Sharekhan has given Buy recommendation for Insecticides (India) with a target price of Rs. 590 in its research report issued on Feb 08, 2021
Sharekhan’s research report on Insecticides (India)
Q3FY2021 results were weak as OPM missed by 306 bps at 5% (down 370 bps y-o-y); it led PAT to be 46% lower than expected at Rs. 6 crore (down 30.9% y-o-y). OPM shrunk due to a 492 bps y-o-y decline in gross margins to 21.1% (high raw material cost & rise in higher share of low margin generic products) and increase in logistic cost. Although revenues grew by 13.8% y-o-y to Rs. 299 crore, the mix deteriorated as share of branded products declined by 668 bps y-o-y to 68.8% while that of low margin institutional sales increased by 743 bps y-o-y to 26.4%. Management guided for 15% revenue growth for FY2022 led by new launches and expects gross margin to recover gradually to historical level of 29-30% supported by backward integration, product price hikes and rise in share of high-margin products.
Outlook
We maintain a Buy on Insecticides (India) with a revised PT of Rs. 590 as we expect strong earnings recovery (PAT to clock 38% CAGR over FY21E-FY23E) along with decent RoE of 15-16%. At CMP, stock is trading at an attractive valuation of 6.6x FY2023E EPS.
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