Astec Lifescience Ltd - Research Report

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Rating

Buy

Sector

Chemicals

Company

Astec Lifescience Ltd

Reco Price

Rs. 194

Price Target (1.5 - 2 Years)

Rs. 390

Upside

101.03 %

Date

August 25, 2015

Sensex

26032.38

CNX Nifty

7880.7

Exchange

Code

NSE

ASTEC

BSE

533138

Strong Business model with growth in margins

Successful Model:
Company does business through contract manufacturing which is success model and also company's plants are complied with EHS standard which makes its plant with world class facility.Also Company has done big contracts in last one year where they have tied up with Sumitomo which is a Japanese player. Sumitomo is a $20 Billion company.

Strong Sales:
Out of the total sales, Agro chemicals contribute majority part while pharma segment contributes rest. Currently the exports of the company are 50% of the total sales. It has huge domestic and international clientele with long term contracts. Domestic clients include Syngenta India, Indofil chemicals, Atul Ltd, Krishi rasayan exports and international clientele includes Irvita Plant Protection, Nufarm UK ltd, An Nong Co, DVA International GMBH (handelsgesellschaft), Detlef Von Appen, Sumitomo, etc. Also to boost Sales Company has started retail business through its subsidiary by Excel crop care products (100% subsidiary) which include Insecticides, Herbicides and fungicides. This shows the clear intent of the company where they are trying to diversify the portfolio to improve on their sales performance.

Catalogue products:
This segment is called Triazole fungicide segment and in that the names of the product Tebuconazole or Propiconazole, Difenoconazole, Hexaconazole they are all Triazole fungicide segment of the industry in the fungicidal segment which is specialized in niche area where company operates where they have a core competence because of backward integrations, lateral integrations. Hence due backward integration company is able to save a lot in terms of expenses.

Expanded Operations:
Company operated in three states that is Karnataka, Gujarat, and Maharashtra. They have already rolled out in Punjab, Haryana and Madhya Pradesh but to give you a flavor, the market is growing at the rate of 15% per year. Today the market is $2 billion market, Rs. 10,000 crores market we think that by 2015 it will be Rs. 25,000 crores market. If Not 2015 may be in the 5 years and it is a fast growing market and it is very essential. Company strategies specifically are to succeed in this market and then forward integration of co-products which they manufacture. Hence company is continuously expanding its operations geographically to improve on its margins.

Strong Reputation:
Astec manufactures a wide range of Agrochemical active ingredients and pharmaceutical intermediates. Astec's considerable experience in the development and production of intermediates and active ingredients makes it an ideal partner. Astec has forged enduring relationships with large and small companies all over the world. Astec has an unshakeable reputation for providing quality products in manufacturing plants that meet global standards.

Rich Experience:
Astec Lifescience has rich experience of over two decades in the chemical industry. They employ highly qualified and trained individuals to monitor and maintain its manufacturing activities as well as process development work. The company prides itself in being responsive, reliable and quick to implement projects. At the same time they ensure high levels of confidentiality in implementing new projects thereby providing an excellent customized manufacturing service option to their clients at extremely competitive costs.

Stock Data

CMP (Rs)

217.95

Face value (Rs)

52 Week Range (Rs)

304 - 61.50

Market cap (Rs Crores)

430.35

Price To Book Value (x)

3.06

P/E Ratio (x)

26.55

EV/EBIDTA (x)

10.53

One Year indexed Stock Performance

Astec Lifescience LtdSensex

Performance (%)

12m

Absolute

-21.30

100.14

250.63

Sensex

-7.40

-10.26

-1.53

Shareholders

(in %)

30-Jun

Promoter

55.29

FII

0.14

DII

3.89

Others

40.68

Total

100

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Industry

The Agro-chemicals Industry grows in tandem with the agricultural sector. Agricultural growth itself is greatly affected by monsoon, especially in the agrarian economies with large tracts of land-mass remaining uncovered with water irrigation systems. Thus, a year of good monsoon is a harbinger of growth for the agrarian economies, including Agro-chemicals Industry. Conversely, the vagaries of monsoon tend to be a spoiler for the sector. As is well known, countries with large and growing population are forever under pressure for higher food produce from their limited land mass; the arable land itself is limited and getting shrunk all over the world in the wake of industrial development and urbanization. The scenario makes it imperative for the stakeholders in the agriculture space to look for and adopt new and more efficient methods of crop protection and of maximizing their yields from the given land resources under cultivation. Agro-chemicals are gaining acceptance worldwide with increasing awareness of their beneficial role in minimizing losses due to pests and thereby improving yields. For the players in the Agro-chemicals Industry, the challenge is to develop new products through research and innovation for more efficient crop protection through safe and efficient products and product applications across broad spectrum of agricultural crops in all parts of the world.

Profile

ASTEC Life Science Ltd is engaged in the manufacture & sale of intermediates, active ingredients and formulations in the off patent–proprietary category with a focus on agrochemical and pharmaceutical industry. Astec Life Science Ltd has three manufacturing units located in Maharashtra i.e. one unit at Dombivli & two units at Mahad with one of the unit being an EoU. Company exports its products to East Asia, Europe, Middle East and USA. Hexaconazole, Tebuconazole, Metalaxyl and Propiconazole are some of the key products in agrochemical segment which contributes its majority of sales.

Profit & Loss Statement:- (Consolidated)

(Rs Crores)

Particulars

Mar-13

Mar-14

Mar-15

Mar-16E

Mar-17E

Income:-

Net Sales
Growth (%)
Total Expenditure
EBITDA
EBITDA Margin (%)
Other Income
Operating Profit
Interest
PBDT
Depreciation
Profit Before Taxation & Exceptional Items
Provision for Tax
Tax Rate (%)
Profit After Tax
PAT Margin (%)
Adjusted EPS

174.77
-
147.77
27.01
15.45
1.06
28.07
7.48
20.58
11.87
8.71
2.81
32.22
5.90
3.38
3.30

206.97
18.42
171.60
35.37
17.09
0.00
35.37
9.25
26.12
14.77
11.35
2.50
22.03
8.85
4.28
4.99

258.85
25.07
211.50
47.35
18.29
0.45
47.80
10.50
37.30
16.50
20.80
6.24
30.00
14.56
5.62
8.21

325
25.56
259.6
65.40
20.12
0.41
65.81
11.75
54.06
18.25
35.81
10.743
30.00
25.07
7.71
14.13

410.50
26.31
320.50
90.00
21.92
0.41
90.41
12.00
78.41
20.50
57.91
21.50
37.13
36.41
8.87
20.53

Source: Stockaxis Research, Company Data

Valuation

Considering the large capex done and rich experience of over two decades in the chemical industry Astec life science is becoming a very strong player in the market. Company has already entered into retail segment with its own brand which will help them to improve the composition of sales .Also company is trading at very reasonable valuation, At CMP of Rs 194 stock is trading at 9.44x FY2017E which is a very reasonable valuation considering its growth prospects in next two years.

We assign valuation of 19 x to FY2017E indicating target price of Rs 390 which is a fair valuation of stock considering the strong financial metrics.

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