PL Stock Report - Insecticides India (INST IN) - Q4FY23 Result Update - Dismal end to FY23; near term cautious outlook - Accumulate

Insecticides India (INST IN) - Himanshu Binani - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: ACCUMULATE | CMP: Rs445 | TP: Rs550

Q4FY23 Result Update - Dismal end to FY23; near term cautious outlook

Quick Pointers:

§ Capex of Rs1.1bn largely behind; likely to reap benefits FY24 onwards.

§ Product pipeline remains healthy; launch of 4-5 new products in FY24.

We trim our FY24/25E EPS estimates by 14%/9% and reduce TP to Rs550/share (earlier Rs650/share) based on 12XFY25 EPS (earlier 13XFY25 EPS), citing passive demand environment coupled with near term margin pressure. Insecticides India (INST) reported subdued results with EBITDA loss of Rs283mn largely led by high cost inventory provisioning coupled with M2M loss of Rs140mn in FY23. B2C/B2B/exports contribution stood at 51%/35%/14%, as against 65%/26%/9% in the same period last year. Further, Maharatna products contributed 52% of overall revenues in 4Q’23, as against 42% in 4Q’22.

Going forward, management remains confident on achieving revenue growth of 10-12% YoY in FY24E aided by a) commencement of new facilities; b) new product launches; and c) significant export registrations. However, remains cautious on margins (guided for 9-10% EBITDA margins) from trailing losses of high cost inventory provisions to be accrued in 1Q’24. Maintain ‘Accumulate’.

High cost inventory provisions resulted in loss at EBITDA level: INST reported revenue /EBITDA /PAT growth of +9%/-184%/-230% YoY below our and consensus estimates. B2C/ B2B/ exports contributed 35%/51%/14% in 4QFY23. Gross margins declined by 1920bps YoY to 12.4% led by 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 loss at EBITDA levels of Rs283mn.

New Launches gaining traction: Contribution of new product launches have been on the increasing trend to overall revenues. Products launched in FY23 recorded a revenue of Rs4.80bn (contributing to ~27% of the revenues) as compared to Rs2.15bn (contributing to ~14% of the revenues) in FY22. The company launched new product ‘Mission’ in 4QFY23 (taking it to total of 6 new product launched in FY23) and expects to launch 4-5 new products in FY24E.

Capex largely behind; likely to reap benefits going forward: INST commenced a major capacity expansion program aimed at increasing capabilities at both technical and formulation units in Chopanki (Rajasthan) and Dahej- SEZ (Gujarat) with a budget of Rs1.1bn (revised amount of Rs1.62bn) and likely to contribute to the topline in subsequent quarters. Further, INST has bought additional land bank for further capacity additions (to be done in 3 phases) in Rajasthan for formulations followed by Bio-logical and then technical capacity expansions.

Guided 10-12% revenue growth with 9-10% EBITDAM for FY24E: With commencement of new facilities, new product launches and significant registrations in export market, mgnt. guided revenue growth of 10-12% in FY24E. But is cautious on near term high cost inventory provisions and its impact on margins in the subsequent quarter. Management expects EBITDA margins to stay within 9-10% range in FY24E.

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