Accumulate Small Cap Agrochemical Stock, Can Jump Up To 23.6%, Says Leading Stock Broking Firm

Stock-broking firm Prabhudas Lilladher has given an 'accumulate' rating to the stock of Insecticides India Limited, operating in the pesticides/agrochemicals sector. It is a small-cap company incorporated in the year 1996 and has a market capitalisation of Rs 1,306.60 crores.

Recently the company announced its fourth-quarter and full-year performance numbers. The company posted net losses. Despite the dismissal performance, Based on its evaluation of the company's stock, the brokerage firm believes that its price will rally to Rs 550 from the current levels.

March Performance

Insecticides India reported revenue, EBITDA, and PAT growth of +9%,-184%, and -230% YoY below the stockbroking firm's estimates. B2C/ B2B/ exports contributed 35%/51%/14% in 4QFY23.

The gross margins declined by 1920bps YoY to 12.4% led by the provisioning of high-cost inventory and higher M2M losses of ~Rs140mn in FY23. Lower gross profits coupled with higher other expenses (+250bps YoY) have resulted in a loss at EBITDA levels of Rs283mn, as pointed out by Prabhudas Lilladher.

Management Outlook

As per the brokerage report, the contribution of new product launches has been on an increasing trend to overall revenues. Products launched in FY23 recorded a revenue of Rs 4.80 bn (contributing to ~27% of the revenues) as compared to Rs 2.15 bn (contributing to ~14% of the revenues) in FY22.

The company launched a new product 'Mission' in 4QFY23 (taking it to a total of 6 new products launched in FY23) and expects to launch 4-5 new products in FY24E.

Going forward, management remains confident in achieving revenue growth of 10-12% YoY in FY24E aided by the commencement of new facilities, new product launches, and significant export registrations.

Valuation & Rating

Parbhudas explains that one should remain cautious on margins despite the management guidance for 9-10% EBITDA margins from trailing losses of high-cost inventory provisions to be accrued in 1Q'24. Maintain 'Accumulate'.

"We trim our FY24/25E EPS estimates by 14%/9% and reduce TP to Rs550/share (earlier Rs 650 per share) based on 12XFY25 EPS (earlier 13XFY25 EPS), citing passive demand environment coupled with near-term margin pressure" the firm added.

Share Price Movement

The latest closing price of this small-cap stock is Rs 441.45, it was marginally down 0.14% on an intraday basis. In the last one year, the stock has given a negative return of 15.87% but in the last three years, it has managed to generate a positive return of 71.08%.

Disclaimer
The stock has been picked from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the author, or the brokerage house will not be liable for any losses caused as a result of decisions based on the write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.