CRISIL IERIndependentEquityResearch

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1 CRISIL IERIndependentEquityResearch Insecticides (India) Ltd Q2FY14 Results First Cut Enhancing investment decisions

2 CRISIL IERIndependentEquityResearch Explanation of CRISIL Fundamental and Valuation (CFV) matrix The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a fivepoint scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP). CRISIL Fundamental Grade Assessment CRISIL Valuation Grade Assessment 5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP) 4/5 Superior fundamentals 4/5 Upside (10-25% from CMP) 3/5 Good fundamentals 3/5 Align (+-10% from CMP) 2/5 Moderate fundamentals 2/5 Downside (negative 10-25% from CMP) 1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP) About CRISIL Limited CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India s leading ratings agency. We are also the foremost provider of high-end research to the world s largest banks and leading corporations. About CRISIL Research CRISIL Research is India's largest independent and integrated research house. We provide insights, opinions, and analysis on the Indian economy, industries, capital markets and companies. We are India's most credible provider of economy and industry research. Our industry research covers 70 sectors and is known for its rich insights and perspectives. Our analysis is supported by inputs from our network of more than 4,500 primary sources, including industry experts, industry associations, and trade channels. We play a key role in India's fixed income markets. We are India's largest provider of valuations of fixed income securities, serving the mutual fund, insurance, and banking industries. We are the sole provider of debt and hybrid indices to India's mutual fund and life insurance industries. We pioneered independent equity research in India, and are today India's largest independent equity research house. Our defining trait is the ability to convert information and data into expert judgements and forecasts with complete objectivity. We leverage our deep understanding of the macroeconomy and our extensive sector coverage to provide unique insights on micro-macro and cross-sectoral linkages. We deliver our research through an innovative web-based research platform. Our talent pool comprises economists, sector experts, company analysts, and information management specialists. CRISIL Privacy CRISIL respects your privacy. We use your contact information, such as your name, address, and id, to fulfil your request and service your account and to provide you with additional information from CRISIL and other parts of McGraw Hill Financial you may find of interest. For further information, or to let us know your preferences with respect to receiving marketing materials, please visit You can view McGraw Hill Financial s Customer Privacy Policy at Last updated: May, 2013 Analyst Disclosure Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company. Disclaimer: This Company commissioned CRISIL IER report is based on data publicly available or from sources considered reliable. CRISIL Ltd. (CRISIL) does not represent that it is accurate or complete and hence, it should not be relied upon as such. The data / report is subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this report. Nothing in this report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The subscriber / user assume the entire risk of any use made of this data / report. CRISIL especially states that, it has no financial liability whatsoever, to the subscribers / users of this report. This report is for the personal information only of the authorised recipient in India only. This report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person especially outside India or published or copied in whole or in part, for any purpose.

3 Insecticides (India) Ltd Q2FY14 results first cut: EBITDA margin under pressure Fundamental Grade Valuation Grade Industry 3/5 (Good fundamentals) 5/5 (CMP has strong upside) Chemicals The above grades are outstanding ones and are currently under review Insecticides (India) Ltd s (Insecticide s) Q2FY14 revenues exceeded but earnings were below CRISIL Research s expectations due to lower EBITDA margins. Highlights of the results are mentioned below; this will be followed by a detailed quarterly update. Our outstanding fundamental grade is 3/5 and the fair value is 395 per share. We may revise our assessment post our discussion with the management. Revenues grew by 48% y-o-y and 72.2% q-o-q to 3.4 bn. EBITDA margin declined by 423 bps y-o-y to 8.5% primarily due to higher raw material cost. We will provide further clarity on the same post discussion with the management. Despite strong revenue growth, PAT declined by 12.7% y-o-y to 138 mn due to decline in EBITDA margins and increase in finance cost (up by 25.9% y-o-y to 97 mn). Adjusted EPS declined by 12.7% y-o-y to November 12, 2013 Fair Value 395 CMP 215 CFV MATRIX Excellent Fundamentals Fundamental Grade Poor Fundamentals Valuation Grade Valuations: Current market price has strong upside The discounted cash flow-based outstanding fair value is 395 per share. At the current market price of 215, the valuation grade is 5/5. KEY FORECAST ( mn) FY11 FY12 FY13 FY14E FY15E Operating income 4,501 5,217 6,167 7,090 8,067 EBITDA ,008 Adj net income Adj EPS ( ) EPS growth (%) Dividend yield (%) RoCE (%) RoE (%) PE (x) P/BV (x) EV/EBITDA (x) NM: Not meaningful; CMP: Current market price Company, CRISIL Research estimates KEY STOCK STATISTICS NIFTY/SENSEX 6078/20490 NSE/BSE ticker INSECTICID Face value ( per share) 10 Shares outstanding (mn) 12.7 Market cap ( mn)/(us$ mn) 2,727/43 Enterprise value ( mn)/(us$ mn) 4,729/74 52-week range ( )/(H/L) 447/200 Beta 0.4 Free float (%) 25.3% Avg daily volumes (30-days) 75,333 Avg daily value (30-days) ( mn) 16.5 SHAREHOLDING PATTERN 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Strong Downside 15.9% 13.8% 13.7% 14.0% 3.5% 5.3% 5.5% 5.3% 5.9% 6.2% 6.2% 6.0% 74.7% 74.7% 74.7% 74.7% PERFORMANCE VIS-À-VIS MARKET Returns 1-m 3-m 6-m 12-m Insecticides -16% -37% -47% -47% CNX500 1% 10% -2% 4% ANALYTICAL CONTACT Strong Upside Dec-12 Mar-13 Jun-13 Sep-13 Pro moter FII DII Others Mohit Modi (Director) mohit.modi@crisil.com Bhaskar Bukrediwala bhaskar.bukrediwala@crisil.com Client servicing desk clientservicing@crisil.com For detailed initiating coverage report please visit: CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters. 1

4 CRISIL IERIndependentEquityResearch Q2FY14 Results Summary ( mn) Q2FY14 Q1FY14 Q2FY13 q-o-q (%) y-o-y (%) H1FY14 H1FY13 y-o-y (%) Operating income 3,403 1,976 2, ,380 3, Raw materials cost 2,502 1,339 1, ,840 2, Raw materials cost (% of net sales) 73.5% 67.7% 67.7% 577bps 585bps 71.4% 67.6% 377 bps Employees cost Other expenses EBITDA (1.3) EBITDA margin 8.5% 12.6% 12.7% -406bps -423bps 10.0% 13.2% -321 bps Depreciation EBIT (1.9) Interest and finance charges Operating PBT (2.3) (12.5) Other Income PBT (2.3) (12.4) Tax (2.1) (11.1) PAT (2.3) (12.7) Adj PAT (2.3) (12.7) Adj PAT margin 4.1% 7.2% 6.9% -310bps -283bps 5.2% 7.3% -207 bps No of equity shares (mn) Adj EPS ( ) (2.3) (12.7) Source: Company, CRISIL Research Revenues grew 48% y-o-y High finance cost led to y-o-y decline in PAT ( mn) ( mn) 4,000 3,500 3,000 2,500 2,000 1,500 1, % 2, % 8.0% 1, % 12.7% 1,488 2, % 7.4% 1,188 1, % 1, % % 14% 12% 10% 8% 6% 4% 2% 0% % 4.6% 3.3% 7.9% 6.9% 3.9% % % 4.1% % 8% 7% 6% 5% 4% 3% 2% 1% 0% Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Revenue EBITDA margin (RHS) PAT PAT margin (RHS) Source: Company, CRISIL Research Source: Company, CRISIL Research 2

5 Insecticides (India) Ltd Share price movement Fair value movement since initiation 600 ( ) ('000) ,600 1,400 1,200 1, Jan-08 Jun-08 Nov-08 May-09 Oct-09 Mar-10 Sep-10 Feb-11 Aug-11 Jan-12 Jun-12 Dec-12 May-13 Nov-13 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Total Traded Quantity (RHS) Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 CRISIL Fair Value Insecticides CNX500 Insecticides -Indexed to 100 Source: NSE, CRISIL Research Source: NSE, BSE, CRISIL Research 3

6 CRISIL IERIndependentEquityResearch Annexure: Financials Income statement Balance Sheet ( mn) FY11 FY12 FY13 ( mn) FY11 FY12 FY13 Operating income 4,501 5,217 6,167 Liabilities EBITDA Equity share capital EBITDA margin 9.7% 10.8% 11.2% Reserves 1,386 1,664 1,995 Depreciation Minorities EBIT Networth 1,513 1,791 2,122 Interest Convertible debt Operating PBT Other debt 380 1,585 2,049 Other income (0) (1) 2 Total debt 380 1,585 2,049 Exceptional inc/(exp) (1) (0) - Deferred tax liability (net) PBT Total liabilities 1,913 3,405 4,273 Tax provision Assets Minority interest Net fixed assets ,712 PAT (Reported) Capital WIP Less: Exceptionals (1) (0) - Total fixed assets 905 1,428 1,852 Adjusted PAT Investments Current assets Ratios Inventory 1,258 2,024 2,254 FY11 FY12 FY13 Sundry debtors ,165 Growth Loans and advances Operating income (%) Cash & bank balance EBITDA (%) Marketable securities Adj PAT (%) Total current assets 2,364 3,499 4,444 Adj EPS (%) Total current liabilities 1,357 1,547 2,049 Net current assets 1,007 1,952 2,395 Profitability Intangibles/Misc. expenditure EBITDA margin (%) Total assets 1,913 3,405 4,273 Adj PAT Margin (%) RoE (%) Cash flow RoCE (%) ( mn) FY11 FY12 FY13 RoIC (%) Pre-tax profit Total tax paid (86) (91) (38) Valuations Depreciation Price-earnings (x) Working capital changes 29 (805) (574) Price-book (x) Net cash from operations 371 (443) (90) EV/EBITDA (x) Ca sh from investments EV/Sales (x) Capital expenditure (596) (570) (482) Dividend payout ratio (%) Investments and others Dividend yield (%) Net cash from investments (546) (570) (482) Cash from financing B/S ratios Equity raised/(repaid) Inventory days Debt raised/(repaid) 161 1, Creditors days Dividend (incl. tax) (37) (37) (35) Debtor days Others (incl extraordinaries) 1 (15) 13 Working capital days Net cash from financing 125 1, Gross asset turnover (x) Change in cash position (50) 140 (131) Net asset turnover (x) Closing cash Sales/operating assets (x) Current ratio (x) Quarterly financials Debt-equity (x) ( mn) Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Net debt/equity (x) Operating income 2,300 1,188 1,190 1,976 3,403 Interest coverage Change (q-o-q) 55% -48% 0% 66% 72% EBITDA Per share Change (q-o-q) 41% -64% -16% 182% 16% FY11 FY12 FY13 EBITDA margin 12.7% 8.9% 7.4% 12.6% 8.5% Adj EPS ( ) PAT CEPS Adj PAT Book value Change (q-o-q) 36% -71% -66% 797% -2% Dividend ( ) Adj PAT margin 6.9% 3.9% 1.3% 7.2% 4.1% Actual o/s shares (mn) Adj EPS Source: CRISIL Research 4

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8 CRISIL IERIndependentEquityResearch CRISIL Research Team President Mukesh Agarwal CRISIL Research Analytical Contacts Sandeep Sabharwal Senior Director, Capital Markets Prasad Koparkar Senior Director, Industry & Customised Research Binaifer Jehani Director, Customised Research Manoj Mohta Director, Customised Research Sudhir Nair Director, Customised Research Mohit Modi Director, Equity Research Jiju Vidyadharan Director, Funds & Fixed Income Research Ajay D'Souza Director, Industry Research Ajay Srinivasan Director, Industry Research Rahul Prithiani Director, Industry Research Business Development Hani Jalan Director, Capital Markets Prosenjit Ghosh Director, Industry & Customised Research Business Development Equity Research Arjun Gopalkrishnan Regional Manager (All India) arjun.gopalakrishnan@crisil.com Phone : Vishal Shah Regional Manager vishal.shah@crisil.com Phone : Priyanka Murarka Regional Manager priyanka.murarka@crisil.com Phone : Ankur Nehra Regional Manager Ankur.Nehra@crisil.com Phone : Shweta Adukia Regional Manager Shweta.Adukia@crisil.com Phone :

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