7 bln USD 584.0 mln SHARES O/S

194.5 mln FREE FLOAT

49.9% 3M AVG DAILY VOLUME/VALUE

0.3 mln / USD 0.8 mln 52 WK HIGH

52 WK LOW

INR 246.00

INR 142.00

Financial Highlights Y/E 31 Mar

FY15A

FY16A

FY17E

FY18E

FY19E

Revenue (INR mln)

18,218

16,279

19,328

22,131

25,259

EBITDA (INR mln)

2,815

2,349

2,832

3,356

3,932

(INR)

Stock Price

Index Price 30,020

250

Adjusted net profit (INR mln)

1,616

1,362

1,836

2,207

2,526

8.3

7.0

9.4

11.3

13.0

200

(0.9)

(15.7)

34.8

20.2

14.5

150

20,020

DPS (INR)

2.5

2.5

3.0

3.5

4.0

100

15,020

ROIC (%)

19.3

15.7

18.2

20.7

22.9

Adjusted ROAE (%)

21.1

15.9

19.2

20.4

20.5

Adjusted P/E (x)

24.6

29.1

21.6

18.0

15.7

EV/EBITDA (x)

14.3

17.4

14.3

11.9

9.8

4.9

4.4

3.9

3.4

3.0

Adjusted EPS (INR) Adjusted EPS growth (%)

P/BV (x) Source: Company, Bloomberg, RCML Research

25,020

BUY

Rallis India

TP: INR 290.00  42.1%

RALI IN

Company Update INDIA AGRICULTURE

Fig 1 - Top five products Brand

Technical name

Product Category

Crops

Asataf

Acephate

Insecticide

Tobacco, Sugarcane, Cotton, Chillies, vegetables, Fruits & cereals

Applaud

Buprofezin

Insecticide

Rice

Takumi

Flubendiamite

Insecticide

Rice

Contaf/Contaf Plus

Hexaconazole

Fungicide

Rice, cereals, oil seeds, horticultural and plantation crops

Ergon

Kresoxim Methyl

Fungicide

Grapes

Source: RCML Research

Fig 2 - Product launches over FY14-FY17 Year

Product name

Product category

Crops

FY14

Plato

Herbicide

Soyabean

FY15

Origin

Insecticide and Fungicide

Rice

Duton

Herbicide

Rice

Hunk

Insecticide

Rice

Blend

Fungicide

Grape

Panida Grande

Herbicide

Cotton, Soyabean

Mark

Herbicide

Cotton, Soyabean

Zeeny

Insecticide

Okra

Summit

Insecticide

Cotton, Chilli, Soyabean

Epic

Fungicide

Rice

Quest

Insecticide

Cotton

FY16

FY17

Source: Company, RCML Research

Fig 3 - New product launches – a key growth element Registrations

(Nos)

Fig 4 - Contribution of new launches to sales (%) 22

Launches

25

Products ‘Applaud’ and ‘Takumi’ have come out of the ITI in FY11 and FY12.

20

20

18 16

15

14

10

Source: Company, RCML Research

Source: Company, RCML Research

Fig 5 - Dahej to drive export sales, de-risk business

Fig 6 - Metahelix seeding growth

5,000

20

4,000

15

3,000

10

2,000

800

5

1,000

0

0

0

4,000 3,200 2,400

Source: Company, RCML Research

FY19E

FY18E

FY17E

FY16

FY15

FY14

FY13

FY12

FY11

1,600

FY16 FY19E

6,000

25

FY18E

30

4,800

FY17E

5,600

FY12

7,000

FY16

(Rs mn)

(%) 35

FY15

As % of total sales (R)

FY14

Export Sales

6,400

FY13

(Rs mn)

FY15

FY14

FY13

FY11

FY16

FY15

FY14

FY13

8

FY12

0

FY11

10

FY12

12

5

Source: Company, RCML Research

9 January 2017

Page 38 of 65

BUY

Rallis India

TP: INR 290.00  42.1%

RALI IN

Company Update INDIA AGRICULTURE

Fig 7 - Consolidated revenue and growth trend (Rs mn)

Domestic

Export

Fig 8 - Consolidated EBITDA and margin trend (Rs mn)

Seeds

EBITDA

(%)

EBITDA margin (R)

27,500

4,000

18

22,500

3,000

16

2,000

14

1,000

12

0

10

17,500

Source: Company, RCML Research

Source: Company, RCML Research

Fig 9 - Consolidated net profit trend

Fig 10 - Healthy return ratios

(Rs mn)

(%)

3,000

36

2,400

RoCE

FY19E

FY18E

FY17E

FY16

FY15

FY14

FY11

FY19E

FY18E

FY17E

FY16

FY15

FY14

FY13

FY12

FY11

2,500

FY13

7,500

FY12

12,500

RoE

30

1,800 24

1,200 18

600

FY19E

FY18E

FY17E

FY16

FY15

FY14

FY13

FY12

FY19E

FY18E

FY17E

FY16

FY15

FY14

FY13

FY12

FY11

Source: Company, RCML Research

FY11

12

0

Source: Company, RCML Research

9 January 2017

Page 39 of 65

BUY

Rallis India

TP: INR 290.00  42.1%

RALI IN

Company Update INDIA AGRICULTURE

Per Share Data Y/E 31 Mar (INR)

FY15A

FY16A

FY17E

FY18E

FY19E

Reported EPS

8.1

7.4

9.4

11.3

13.0

Adjusted EPS

8.3

7.0

9.4

11.3

13.0

DPS

2.5

2.5

3.0

3.5

4.0

41.9

46.2

52.1

59.2

67.4

FY15A

FY16A

FY17E

FY18E

FY19E

2.2

2.5

2.1

1.8

1.5

EV/EBITDA

14.3

17.4

14.3

11.9

9.8

Adjusted P/E

24.6

29.1

21.6

18.0

15.7

4.9

4.4

3.9

3.4

3.0

FY15A

FY16A

FY17E

FY18E

FY19E

EBITDA margin

15.5

14.4

14.7

15.2

15.6

EBIT margin

12.7

11.7

12.2

12.9

13.4

8.9

8.4

9.5

10.0

10.0

Adjusted ROAE

21.1

15.9

19.2

20.4

20.5

ROCE

19.0

15.5

17.8

19.5

19.9

Revenue

4.3

(10.6)

18.7

14.5

14.1

EBITDA

3.3

(16.6)

20.5

18.5

17.2

Adjusted EPS

(0.9)

(15.7)

34.8

20.2

14.5

Invested capital

19.0

4.0

3.9

3.0

4.1

BVPS

Valuation Ratios Y/E 31 Mar (x) EV/Sales

P/BV

Financial Ratios Y/E 31 Mar Profitability & Return Ratios (%)

Adjusted profit margin

YoY Growth (%)

Working Capital & Liquidity Ratios Receivables (days) Inventory (days)

42

50

42

43

43

133

174

144

140

140

Payables (days)

70

74

65

68

71

Current ratio (x)

1.5

1.5

1.6

1.8

2.0

Quick ratio (x)

0.0

0.0

0.0

0.2

0.3

Gross asset turnover

3.0

2.5

2.8

2.9

3.2

Total asset turnover

1.4

1.1

1.3

1.3

1.4

22.9

14.0

34.8

142.6

169.8

0.1

0.1

0.0

(0.1)

(0.2)

FY19E

Turnover & Leverage Ratios (x)

Net interest coverage ratio Adjusted debt/equity

DuPont Analysis Y/E 31 Mar (%)

FY15A

FY16A

FY17E

FY18E

Tax burden (Net income/PBT)

72.9

73.4

77.0

75.0

72.0

Interest burden (PBT/EBIT)

95.5

97.6

101.0

103.2

103.3

EBIT margin (EBIT/Revenue)

12.7

11.7

12.2

12.9

13.4

Asset turnover (Revenue/Avg TA)

136.7

113.6

127.3

133.3

135.5

Leverage (Avg TA/Avg equities)

173.9

167.3

158.9

153.4

151.5

21.1

15.9

19.2

20.4

20.5

Adjusted ROAE

9 January 2017

Page 40 of 65

BUY

Rallis India

TP: INR 290.00  42.1%

RALI IN

Company Update INDIA AGRICULTURE

Income Statement Y/E 31 Mar (INR mln)

FY15A

FY16A

FY17E

FY18E

FY19E

Total revenue

18,218

16,279

19,328

22,131

25,259

EBITDA

2,815

2,349

2,832

3,356

3,932

EBIT

2,320

1,903

2,360

2,851

3,395

Net interest income/(expenses)

(101)

(136)

(68)

(20)

(20)

42

68

93

111

133

(44)

21

0

0

0

EBT

2,260

1,836

2,385

2,942

3,508

Income taxes

(618)

(390)

(548)

(736)

(982)

0

0

0

0

0

(26)

(37)

0

0

0

1,572

1,430

1,836

2,207

2,526

Other income/(expenses) Exceptional items

Extraordinary items Min. int./Inc. from associates Reported net profit Adjustments Adjusted net profit

44

(68)

0

0

0

1,616

1,362

1,836

2,207

2,526

Balance Sheet Y/E 31 Mar (INR mln)

FY15A

FY16A

FY17E

FY18E

FY19E

Accounts payables

2,882

2,736

3,160

3,832

4,422

Other current liabilities

1,396

1,779

1,856

1,930

2,061

Provisions

0

0

0

0

0

Debt funds

1,253

898

350

0

0

224

218

218

218

218

Other liabilities Equity capital Reserves & surplus Shareholders' fund

194

194

194

194

194

7,951

8,796

9,930

11,317

12,907

8,145

8,990

10,124

11,512

13,102

14,001

14,658

15,708

17,491

19,802

72

78

248

981

2,144

Accounts receivables

2,477

1,966

2,436

2,789

3,183

Inventories

3,942

4,048

4,430

5,132

5,922

Other current assets

1,406

1,503

1,503

1,503

1,503

242

281

281

281

281

3,828

4,045

4,073

4,069

4,032

Total liabilities and equities Cash and cash eq.

Investments Net fixed assets CWIP

265

405

405

405

405

Intangible assets

2,126

2,720

2,720

2,720

2,720

Deferred tax assets, net

(388)

(357)

(388)

(388)

(388)

Other assets

0

0

0

0

0

Total assets

14,001

14,658

15,708

17,491

19,802

FY15A

FY16A

FY17E

FY18E

FY19E

2,068

1,876

2,308

2,711

3,063

Interest expenses

89

118

(25)

(91)

(113)

Non-cash adjustments

25

5

0

0

0

(1,563)

314

(350)

(310)

(463)

Cash Flow Statement Y/E 31 Mar (INR mln) Net income + Depreciation

Changes in working capital Other operating cash flows

62

23

0

0

0

681

2,336

1,934

2,310

2,487

Capital expenditures

(431)

(739)

(500)

(500)

(500)

Change in investments

(108)

(772)

93

111

133

Other investing cash flows

0

27

0

0

0

Cash flow from investing

(539)

(1,484)

(407)

(389)

(367)

Cash flow from operations

Equities issued Debt raised/repaid Interest expenses

0

0

0

0

0

384

(490)

(616)

(370)

(20)

89

118

(25)

(91)

(113)

(550)

(350)

(702)

(819)

(936)

Other financing cash flows

(81)

(69)

(13)

91

113

Cash flow from financing

(158)

(790)

(1,355)

(1,189)

(956)

(17)

62

171

732

1,164

72

77

248

981

2,144

Dividends paid

Changes in cash and cash eq Closing cash and cash eq

9 January 2017

Page 41 of 65

Company Initiation INDIA AGRICULTURE 9 January 2017

HOLD

Sharda Cropchem

TP: INR 490.00  3.4%

SHCR IN

Divergent play We initiate coverage on SHCR with HOLD and a Mar’18 TP of Rs 490. SHCR has a differentiated asset-light business model with a focus on product registrations. A robust 43% CAGR (FY10-FY16) in registrations in highly regulated markets and strong sourcing capabilities reinforce its execution credentials. SHCR is on the cusp of exponential growth led by its rising

REPORT AUTHORS

Manish Mahawar

wallet share in existing products and new launches. However, premium

+91 22 6766 3471 [email protected]

valuations (at 16xFY19E) leave limited upside room.  Unique business model; successfully cracking stringent markets: SHCR’s product registrations and outsourced manufacturing-based business model ensure flexibility and nimble, asset-light & low-capital investments. Bolstered by vibrant experience and requisite knowledge, the company has bagged product registrations in highly regulated geographies, mainly Europe and US. Markets with stringent regulations entail superior margins due to limited competition, handsomely brightening SHCR’s prospects. Europe sales contribution is set to rise from 51% in FY16 to 57% in FY19E.  Emerging global player with multiple growth levers: Potent triggers such as a rising wallet share in existing products and new launches should shore up growth for SHCR. This would be aided by the expansion of its in-house sales team.  Initiate with HOLD: We estimate SHCR to deliver revenue/PAT CAGR of 14%/18% over FY16-FY19E (23%/34% over FY11-FY16), with ex-cash ROE/ROCE of >25%. On a relative basis, the stock is trading at a discount to domestic peers and at par with UPL/global peers. We expect this discount to sustain given SHCR’s registrationbased model and absence of manufacturing. We initiate coverage on the stock with HOLD and a Mar’18 TP of Rs 490 set at 16x FY19E EPS – at a discount to domestic peers and at par with UPL. We would recommend investors to wait for a better entry point into the stock.

Saurabh Rathi +91 22 6766 3451 [email protected]

PRICE CLOSE (06 Jan 17)

INR 474.10 MARKET CAP

INR 42.8 bln USD 629.4 mln SHARES O/S

90.2 mln FREE FLOAT

25.0% 3M AVG DAILY VOLUME/VALUE

0.1 mln / USD 0.6 mln 52 WK HIGH

52 WK LOW

INR 510.00

INR 202.85

Financial Highlights Y/E 31 Mar

FY15A

FY16A

FY17E

FY18E

FY19E

Revenue (INR mln)

10,611

12,186

13,681

15,716

18,088

EBITDA (INR mln)

1,895

2,649

3,147

3,693

4,341

Adjusted net profit (INR mln)

1,416

1,659

1,991

2,321

2,757

Adjusted EPS (INR)

15.7

18.4

22.1

25.7

30.6

340

Adjusted EPS growth (%)

52.5

17.1

20.1

16.6

18.8

240

DPS (INR)

2.5

3.0

3.5

4.0

4.0

ROIC (%)

26.1

25.6

25.1

24.6

25.3

Adjusted ROAE (%)

23.4

22.6

22.3

21.8

21.6

Adjusted P/E (x)

30.2

25.8

21.5

18.4

15.5

EV/EBITDA (x)

22.7

16.0

13.4

11.4

9.5

6.5

5.3

4.4

3.7

3.1

(INR)

440

Source: Company, Bloomberg, RCML Research

Index Price 29,800 27,800 25,800

140

P/BV (x)

Stock Price

23,800 21,800

HOLD

Sharda Cropchem

TP: INR 490.00  3.4%

SHCR IN

INDIA AGRICULTURE

Fig 1 - Bagged registrations in highly regulated markets (Nos)

Europe

LATAM

Company Initiation

NAFTA

Fig 2 - Registration pipeline firming up (Nos)

RoW

900

2,000

800 700

1,600

600

1,200

500 400

800

300 200

400

100

Source: Company, RCML Research

Source: Company, RCML Research

Fig 3 - Consolidated revenue and revenue growth trend

Fig 4 - Consolidated EBITDA and margin trend

(Rs mn)

Europe

NAFTA

Latin America

(Rs mn)

RoW

EBITDA

Sep-16

Jun-16

Mar-16

Dec-15

Sep-15

Jun-15

Mar-15

Sep-14

FY16

FY15

FY14

FY13

FY12

FY11

Dec-14

0

0

EBITDA margin (R)

(%)

21,000

4,500

25

17,500

3,750

20

14,000

3,000

10,500

2,250

7,000

1,500

3,500

750

5

0

0

0

15

FY19E

FY18E

FY17E

FY16

FY15

FY14

FY13

FY12

FY11

FY19E

FY18E

FY17E

FY16

FY15

FY14

FY13

FY12

FY11

10

Source: Company, RCML Research

Source: Company, RCML Research

Fig 5 - Consolidated net profit growth

Fig 6 - ROE/ROCE improves despite huge investment

(Rs mn)

(%)

3,200

RoE (pre-tax)

RoCE (pre-tax)

34

2,800 2,400

28

2,000 1,600

22

1,200 16

800 400

FY19E

FY18E

FY17E

FY16

FY15

FY14

FY13

FY11

FY19E

FY18E

FY17E

FY16

FY15

FY14

FY13

FY12

FY11

Source: Company, RCML Research

FY12

10

0

Source: Company, RCML Research

Fig 7 - Geography-wise revenue (Rs mn)

FY11

FY12

FY13

FY14

FY15

FY16

FY17E

FY18E

FY19E

CAGR (FY11FY16) (%)

CAGR (FY16- FY 19E) (%)

Europe

1,339

1,893

2,500

3,168

4,385

5,699

6,668

8,001

9,602

34

19

NAFTA

906

1,069

1,242

969

1,636

2,027

2,229

2,452

2,698

17

10

Latin America

814

1,296

2,027

1,496

1,732

1,383

1,591

1,750

1,925

11

12

RoW

640

580

648

806

895

1,171

1,171

1,288

1,417

13

7

Total

3,700

4,839

6,418

6,439

8,648

10,280

11,659

13,492

15,641

23

14

Source: Company, RCML Research

9 January 2017

Page 43 of 65

HOLD

Sharda Cropchem

TP: INR 490.00  3.4%

SHCR IN

Company Initiation INDIA AGRICULTURE

Per Share Data Y/E 31 Mar (INR)

FY15A

FY16A

FY17E

FY18E

FY19E

Reported EPS

13.6

19.4

22.1

25.7

30.6

Adjusted EPS

15.7

18.4

22.1

25.7

30.6

2.5

3.0

3.5

4.0

4.0

72.5

89.9

107.7

128.6

154.4

FY15A

FY16A

FY17E

FY18E

FY19E

4.0

3.5

3.1

2.7

2.3

EV/EBITDA

22.7

16.0

13.4

11.4

9.5

Adjusted P/E

30.2

25.8

21.5

18.4

15.5

6.5

5.3

4.4

3.7

3.1

FY15A

FY16A

FY17E

FY18E

FY19E

EBITDA margin

17.9

21.7

23.0

23.5

24.0

EBIT margin

15.7

18.9

19.4

19.6

19.9

Adjusted profit margin

13.3

13.6

14.6

14.8

15.2

Adjusted ROAE

23.4

22.6

22.3

21.8

21.6

ROCE

18.8

20.3

20.8

20.2

19.7

Revenue

34.2

14.8

12.3

14.9

15.1

EBITDA

22.8

39.8

18.8

17.4

17.5

Adjusted EPS

52.5

17.1

20.1

16.6

18.8

Invested capital

32.1

26.3

22.2

15.1

12.2 168

DPS BVPS

Valuation Ratios Y/E 31 Mar (x) EV/Sales

P/BV

Financial Ratios Y/E 31 Mar Profitability & Return Ratios (%)

YoY Growth (%)

Working Capital & Liquidity Ratios Receivables (days)

147

161

173

168

Inventory (days)

57

69

70

69

69

Payables (days)

91

117

129

117

118

Current ratio (x)

1.9

1.9

2.1

2.2

2.3

Quick ratio (x)

0.2

0.1

0.2

0.3

0.4

Gross asset turnover

3.9

3.7

3.2

2.8

2.7

Total asset turnover

1.1

1.1

1.0

1.0

1.0

208.0

416.5

265.5

307.6

359.9

0.0

(0.1)

(0.1)

(0.1)

(0.2)

FY15A

FY16A

FY17E

FY18E

FY19E

73.0

66.5

70.0

70.0

70.0

116.8

108.5

107.2

107.8

109.4 19.9

Turnover & Leverage Ratios (x)

Net interest coverage ratio Adjusted debt/equity

DuPont Analysis Y/E 31 Mar (%) Tax burden (Net income/PBT) Interest burden (PBT/EBIT) EBIT margin (EBIT/Revenue)

15.7

18.9

19.4

19.6

Asset turnover (Revenue/Avg TA)

110.0

105.6

100.5

100.2

97.6

Leverage (Avg TA/Avg equities)

159.4

157.4

152.7

147.1

145.2

23.4

22.6

22.3

21.8

21.6

Adjusted ROAE

9 January 2017

Page 44 of 65

HOLD

Sharda Cropchem

TP: INR 490.00  3.4%

SHCR IN

Company Initiation INDIA AGRICULTURE

Income Statement Y/E 31 Mar (INR mln)

FY15A

FY16A

FY17E

FY18E

FY19E

Total revenue

10,611

12,186

13,681

15,716

18,088

EBITDA

1,895

2,649

3,147

3,693

4,341

EBIT

1,662

2,298

2,655

3,076

3,599

(8)

(6)

(10)

(10)

(10)

287

202

200

250

350

0

0

0

0

0

EBT

1,941

2,494

2,845

3,316

3,939

Income taxes

(524)

(835)

(853)

(995)

(1,182)

Extraordinary items

(187)

91

0

0

0

0

(1)

0

0

0

1,230

1,750

1,991

2,321

2,757

Net interest income/(expenses) Other income/(expenses) Exceptional items

Min. int./Inc. from associates Reported net profit Adjustments Adjusted net profit

187

(91)

0

0

0

1,416

1,659

1,991

2,321

2,757

Balance Sheet Y/E 31 Mar (INR mln)

FY15A

FY16A

FY17E

FY18E

FY19E

Accounts payables

2,281

3,837

3,598

4,134

4,720

Other current liabilities

1,038

843

1,084

1,215

1,447

Provisions

0

0

0

0

0

Debt funds

381

20

0

0

0

5

9

9

9

9

902

902

902

902

902

Reserves & surplus

5,643

7,206

8,817

10,704

13,026

Shareholders' fund

6,545

8,108

9,719

11,606

13,929

10,250

12,819

14,412

16,965

20,106

702

649

758

1,411

2,585

Accounts receivables

4,544

6,200

6,747

7,751

8,920

Inventories

1,396

1,598

1,775

2,039

2,329

Other current assets

503

541

541

541

541

Investments

949

820

820

820

820

Net fixed assets

864

1,284

2,042

2,674

3,182

1,488

2,098

2,100

2,100

2,100

4

4

4

4

4

(215)

(389)

(389)

(389)

(389)

Other liabilities Equity capital

Total liabilities and equities Cash and cash eq.

CWIP Intangible assets Deferred tax assets, net Other assets

15

14

14

14

14

Total assets

10,250

12,819

14,412

16,965

20,106

FY15A

FY16A

FY17E

FY18E

FY19E

1,463

2,100

2,483

2,938

3,499

Interest expenses

0

0

0

0

0

Non-cash adjustments

0

0

0

0

0

Changes in working capital

(723)

(172)

(722)

(601)

(641)

Other operating cash flows

(279)

(116)

(200)

(250)

(350)

461

1,812

1,562

2,087

2,509

Capital expenditures

(799)

(1,287)

(1,252)

(1,250)

(1,250)

Change in investments

1,035

330

200

250

350

Other investing cash flows

0

0

0

0

0

Cash flow from investing

237

(957)

(1,052)

(1,000)

(900)

Cash Flow Statement Y/E 31 Mar (INR mln) Net income + Depreciation

Cash flow from operations

Equities issued

0

0

0

0

0

Debt raised/repaid

(32)

(356)

(20)

0

0

Interest expenses

0

0

0

0

0

(211)

(526)

(380)

(435)

(435)

Dividends paid Other financing cash flows

31

68

0

0

0

Cash flow from financing

(212)

(814)

(400)

(435)

(435)

Changes in cash and cash eq

486

41

110

653

1,174

Closing cash and cash eq

702

649

758

1,411

2,585

9 January 2017

Page 45 of 65

Company Initiation INDIA AGRICULTURE 9 January 2017

BUY

UPL

TP: INR 820.00  24.3%

UPLL IN

Diversified global play We initiate coverage on UPLL with BUY and a Mar’18 TP of Rs 820 set at 16x FY19E EPS. UPLL has been outperforming its global peers on the strength of (1) a balanced presence across geographies, product segments and crops, (2) rising market share in high-growth countries like Brazil and India, and (3) a presence across the value chain (R&D, registration, manufacturing, marketing). We expect sustained market share gains and model for a 16%/23% revenue/ PAT CAGR over FY16-FY19E led by new launches in fast-growing geographies.  Diversified business model: UPLL has a well-balanced business model, with a presence across the US, Europe, Latam, India and RoW; these markets contribute 19%, 15%, 32%, 20% and 14% to the company’s consolidated sales respectively.  Brazil (~16% of revenue) remains the fastest growing market: Since FY12 when UPLL acquired DVA Brasil, the company has strived to strengthen its presence in Brazil, both by way of new products and distribution network expansion. With blockbuster fungicide product Unizeb Gold gaining acceptance among farmers, and distribution company Sinagro acquired in FY16, we anticipate strong market share gains in Brazil (from 3% now) and model for 16% revenue CAGR in LATAM over FY16-FY19E.  India likely to clock 15% CAGR, US/Europe in single digits: UPLL’s key products Ulala, Saaf and Saathi have high brand recall in the domestic market and will help sustain the growth momentum. We thus model for an India sales CAGR of 15% over FY16-FY19, though growth in the US and Europe is likely to remain in single digits.  Initiate with BUY: UPLL’s market share in India/Brazil has risen from 19%/nil in FY11 to 21%/3% now and we anticipate further gains ahead. Pre-tax ROCE is likely to improve from 23% to 24.5% over FY16-FY19E, while debt remains a key factor to watch (gross debt Rs 58bn, Sep’16). We initiate with BUY and a Mar’18 TP of Rs 820 set at 16x FY19E EPS (5-year avg. 10x, high/low 16x/5x), at par with global peers.

REPORT AUTHORS

Manish Mahawar +91 22 6766 3471 [email protected]

Saurabh Rathi +91 22 6766 3451 [email protected]

PRICE CLOSE (06 Jan 17)

INR 659.90 MARKET CAP

INR 334.5 bln USD 4.9 bln SHARES O/S

509.3 mln FREE FLOAT

72.2% 3M AVG DAILY VOLUME/VALUE

1.5 mln / USD 14.2 mln 52 WK HIGH

52 WK LOW

INR 730.70

INR 342.00

Financial Highlights Y/E 31 Mar

FY15A

FY16A

FY17E

FY18E

FY19E

1,20,905

1,33,015

1,63,491

1,83,969

2,07,339

EBITDA (INR mln)

23,626

27,163

35,018

40,404

46,576

Adjusted net profit (INR mln)

11,519

13,851

18,299

21,714

25,840

26.9

32.3

36.4

43.2

51.4

Adjusted EPS growth (%)

9.6

20.2

12.5

18.7

19.0

DPS (INR)

5.0

5.0

5.1

6.0

6.8

ROIC (%)

20.7

20.8

21.2

21.0

22.4

Adjusted ROAE (%)

20.7

21.9

22.9

21.5

21.4

Adjusted P/E (x)

24.6

20.4

18.1

15.3

12.9

EV/EBITDA (x)

15.2

13.2

10.5

9.1

7.8

4.8

4.2

3.6

3.0

2.5

(INR)

Revenue (INR mln)

Adjusted EPS (INR)

P/BV (x) Source: Company, Bloomberg, RCML Research

700 600 500 400 300 200 100

Stock Price

Index Price 30,020 25,020 20,020 15,020

Company Initiation

BUY

UPL

TP: INR 820.00  24.3%

UPLL IN

INDIA AGRICULTURE

Fig 1 - Robust volume-driven growth (%)

FY11

FY12

FY13

FY14

FY15

FY16

Volume

12

23

9

9

14

17

1HFY17 15

Price

(2)

4

4

2

2

1

(4)

Exchange

(3)

6

7

6

(3)

(8)

2

Source: Company, RCML Research

Fig 2 - Key markets, products and revenue contribution Geography

North America

Key products

Europe

Latin America

RoW

India

 Manzate

 Devrinol

 Manzate

 Ulala

 Penncozeb

 Microthiol

 Microthiol

 Vondozeb

 Phoskill

 Kinalux

 Cuprofix

 Penncozeb

 Unizeb

 Lancer Gold

 Quickphos

 Weevilcide

 Cuprofix

 Lancer

 Saaf

 Asulox

 Super Tin

 Metafol

 Quickphos

 Saathi

 Blazer

 Beetup

 Unizeb Gold

 Starthene

 Surflan

 Clorin

 Atabron

 Tricor

 Zartan

 Disect

 Danado  Imida Gold  Lancer Gold  Portero  Glipotal TR Branded sales as a % of total sales in the region

90%

78%

75%

94%

95%

Source: Company, RCML Research

Fig 3 - Geographical diversity to aid revenue growth (Rs mn)

North America

Europe

Latin America

India

Fig 4 - Revenue mix improving (Rs mn)

RoW

Standalone

Advanta

2,50,000

2,10,000 1,80,000

2,00,000

1,50,000

1,50,000

1,20,000 1,00,000

90,000 60,000

50,000

30,000

Source: Company, RCML Research; Note: Standalone revenue growth

Source: Company, RCML Research; Note: Consolidated revenue growth

Fig 5 - Consolidated EBITDA and margin gains

Fig 6 - Consolidated net profits on the rise

(Rs mn) 50,000

EBITDA

EBITDA margin (R)

44,000

(Rs mn)

(%) 25

30,000

20

25,000

38,000 32,000

15

26,000

10

FY19E

FY18E

FY17E

FY16

FY15

FY14

FY13

FY11

FY19E

FY18E

FY17E

FY16

FY15

FY14

FY13

FY12

FY11

FY12

0

0

20,000 15,000

Source: Company, RCML Research

FY19E

FY18E

FY17E

FY16

FY15

0

FY14

0

FY13

FY19E

FY18E

FY17E

FY16

FY15

FY14

FY13

FY12

FY11

8,000

5,000

FY11

14,000

10,000

5

FY12

20,000

Source: Company, RCML Research

9 January 2017

Page 47 of 65

BUY

UPL

TP: INR 820.00  24.3%

UPLL IN

Company Initiation INDIA AGRICULTURE

Fig 7 - Strong return ratios RoE

(%)

RoCE

25

23

20

18

FY19E

FY18E

FY17E

FY16

FY15

FY14

FY13

FY12

FY11

15

Source: Company, RCML Research

9 January 2017

Page 48 of 65

BUY

UPL

TP: INR 820.00  24.3%

UPLL IN

Company Initiation INDIA AGRICULTURE

Per Share Data Y/E 31 Mar (INR)

FY15A

FY16A

FY17E

FY18E

FY19E

Reported EPS

26.9

32.3

36.4

43.2

51.4

Adjusted EPS

26.9

32.3

36.4

43.2

51.4

5.0

5.0

5.1

6.0

6.8

136.7

158.4

182.9

218.8

262.0

FY15A

FY16A

FY17E

FY18E

FY19E

3.0

2.7

2.2

2.0

1.7

EV/EBITDA

15.2

13.2

10.5

9.1

7.8

Adjusted P/E

24.6

20.4

18.1

15.3

12.9

4.8

4.2

3.6

3.0

2.5

FY15A

FY16A

FY17E

FY18E

FY19E

EBITDA margin

19.5

20.4

21.4

22.0

22.5

EBIT margin

16.0

16.6

17.5

18.0

18.5

9.5

10.4

11.2

11.8

12.5

Adjusted ROAE

20.7

21.9

22.9

21.5

21.4

ROCE

17.9

18.0

18.3

18.1

19.0

Revenue

12.3

10.0

22.9

12.5

12.7

EBITDA

17.0

15.0

28.9

15.4

15.3

Adjusted EPS

9.6

20.2

12.5

18.7

19.0

Invested capital

9.5

17.4

27.0

8.1

7.8

Receivables (days)

104

117

123

130

130

Inventory (days)

164

175

177

189

189

Payables (days)

111

122

122

127

127

Current ratio (x)

1.5

1.5

1.5

1.6

1.7

Quick ratio (x)

0.2

0.1

0.2

0.2

0.2

Gross asset turnover

3.3

3.3

3.2

3.0

3.0

Total asset turnover

0.9

0.9

0.9

0.8

0.9

Net interest coverage ratio

3.7

3.6

4.0

4.9

5.8

Adjusted debt/equity

0.4

0.5

0.4

0.2

0.1

DPS BVPS

Valuation Ratios Y/E 31 Mar (x) EV/Sales

P/BV

Financial Ratios Y/E 31 Mar Profitability & Return Ratios (%)

Adjusted profit margin

YoY Growth (%)

Working Capital & Liquidity Ratios

Turnover & Leverage Ratios (x)

DuPont Analysis Y/E 31 Mar (%)

FY15A

FY16A

FY17E

FY18E

FY19E

Tax burden (Net income/PBT)

81.7

85.6

79.9

79.6

79.4

Interest burden (PBT/EBIT)

72.8

73.0

80.0

82.4

85.1

EBIT margin (EBIT/Revenue)

16.0

16.6

17.5

18.0

18.5

Asset turnover (Revenue/Avg TA)

90.2

86.0

86.6

84.0

86.2

241.3

244.5

236.0

216.7

198.7

20.7

21.9

22.9

21.5

21.4

Leverage (Avg TA/Avg equities) Adjusted ROAE

9 January 2017

Page 49 of 65

BUY

UPL

TP: INR 820.00  24.3%

UPLL IN

Company Initiation INDIA AGRICULTURE

Income Statement Y/E 31 Mar (INR mln)

FY15A

FY16A

FY17E

FY18E

FY19E

1,20,905

1,33,015

1,63,491

1,83,969

2,07,339

EBITDA

23,626

27,163

35,018

40,404

46,576

EBIT

19,381

22,146

28,608

33,100

38,273

Net interest income/(expenses)

(5,170)

(6,223)

(7,158)

(6,695)

(6,598)

Other income/(expenses)

(28)

1,117

1,448

875

882

Exceptional items

(79)

(863)

0

0

0

EBT

14,182

17,041

22,897

27,280

32,556

Income taxes

(2,440)

(2,830)

(4,598)

(5,566)

(6,717)

0

0

0

0

0

(223)

(360)

0

0

0

11,440

12,988

18,299

21,714

25,840

Total revenue

Extraordinary items Min. int./Inc. from associates Reported net profit Adjustments

79

863

0

0

0

11,519

13,851

18,299

21,714

25,840

Y/E 31 Mar (INR mln)

FY15A

FY16A

FY17E

FY18E

FY19E

Accounts payables

32,177

38,412

47,249

53,034

59,120

Other current liabilities

6,975

10,026

13,039

14,142

15,355

Provisions

3,459

3,326

3,658

4,024

4,426

Debt funds

32,806

42,374

47,391

41,391

35,427

6,761

5,563

5,563

5,563

5,563

857

857

1,006

1,006

1,006

57,746

67,050

91,001

1,09,101

1,30,810

Adjusted net profit

Balance Sheet

Other liabilities Equity capital Reserves & surplus Shareholders' fund

58,603

67,907

92,008

1,10,107

1,31,816

1,41,225

1,68,032

2,09,331

2,28,685

2,52,132

Cash and cash eq.

10,098

10,679

14,158

16,439

22,068

Accounts receivables

36,841

48,111

61,688

69,414

78,229

Inventories

29,376

32,263

41,743

46,803

52,132

Other current assets

11,580

15,011

18,972

21,561

24,539

7,636

10,664

10,664

10,664

10,664

17,592

22,159

25,769

27,465

28,162

3,458

3,045

3,407

3,407

3,407

25,089

26,049

31,756

31,756

31,756 1,175

Total liabilities and equities

Investments Net fixed assets CWIP Intangible assets Deferred tax assets, net

(446)

52

1,175

1,175

Other assets

0

0

0

0

0

Total assets

1,41,225

1,68,032

2,09,331

2,28,685

2,52,132

Y/E 31 Mar (INR mln)

FY15A

FY16A

FY17E

FY18E

FY19E

Net income + Depreciation

15,686

18,004

24,709

29,018

34,143

4,576

5,530

1,448

875

882

0

0

0

0

0

(5,529)

(5,342)

(14,835)

(8,122)

(9,420)

Cash Flow Statement

Interest expenses Non-cash adjustments Changes in working capital Other operating cash flows

(642)

(718)

(1,448)

(875)

(882)

Cash flow from operations

14,090

17,475

9,874

20,895

24,724

Capital expenditures

(7,751)

(9,509)

(16,090)

(9,000)

(9,000)

4,437

(7,101)

0

0

0

Other investing cash flows

0

0

0

0

0

Cash flow from investing

(3,314)

(16,610)

(16,090)

(9,000)

(9,000)

Change in investments

Equities issued

0

0

149

0

0

Debt raised/repaid

(689)

9,568

5,017

(6,000)

(5,964)

Interest expenses

(7,395)

(5,694)

0

0

0

Dividends paid

(1,830)

(2,291)

(3,098)

(3,614)

(4,131)

Other financing cash flows

(1,312)

(1,580)

7,627

0

0

Cash flow from financing

(11,225)

3

9,696

(9,614)

(10,095)

Changes in cash and cash eq

(449)

868

3,479

2,281

5,629

Closing cash and cash eq

9,735

10,603

14,158

16,439

22,068

9 January 2017

Page 50 of 65

Company Update INDIA AGRICULTURE 9 January 2017

NOT RATED

Excel Crop Care EXCC IN

Transforming from a domestic to MNC play EXCC, which recently sold a majority stake (65%) to Japan’s Sumitomo Chemicals (Sumitomo), is set to anchor its position in India’s agrochemicals market. The combined entity is expected to become the fourth largest domestic player with a ~10% share. While EXCC would likely enjoy premium valuations due to change of ownership, Sumitomo would benefit from

Manish Mahawar

EXCC’s robust product and distribution network. EXCC’s revenue/PAT grew at 7%/10% CAGR over FY08-FY16. We do not have a rating on the stock.  Majority stake acquisition by Sumitomo: Japan-based Sumitomo recently acquired a 65% stake in EXCC at Rs 1,259/sh from former promoters and public shareholders. We believe the combined entity will have a domestic market share of ~10% and become the fourth largest agrochemical player in India. Besides, Sumitomo would benefit from EXCC’s strong product portfolio and brand and distribution network.  Strong distribution, brand; leadership in few large products: EXCC has a strong distribution network and well-entrenched relationships with dealers and farmers’ connect. It also enjoys cost leadership in generic products such as Glyphosate, Atrazine, Aluminum Phosphide, Tebuconazole and Chlorpyriphos. In FY16, EXCC set up a facility for production of the Fluroxypyr technical and two new formulations. It also expanded manufacturing capacities for two major products.  Hardest hit by Endosulfan ban: In May’11, the Supreme Court had banned the insecticide Endosulfan – the largest selling product for EXCC (30-35% to sales) at that time. However, EXCC has been able to offset the impact on the back of its strong distribution network and new product launches over the years. 

REPORT AUTHORS

+91 22 6766 3471 [email protected]

Saurabh Rathi +91 22 6766 3451 [email protected]

PRICE CLOSE (06 Jan 17)

INR 1,756.80 MARKET CAP

INR 19.3 bln USD 284.5 mln SHARES O/S

11.0 mln FREE FLOAT

35.0% 3M AVG DAILY VOLUME/VALUE

Set to command premium valuations: EXCC’s revenue/PAT grew at a 7%/10% CAGR over FY08-FY16, despite the Endosulfan ban. We expect EXCC to garner a larger share of the domestic market post acquisition, and command premium valuations led by change of ownership. NOT RATED.

0.0 mln / USD 0.2 mln 52 WK HIGH

52 WK LOW

INR 2,009.00

INR 897.00

Financial Highlights Y/E 31 Mar Revenue (INR mln)

FY12A

FY13A

FY14A

FY15A

FY16A

6,950

7,791

9,841

10,256

8,959

(INR)

2090

EBITDA (INR mln)

501

511

1,011

1,011

946

Adjusted net profit (INR mln)

147

213

661

631

613

1590

Adjusted EPS (INR)

20.9

19.3

54.1

51.1

50.4

1090

(56.4)

(7.3)

179.8

(5.6)

(1.3)

590

DPS (INR)

2.0

3.0

12.5

12.5

12.5

ROIC (%)

8.8

8.4

18.8

15.9

14.0

Adjusted EPS growth (%)

Adjusted ROAE (%)

6.6

8.9

24.1

19.6

16.7

Adjusted P/E (x)

84.2

90.8

32.5

34.4

34.8

EV/EBITDA (x)

40.7

39.6

19.6

19.4

20.9

8.4

7.8

6.4

5.6

5.0

P/BV (x) Source: Company, Bloomberg, RCML Research

Stock Price

Index Price 30,020 25,020

90

20,020 15,020

Company Update

Excel Crop Care

NOT RATED

INDIA

EXCC IN

AGRICULTURE

Fig 1 - Product portfolio Insecticide

Fungicide

Weedicide

Acephate

Hexaconazole

2,4-D

Acetamiprid

Sulphur

Atrazine

Chlorpyriphos

Tebuconazole

Clodinafop-Propargyl

Emamectin Benzoate

Tricyclazole

Glyphosate

Fenpyroximate

-

Imazethapyr

Imidacloprid

-

Metribuzin

Monocrotophos

-

Pendimethalin

Profenofos

-

Pretilachlor

Thiamethoxam

-

Sulfosulfuron

Triazophos

-

-

Source: RCML Research

Fig 2 - Revenue breakup (Rs mn)

Fig 3 - EBITDA and margin profile

Domestic

(Rs mn)

Exports

EBITDA margin (R)

EBITDA

(%)

10,000

1,200

14

8,000

1,000

12

800

10

600

8

400

6

200

4

0

2

6,000

Source: Company, RCML Research

Source: Company, RCML Research

Fig 4 - PAT trend

Fig 5 - Return ratios

(Rs mn)

(%)

700

30

600

RoE

FY16

FY15

FY14

FY11

FY16

FY15

FY14

FY13

FY12

FY11

0

FY12

2,000

FY13

4,000

RoCE

25

500 20

400

Source: Company, RCML Research

FY16

FY15

FY14

FY13

FY11

FY16

FY15

FY14

5

FY13

100

FY12

10

FY11

200

FY12

15

300

Source: Company, RCML Research

9 January 2017

Page 52 of 65

NOT RATED

Company Update

Excel Crop Care

INDIA

EXCC IN

AGRICULTURE

Per Share Data Y/E 31 Mar (INR)

FY12A

FY13A

FY14A

FY15A

FY16A

Reported EPS

20.9

19.3

54.1

51.1

50.4

Adjusted EPS

20.9

19.3

54.1

51.1

50.4

2.0

3.0

12.5

12.5

12.5

209.7

225.8

273.2

312.3

353.8

FY12A

FY13A

FY14A

FY15A

FY16A

2.9

2.6

2.0

1.9

2.2

EV/EBITDA

40.7

39.6

19.6

19.4

20.9

Adjusted P/E

84.2

90.8

32.5

34.4

34.8

8.4

7.8

6.4

5.6

5.0

FY12A

FY13A

FY14A

FY15A

FY16A

EBITDA margin

7.2

6.6

10.3

9.9

10.6

EBIT margin

5.2

4.8

8.9

8.2

8.6

Adjusted profit margin

2.1

2.7

6.7

6.2

6.8

Adjusted ROAE

6.6

8.9

24.1

19.6

16.7

ROCE

8.0

7.6

17.4

15.0

13.3

Revenue

(6.0)

12.1

26.3

4.2

(12.6)

EBITDA

(41.7)

2.0

97.8

0.0

(6.4)

Adjusted EPS

(56.4)

(7.3)

179.8

(5.6)

(1.3)

0.8

(7.5)

9.5

18.5

1.1

DPS BVPS

Valuation Ratios Y/E 31 Mar (x) EV/Sales

P/BV

Financial Ratios Y/E 31 Mar Profitability & Return Ratios (%)

YoY Growth (%)

Invested capital Working Capital & Liquidity Ratios Receivables (days) Inventory (days)

84

74

57

61

73

136

107

118

129

148

Payables (days)

78

76

77

77

74

Current ratio (x)

1.4

1.6

1.5

1.7

1.9

Quick ratio (x)

0.1

0.1

0.1

0.1

0.0

Gross asset turnover

3.5

3.6

4.3

4.1

3.2

Total asset turnover

1.3

1.5

1.7

1.6

1.4

Net interest coverage ratio

2.6

2.8

17.8

14.3

22.4

Adjusted debt/equity

0.4

0.2

0.1

0.1

0.0

FY16A

Turnover & Leverage Ratios (x)

DuPont Analysis Y/E 31 Mar (%)

FY12A

FY13A

FY14A

FY15A

Tax burden (Net income/PBT)

50.8

70.4

74.3

77.7

79.6

Interest burden (PBT/EBIT)

80.2

81.6

102.0

96.7

100.0

EBIT margin (EBIT/Revenue)

5.2

4.8

8.9

8.2

8.6

Asset turnover (Revenue/Avg TA)

133.1

145.1

171.2

160.9

140.7

Leverage (Avg TA/Avg equities)

232.9

224.0

209.3

197.9

173.8

6.6

8.9

24.1

19.6

16.7

Adjusted ROAE

9 January 2017

Page 53 of 65

NOT RATED

Company Update

Excel Crop Care

INDIA

EXCC IN

AGRICULTURE

Income Statement Y/E 31 Mar (INR mln)

FY12A

FY13A

FY14A

FY15A

FY16A

6,950

7,791

9,841

10,256

8,959

EBITDA

501

511

1,011

1,011

946

EBIT

361

370

872

841

771

(140)

(131)

(49)

(59)

(34)

69

63

66

31

34

0

0

0

0

0

EBT

290

302

889

813

771

Income taxes

(64)

(90)

(294)

(268)

(228)

Extraordinary items

(82)

0

65

69

58

4

1

1

17

13

147

213

661

631

613

Total revenue

Net interest income/(expenses) Other income/(expenses) Exceptional items

Min. int./Inc. from associates Reported net profit Adjustments

0

0

0

0

0

147

213

661

631

613

FY12A

FY13A

FY14A

FY15A

FY16A

1,628

1,388

2,331

1,557

1,699

341

494

591

726

590

Provisions

0

0

0

0

0

Debt funds

1,320

764

428

674

164

Adjusted net profit

Balance Sheet Y/E 31 Mar (INR mln) Accounts payables Other current liabilities

Other liabilities

3

2

2

0

0

55

55

55

55

55

Reserves & surplus

2,252

2,430

2,951

3,382

3,839

Shareholders' fund

2,307

2,485

3,006

3,437

3,894

Total liabilities and equities

5,602

5,136

6,358

6,392

6,346

410

270

172

227

118

Accounts receivables

1,659

1,505

1,594

1,851

1,731

Inventories

1,682

1,548

2,481

2,160

2,174

587

538

784

672

681

22

23

22

39

52

1,279

1,277

1,335

1,501

1,674 39

Equity capital

Cash and cash eq.

Other current assets Investments Net fixed assets CWIP

25

9

24

25

Intangible assets

45

69

68

84

68

(108)

(103)

(120)

(167)

(193)

Deferred tax assets, net Other assets

0

0

0

0

0

Total assets

5,602

5,136

6,358

6,392

6,345

Cash Flow Statement Y/E 31 Mar (INR mln)

FY12A

FY13A

FY14A

FY15A

FY16A

Net income + Depreciation

287

354

800

802

789

Interest expenses

140

131

49

46

18

0

0

0

0

0

147

164

(223)

(425)

155

Non-cash adjustments Changes in working capital Other operating cash flows

23

24

(103)

(70)

1

597

672

523

352

963

(284)

(124)

(253)

(380)

(346)

0

0

0

0

0

Other investing cash flows

(194)

211

112

34

9

Cash flow from investing

(478)

87

(140)

(346)

(337)

Cash flow from operations Capital expenditures Change in investments

Equities issued

0

0

0

0

0

Debt raised/repaid

69

(556)

(336)

303

(544)

Interest expenses

(140)

(133)

(49)

(58)

(34)

(48)

(26)

(39)

(160)

(165)

Dividends paid Other financing cash flows

9

4

22

(27)

9

Cash flow from financing

(110)

(711)

(402)

59

(734)

9

48

(20)

65

(108)

123

171

151

227

119

Changes in cash and cash eq Closing cash and cash eq

9 January 2017

Page 54 of 65

Company Update INDIA AGRICULTURE 9 January 2017

NOT RATED

Insecticides India INST IN

Partnering with global players to drive growth INST, which commenced operations in 2001, has emerged as an integrated player in the Indian agrochemicals market by entering into global tie-ups. With state-of-the-art R&D facilities and manufacturing units, and a strong portfolio (99 products), INST enjoys a ~7% share in the domestic market. Global tie-ups, an improving mix of value-added and high-margin products (Navratna, Super 11) and foray into bio-fertilizers should drive profits ahead. INST posted a 22%/13% revenue/PAT CAGR over FY08-FY16. NOT RATED.  Global partnerships: INST has entered into the following global tie-ups: (a) With Nissan Chemical (Japan) for marketing patented molecule products like Pulsor and Hakama. (b) Technical collaboration with American Vanguard Corporation (AMVAC), USA, for manufacturing and marketing of products like Thimet and Nuvan. (c) JV with OAT Agrio(Japan) for product invention through an exclusive R&D facility. (d) Agreement with Nihon Nohyaku Co. to launch new products for paddy, pulses and vegetable crops and for marketing the insecticide Suzuka in India. (e) Agreement with Momentive Performance Materials for selling its products, Agrosprec Max and Agrospred Max.  Strong brand portfolio: INST, through its pan-India network of 5000+ distributors and 60,000 retailers, enjoys wide acceptability of its Tractor range of products. These include ~99 branded formulations and largest-selling brands (classified as Navratna; Fig 1) such as Lethal, Victor and Monocil.  Manufacturing, R&D facilities: INST has five formulation and two technical manufacturing facilities in the North (J&K) and West India (Rajasthan and Gujarat), with advanced technology for formulation and technical synthesis of agrochemicals.  NOT RATED: Launch of new products, an increasing focus on high-margin products and tie-ups with MNCs should lead to better margins and profitability going ahead. We do not have a rating on the stock.

REPORT AUTHORS

Manish Mahawar +91 22 6766 3471 [email protected]

Saurabh Rathi +91 22 6766 3451 [email protected]

PRICE CLOSE (06 Jan 17)

INR 514.65 MARKET CAP

INR 10.6 bln USD 156.5 mln SHARES O/S

20.7 mln FREE FLOAT

31.3% 3M AVG DAILY VOLUME/VALUE

0.0 mln / USD 0.1 mln 52 WK HIGH

52 WK LOW

INR 543.95

INR 295.00

Financial Highlights Y/E 31 Mar Revenue (INR mln) EBITDA (INR mln)

FY12A

FY13A

FY14A

FY15A

FY16A

5,218

6,167

8,641

9,652

9,899

564

693

818

1,110

921

(INR)

630

330

353

400

549

397

Adjusted EPS (INR)

26.1

27.9

31.5

43.3

19.2

Adjusted EPS growth (%)

2.5

7.0

13.1

37.3

(55.6)

230

DPS (INR)

2.5

3.0

3.0

3.7

2.0

130

ROIC (%)

16.3

13.2

13.9

15.7

10.3

Adjusted ROAE (%)

19.6

17.9

17.4

20.4

11.4

Adjusted P/E (x)

19.8

18.5

16.3

11.9

26.8

EV/EBITDA (x)

19.4

17.3

15.4

11.7

14.7

3.6

3.1

2.6

2.2

2.6

P/BV (x)

Index Price 30,020

530

Adjusted net profit (INR mln)

Source: Company, Bloomberg, RCML Research

Stock Price

430 330

25,020 20,020 15,020

Company Update

Insecticides India

NOT RATED

INDIA

INST IN

AGRICULTURE

Fig 1 - Navratna – Top-selling products Brand

Technical Name

Product Category

Lethal

Chlorpyriphos 20% EC

Insecticide

Victor

Imidacloprid 17.8% SL

Insecticide

Thimet

Phorate 10% CG

Insecticide

Monocil

Monocrotophos 36% SL

Insecticide

Nuvan

Dichlorovos 76% EC

Insecticide

Xplode

Emamectin Benzoate 5% SG

Insecticide

Hijack

Glyphosate 41% SL

Herbicide

Pulsor

Thifluzamide 24% SC

Fungicide

Hakama

Quizalofop-ethyl 5% EC

Herbicide

Source: Company, RCML Research

Fig 2 - Revenue growth trend

Fig 3 - EBITDA and EBITDA margin

(Rs mn)

(Rs mn)

12,000

1,200

12

10,000

1,000

10

8,000

800

6,000

600

4,000

400

2,000

200

4

0

0

2

EBITDA

EBITDA margin (R)

(%)

8

FY16

FY15

FY14

FY13

FY12

FY11

FY16

FY15

FY14

FY13

FY12

FY11

6

Source: Company, RCML Research

Source: Company, RCML Research

Fig 4 - PAT growth

Fig 5 - Adverse weather and equity dilution hit return ratios

12

0

10

Source: Company, RCML Research

FY16

100

FY15

14

RoCE

FY14

200

FY13

16

FY12

300

RoE

FY11

18

FY16

400

FY15

20

FY14

500

FY13

22

FY12

(%)

600

FY11

(Rs mn)

Source: Company, RCML Research

9 January 2017

Page 56 of 65

NOT RATED

Company Update

Insecticides India

INDIA

INST IN

AGRICULTURE

Per Share Data Y/E 31 Mar (INR)

FY12A

FY13A

FY14A

FY15A

FY16A

Reported EPS

26.1

27.9

31.5

43.3

19.2

Adjusted EPS

26.1

27.9

31.5

43.3

19.2

2.5

3.0

3.0

3.7

2.0

143.7

167.4

194.4

229.3

197.7

FY12A

FY13A

FY14A

FY15A

FY16A

2.1

1.9

1.5

1.3

1.4

EV/EBITDA

19.4

17.3

15.4

11.7

14.7

Adjusted P/E

19.8

18.5

16.3

11.9

26.8

3.6

3.1

2.6

2.2

2.6

FY12A

FY13A

FY14A

FY15A

FY16A

EBITDA margin

10.8

11.2

9.5

11.5

9.3

EBIT margin

10.4

10.3

8.7

10.0

7.6

6.3

5.7

4.6

5.7

4.0

Adjusted ROAE

19.6

17.9

17.4

20.4

11.4

ROCE

15.8

12.9

13.7

15.4

10.1

Revenue

15.9

18.2

40.1

11.7

2.6

EBITDA

29.2

23.0

18.0

35.7

(17.1)

2.5

7.0

13.1

37.3

(55.6)

71.0

28.8

14.7

22.1

0.3

DPS BVPS

Valuation Ratios Y/E 31 Mar (x) EV/Sales

P/BV

Financial Ratios Y/E 31 Mar Profitability & Return Ratios (%)

Adjusted profit margin

YoY Growth (%)

Adjusted EPS Invested capital Working Capital & Liquidity Ratios Receivables (days) Inventory (days)

59

61

52

56

69

167

188

163

198

201

Payables (days)

85

83

78

88

86

Current ratio (x)

1.3

1.2

1.1

1.2

1.4

Quick ratio (x)

0.1

0.0

0.0

0.0

0.0

Gross asset turnover

11.0

5.8

5.0

4.5

4.0

Total asset turnover

1.2

1.1

1.2

1.1

1.1

Net interest coverage ratio

4.8

3.7

2.8

2.9

2.9

Adjusted debt/equity

0.7

0.9

0.9

1.0

0.4

Turnover & Leverage Ratios (x)

DuPont Analysis Y/E 31 Mar (%)

FY12A

FY13A

FY14A

FY15A

FY16A

Tax burden (Net income/PBT)

76.9

76.1

82.1

85.9

78.7

Interest burden (PBT/EBIT)

79.5

73.0

64.8

66.3

66.7

EBIT margin (EBIT/Revenue)

10.4

10.3

8.7

10.0

7.6

Asset turnover (Revenue/Avg TA)

121.5

108.3

123.4

114.7

108.5

Leverage (Avg TA/Avg equities)

254.9

288.9

305.2

313.2

260.8

19.6

17.9

17.4

20.4

11.4

Adjusted ROAE

9 January 2017

Page 57 of 65

NOT RATED

Company Update

Insecticides India

INDIA

INST IN

AGRICULTURE

Income Statement Y/E 31 Mar (INR mln)

FY12A

FY13A

FY14A

FY15A

FY16A

5,218

6,167

8,641

9,652

9,899

EBITDA

564

693

818

1,110

921

EBIT

540

636

751

964

756

(111)

(174)

(269)

(332)

(259)

Other income/(expenses)

1

2

5

6

7

Exceptional items

0

0

0

0

0

EBT

430

464

487

639

504

Income taxes

Total revenue

Net interest income/(expenses)

(99)

(111)

(87)

(90)

(107)

Extraordinary items

0

0

0

0

0

Min. int./Inc. from associates

0

0

0

0

0

330

353

400

549

397

Reported net profit Adjustments

0

0

0

0

0

330

353

400

549

397

FY12A

FY13A

FY14A

FY15A

FY16A

1,185

1,307

2,036

2,100

2,111

0

0

0

0

0

Provisions

604

736

807

1,051

1,126

Debt funds

1,534

2,001

2,426

2,946

1,798

29

54

46

46

70

127

127

127

127

207

Reserves & surplus

1,695

1,995

2,339

2,781

3,879

Shareholders' fund

1,822

2,122

2,466

2,908

4,085

Total liabilities and equities

5,174

6,219

7,781

9,050

9,190

Cash and cash eq.

178

47

90

86

121

Accounts receivables

892

1,165

1,279

1,668

2,077

2,024

2,254

3,117

3,914

3,506

677

1,004

1,074

1,030

1,131

0

0

111

31

31

Net fixed assets

513

1,404

1,706

2,097

1,985

CWIP

920

449

537

376

512

0

0

0

0

0

(29)

(102)

(133)

(153)

(174)

Adjusted net profit

Balance Sheet Y/E 31 Mar (INR mln) Accounts payables Other current liabilities

Other liabilities Equity capital

Inventories Other current assets Investments

Intangible assets Deferred tax assets, net Other assets

0

0

0

0

0

Total assets

5,174

6,219

7,781

9,050

9,190

Cash Flow Statement Y/E 31 Mar (INR mln)

FY12A

FY13A

FY14A

FY15A

FY16A

Net income + Depreciation

354

411

466

695

561

Interest expenses

111

117

157

235

201

0

0

0

0

0

(839)

(534)

(251)

(997)

126 (30)

Non-cash adjustments Changes in working capital Other operating cash flows

15

(7)

5

12

Cash flow from operations

(359)

(13)

377

(55)

859

Capital expenditures

(551)

(467)

(459)

(348)

(191)

Change in investments

0

0

(111)

0

0

Other investing cash flows

0

0

0

0

0

Cash flow from investing

(551)

(467)

(569)

(348)

(191)

Equities issued Debt raised/repaid Interest expenses

0

0

0

0

808

1,198

503

437

645

(1,128)

0

0

0

0

0

(37)

(37)

(45)

(45)

(112)

Other financing cash flows

(111)

(119)

(159)

(240)

(205)

Cash flow from financing

1,049

347

234

360

(637)

Changes in cash and cash eq

139

(133)

42

(43)

31

Closing cash and cash eq

177

45

88

80

117

Dividends paid

9 January 2017

Page 58 of 65

Company Update INDIA AGRICULTURE 9 January 2017

NOT RATED

Syngenta India

Going from strength to strength Syngenta India (Syngenta, unlisted), a part of the global giant Syngenta AG, is one of India’s largest agrochemical players with a ~10% share. The company’s extensive distribution network, branded portfolio, innovative product launches and R&D capabilities (of parent) effectively anchor it to outpace Indian markets. Syngenta aims to frequently launch new products and scale them up over the next five years. The company clocked a

Manish Mahawar +91 22 6766 3471 [email protected]

sales/PAT CAGR of 12%/14% CAGR over FY08-FY16.  Domestic business (70% of FY16 sales) drives growth: Despite two consecutive drought years, Syngenta’s domestic revenue grew at a 16% CAGR over FY13-FY16 on account of new product launches and their scale-up, and a strong distribution network. Agrochemicals and seeds contribute ~80% and ~20% of the company’s total sales (FY12). Syngenta aims to frequently launch new products and scale them up over the next five years on the back of its parent’s R&D capabilities.  Exports (~30% of sales) take a hit: Syngenta exports both agrochemical and seed products, primarily to its parent Syngenta AG (85-90% of exports). However, exports declined sharply in FY16 (almost half since FY13) due to (a) lower demand of key product Thiamethoxam, a technical, (b) sale of Goa plant (slump sale to Deccan Fine Chemicals for Rs 2.7bn, plus net working capital), and (c) lower export demand for corn and sunflower seeds.  Chemchina acquires Syngenta AG for US$ 43bn…: In Feb’16, China National Chemical Corp (Chemchina), a closely held company, acquired Syngenta AG for US$ 43bn. The deal is expected to close by Q1CY17.  …post-deal strategy the key: Syngenta boasts of a strong earnings growth trajectory, debt-free balance sheet and strong cash flows with healthy ROEs (1520%). The company’s strategy post-acquisition by Chemchina would be a key monitorable, going forward. Financial Highlights Y/E 31 Mar

FY12A

FY13A

FY14A

FY15A

FY16A

Revenue (INR mln)

25,399

29,617

30,686

29,048

28,824

EBITDA (INR mln)

2,924

3,987

3,942

4,234

4,491

Adjusted net profit (INR mln)

1,675

2,468

2,538

4,004

3,249

Adjusted EPS (INR)

52.6

77.5

79.7

121.6

98.6

Adjusted EPS growth (%)

10.4

47.4

2.8

52.6

(18.9)

DPS (INR)

5.8

5.8

5.9

5.7

6.0

ROIC (%)

14.8

19.3

15.6

23.0

17.4

Adjusted ROAE (%)

15.3

20.5

17.7

22.8

15.4

Source: Company, Bloomberg, RCML Research

REPORT AUTHORS

Saurabh Rathi +91 22 6766 3451 [email protected]

Company Update

Syngenta India

NOT RATED

INDIA AGRICULTURE

Fig 1 - Product launches over FY14-FY16 Year

Product name

Product category

Crops

FY14

Chess

Insecticide

Rice

Taspa

Fungicide

Rice

Alika

Insecticide

Cotton

VoliamFlexi

Insecticide

Vegetables and Fruits

Virtako

Insecticide

Rice

Fusiflex

Herbicide

Soyabean, Groundnut

Amistar Top

Fungicide

Wheat, Rice, Corn

Ampligo

Insecticide

Red Gram, Cotton, Vegetables

FY16

Source: RCML Research

Fig 2 - Recent product registrations Month

Technical name

Section

Remarks

Jan-16

Thiamethoxam 1.0% w/w + Chlorantraniliprole 0.5% w/w GR

9(3)

Indigeneous manufacture

Apr-16

Thiamethoxam 0.01% w/w

9(3)

For import

Jun-16

Lambda Cyhalothrin 9.7% w/w SC

9(3)

For formulation import

Aug-16

Emamectin benzoate 0.1% w/w gel Bait

9(3)

For formulation import

Oct-16

Abamectin Technical 90.0% min

9(3)

For import

Source: CIB, RCML Research

Fig 3 - Product portfolio Insecticide

Herbicide

Fungicide

Seed treatment

Actara

Axial

Amistar

Dividend

Alika

Fusiflex

Amistar Top

-

Ampligo

Gramoxone

Blue Copper

-

Chess

Rifit

Kavach

-

Cigna

Rifit plus

Redomil mz

-

Macho

Topik

Revus

-

Matador

-

Ridomil

-

Pegasus

-

Score

-

Polo

-

Taspa

-

Proclaim

-

Thiovit

-

Vertimec

-

Tilt

-

Virtako

-

-

-

VoliamFlexi

-

-

-

Source: Company, RCML Research

9 January 2017

Page 60 of 65

NOT RATED

Company Update

Syngenta India

INDIA AGRICULTURE

Per Share Data Y/E 31 Mar (INR)

FY12A

FY13A

FY14A

FY15A

FY16A

Reported EPS

52.6

77.5

79.7

121.6

98.6

Adjusted EPS

52.6

77.5

79.7

121.6

98.6

5.8

5.8

5.9

5.7

6.0

342.6

414.2

488.0

593.2

686.1

FY12A

FY13A

FY14A

FY15A

FY16A

DPS BVPS

Financial Ratios Y/E 31 Mar Profitability & Return Ratios (%) EBITDA margin

11.5

13.5

12.8

14.6

15.6

EBIT margin

9.7

11.7

11.0

12.7

13.3

Adjusted profit margin

6.6

8.3

8.3

13.8

11.3

Adjusted ROAE

15.3

20.5

17.7

22.8

15.4

ROCE

13.6

18.1

13.6

17.9

12.4 (0.8)

YoY Growth (%) Revenue

16.6

3.6

(5.3)

EBITDA

36.4

(1.1)

7.4

6.1

Adjusted EPS

47.4

2.8

52.6

(18.9)

Invested capital

30.9

(10.7)

19.0

1.8

Working Capital & Liquidity Ratios Receivables (days) Inventory (days)

62

64

65

54

50

192

191

199

220

317

Payables (days)

93

90

91

73

57

Current ratio (x)

2.0

2.0

2.3

3.6

3.8

Quick ratio (x)

0.2

0.1

0.4

0.9

1.2

Gross asset turnover

9.2

5.1

4.9

4.4

3.9

Total asset turnover

2.6

1.4

1.3

1.2

1.0

Net interest coverage ratio

42.3

25.2

37.7

102.7

548.7

Adjusted debt/equity

(0.1)

0.0

(0.2)

(0.3)

(0.3)

FY12A

FY13A

FY14A

FY15A

FY16A

63.3

68.4

60.6

85.0

67.9

106.9

104.5

123.7

127.8

124.6

Turnover & Leverage Ratios (x)

DuPont Analysis Y/E 31 Mar (%) Tax burden (Net income/PBT) Interest burden (PBT/EBIT) EBIT margin (EBIT/Revenue)

9.7

11.7

11.0

12.7

13.3

Asset turnover (Revenue/Avg TA)

131.8

141.1

130.5

115.5

104.0

Leverage (Avg TA/Avg equities)

176.6

174.3

163.6

143.3

131.5

15.3

20.5

17.7

22.8

15.4

Adjusted ROAE

9 January 2017

Page 61 of 65

NOT RATED

Company Update

Syngenta India

INDIA AGRICULTURE

Income Statement Y/E 31 Mar (INR mln)

FY12A

FY13A

FY14A

FY15A

FY16A

Total revenue

25,399

29,617

30,686

29,048

28,824

EBITDA

2,924

3,987

3,942

4,234

4,491

EBIT

2,476

3,456

3,384

3,686

3,841

Net interest income/(expenses)

(59)

(137)

(90)

(36)

(7)

Other income/(expenses)

229

292

893

1,059

953

Exceptional items

0

0

0

0

0

EBT

2,646

3,611

4,187

4,709

4,787

Income taxes

(972)

(1,143)

(1,650)

(704)

(1,538)

Extraordinary items

0

0

0

0

0

Min. int./Inc. from associates

0

0

0

0

0

1,675

2,468

2,538

4,004

3,249

Reported net profit Adjustments

0

0

0

0

0

1,675

2,468

2,538

4,004

3,249

FY12A

FY13A

FY14A

FY15A

FY16A

5,737

6,905

6,475

3,488

4,096

0

0

0

0

0

Provisions

1,696

1,088

2,139

2,526

2,471

Debt funds

618

1,400

0

0

0

Other liabilities

310

131

146

422

276

Adjusted net profit

Balance Sheet Y/E 31 Mar (INR mln) Accounts payables Other current liabilities

Equity capital

159

159

159

165

165

Reserves & surplus

10,755

13,037

15,388

19,374

22,434

Shareholders' fund

10,914

13,196

15,548

19,538

22,599

Total liabilities and equities

19,276

22,719

24,307

25,974

29,441

Cash and cash eq.

1,236

839

3,290

5,205

7,860

Accounts receivables

4,319

6,086

4,911

3,663

4,274

Inventories

8,797

9,933

9,728

9,895

10,246

Other current assets

1,451

1,836

2,144

2,776

2,699

0

0

0

0

0

3,328

3,416

3,182

3,510

3,866

220

453

840

771

145

0

0

0

0

0

(75)

157

212

155

351

Investments Net fixed assets CWIP Intangible assets Deferred tax assets, net Other assets

0

0

0

0

0

Total assets

19,276

22,719

24,307

25,974

29,441

FY12A

FY13A

FY14A

FY15A

FY16A

2,123

3,000

3,095

4,553

3,899

Interest expenses

0

0

0

0

0

Non-cash adjustments

0

0

0

0

0

Changes in working capital

(1,316)

(2,976)

1,584

(965)

(311)

Other operating cash flows

(522)

(108)

(34)

(938)

(632)

286

(85)

4,645

2,650

2,957

(232)

(833)

(741)

(732)

(481)

8

10

51

0

0

Other investing cash flows

31

26

138

242

(2,021)

Cash flow from investing

(194)

(798)

(553)

(489)

(2502)

0

0

0

0

0

Debt raised/repaid

225

782

(1,400)

(84)

0

Interest expenses

(40)

(113)

(53)

0

(1) (199)

Cash Flow Statement Y/E 31 Mar (INR mln) Net income + Depreciation

Cash flow from operations Capital expenditures Change in investments

Equities issued

Dividends paid

(185)

(185)

(187)

(187)

Other financing cash flows

0

0

0

(27)

0

Cash flow from financing

(0)

485

(1,641)

(298)

(199)

92

(398)

2,452

1,862

256

1,236

839

3,290

5,153

5,461

Changes in cash and cash eq Closing cash and cash eq

9 January 2017

Page 62 of 65

RESEARCH TEAM

ANALYST

SECTOR

EMAIL

TELEPHONE

Varun Lohchab (Head – India Research)

Consumer, Strategy

[email protected]

+91 22 6766 3470

Siddharth Vora, CFA

Auto, Auto Ancillaries, Cement

[email protected]

+91 22 6766 3435

Navin Sahadeo

Cement, Auto, Auto Ancillaries

[email protected]

+91 22 6766 3439

Prashant Tiwari, CFA

Capital Goods, Infrastructure, Utilities

[email protected]

+91 22 6766 3485

Manish Poddar

Consumer

[email protected]

+91 22 6766 3468

Aditya Joshi

Consumer

[email protected]

+91 22 6766 3469

Rohit Ahuja

Energy

[email protected]

+91 22 6766 3437

Akshay Mane

Energy

[email protected]

+91 22 6766 3438

Parag Jariwala, CFA

Financials

[email protected]

+91 22 6766 3442

Vikesh Mehta

Financials

[email protected]

+91 22 6766 3474

Akash Nainani

Financials

[email protected]

+91 22 6766 3466

Rumit Dugar

IT, Telecom, Media

[email protected]

+91 22 6766 3444

Saumya Shrivastava

IT, Telecom, Media

[email protected]

+91 22 6766 3445

Pritesh Jani

Metals

[email protected]

+91 22 6766 3467

Arun Baid

Mid-caps

[email protected]

+91 22 6766 3446

Manish Mahawar

Mid-caps

[email protected]

+91 22 6766 3471

Saurabh Rathi

Mid-caps

[email protected]

+91 22 6766 3451

Praful Bohra

Pharmaceuticals

[email protected]

+91 22 6766 3463

Aarti Rao

Pharmaceuticals

[email protected]

+91 22 6766 3436

Rahul Agrawal

Economics & Strategy

[email protected]

+91 22 6766 3433

9 January 2017

Page 63 of 65

RESEARCH DISCLAIMER

Important Disclosures This report was prepared, approved, published and distributed by a Religare Capital Markets (“RCM”) group company located outside of the United States (a “non-US Group Company”). This report is distributed in the U.S. by Enclave Capital LLC (“Enclave Capital”), a U.S. registered broker dealer, on behalf of RCM only to major U.S. institutional investors (as defined in Rule 15a-6 under the U.S. Securities Exchange Act of 1934 (the “Exchange Act”)) pursuant to the exemption in Rule 15a-6 and any transaction effected by a U.S. customer in the securities described in this report must be effected through Enclave Capital. Neither the report nor any analyst who prepared or approved the report is subject to U.S. legal requirements or the Financial Industry Regulatory Authority, Inc. (“FINRA”) or other regulatory requirements pertaining to research reports or research analysts. No non-US Group Company is registered as a broker-dealer under the Exchange Act or is a member of the Financial Industry Regulatory Authority, Inc. or any other U.S. self-regulatory organization.

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Expected absolute returns (%) over 12 months More than 15% Between 15% and –5% Less than –5%

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9 January 2017

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RESEARCH DISCLAIMER

Research analyst or his/her relatives do not have any material conflict of interest at the time of publication of this report.

RCML may from time to time solicit or perform investment banking services for the company(ies) mentioned in this report.

Research analyst has not received any compensation from the subject company in the past 12 months.

RCML or its associates may have material conflict of interest at the time of publication of this research report.

RCML may have managed or co-managed a public offering of securities for the subject company in the past 12 months.

RCML’s associates may have financial interest in the subject company. RCML’s associates may have received compensation from the subject company in the past 12 months. RCML’s associates may hold actual / beneficial ownership of one per cent or more securities in the subject company at the end of the month immediately preceding the date of publication of this research report.

RCML may have received compensation from the subject company in the past 12 months. Research analyst has not served as an officer, director or employee of the subject company. RCML or its research analyst is not engaged in any market making activities for the subject company.

RCM has obtained registration as Research Entity under SEBI (Research Analysts) Regulations, 2014.

Digitally signed by MANISH MAHAWAR Date: 2017.01.09 08:46:25 +05'30'

9 January 2017

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Religare Capital Markets 901 Indiabulls Finance Center, Tower 1, 9th Floor, Senapati Bapat Marg, Mumbai 400 013, India