Private Client Research

Rating

Buy

Sector

Pesticides & Agrochemicals

Company

Astec Lifesciences Ltd

Pesticides & Agrochemicals

January 10, 2018

Sensex: 34433.07

CNX Nifty: 10632.20

NSE: ASTEC

BSE: 533138

Reco Price

Rs. 566.00

Price Target (1.5 - 2 Years)

Rs. 1120.00

Upside

97.88%

Date

January 10, 2018

Sensex

34433.07

CNX Nifty

10632.20

Exchange

Code

NSE

ASTEC

BSE

533138

Stock Data

CMP (Rs)

600.25

Face value (Rs)

52 Week Range (Rs)

684.00 - 477.05

Market cap (Rs Crores)

1172.15

Price To Book Value (x)

7.80

P/E Ratio (x)

76.36

EV/EBIDTA (x)

21.28

One Year indexed Stock Performance

Astec Lifesciences Ltd Sensex

Return (%)

12m

36m

Absolute

12.46

-0.27

-1.28

499.35

Sensex

2.92

7.86

28.01

24.82

Shareholders

(in %)

31-Dec

Promoter

67.08

Public

32.92

Others

0.00

Total

100

+91 22 6639 3000

research@stockaxis.com

Synergies will start yielding better margins to the company, operating efficiency to kick in.

Strong Parentage to boost the ability of management to rake up big international orders:
Godrej Agrovet (Godrej Group Company) owns 56.82% stake in Astec lifescience. Godrej Agrovet has a proven promoter pedigree, belonging to the esteemed “Godrej Group” that helps Godrej Agrovet realize consumer confidence and help attain competitive edge over its peers. Godrej Agrovet has strong crop care business as company has leveraged its in house R&D prowess to create strong brands along with a robust distribution network of 6000 distributors. Few of their marquee brands include Vipul, Double, Hitweed (selective cotton herbicide targeting broad-leaf weeds) and Combine. The acquisition of Astec LifeSciences bodes well for the company as they have strong R&D in agrochemical active ingredients category that were used to introduce new fungicide products such as ‘Kemplar’ and ‘Casper’ as part of the Company’s offerings Similarly, GAVL operates under the Jersey, Real Good Chicken and Yummiez brands in its dairy and processed poultry & foods divisions respectively. Astec Lifescience would get a platform for distributing its product in PAN india with good brand to back it up.

So, it is quite elementary that under the tutelage of Godrej Agrovet, Astec Lifesceinces will prosper. As the fortunes of Godrej Agrovet grow, those of Astec will keep pace in view of the synergies in the businesses of the two.

Catalogue products:
The company has a segment called catalogue products and this segment is mainly into manufacturing Triazole fungicide products. Company has products named as Tebuconazole or Propiconazole, Difenoconazole, Hexaconazole; they are all Triazole fungicide segment of the industry which is specialized in niche area where company operates. This has been the core competence of company because of backward integrations exercise and lateral integrations. Hence due backward integration company is able to save a lot in terms of expenses. However, with exercise to go PAN india, company would be able to gain market share and also export at a better margins.

Enterprise Segment sales to boost margins with new product offering:
In its Enterprise Sales segment, Astec usually develops 2-3 new technically advanced products every year. Their product selection strategy will remain geared towards new generation, a high growth molecule which opens a large opportunity in India and overseas territories. Astec customer base being large international players gives the sense of continued order and future visibility as they sign long term contracts with them. Presently, Astec Lifescience is the leading producer of Triazole products which has an estimated market size of 650 crores in India and 12,000 crores globally. Post the merger with Godrej Agrovet’s crop care business, more of the order will flow to Astec. This would lead to higher growth in revenue and better margins.

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)

DESCRIPTION	Mar-15	Mar-16	Mar-17	Mar-18 E	Mar-19 E	Mar-20 E
Net Sales	266.88	246.99	313.40	340.00	408.00	489.60
Growth (%)		-7.45	26.89	8.49	20.00	20.00
Total Expenditure	212.77	215.43	251.00	285.60	336.60	401.47
EBITDA	54.11	31.56	62.40	54.40	71.40	88.13
% Margin	20.28	12.78	19.91	16.00	17.50	18.00
Other Income	0.93	7.22	2.86	5.50	6.00	6.00
Operating Profit	55.05	38.78	65.26	59.90	77.40	94.13
Interest	12.84	12.81	12.24	11.50	10.00	9.00
PBDT	42.21	25.97	53.03	48.40	67.40	85.13
Depreciation	12.69	10.40	13.68	13.50	13.00	12.50
Exceptional Income / Expenses	-16.94	-3.15	-10.60	0.00	0.00	0.00
Profit Before Taxation & Exceptional Items	12.58	12.42	28.74	34.90	54.40	72.63
Tax	-2.20	7.36	9.56	11.52	19.58	26.15
Profit After Tax	14.78	5.07	19.18	23.38	34.82	46.48
Adjusted EPS	7.59	2.55	9.80	11.95	17.79	23.75

Source: Stockaxis Research, Company Data

Valuation

Post the listing of Godrej Agrovet, company is expected to benefit from synergies from FY19. With price of Rs 566, company is trading at valuation of 23x it FY20 earnings. We believe its unique position, good parentage backing and improving margins would lead to re-rating. So we recommend buying for a target price of Rs 1120.

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