Private Client Research

Rating

Buy

Sector

Pesticides & Agrochemicals

Company

Astec Lifesciences Ltd

Pesticides & Agrochemicals

June 29, 2020

Sensex: 34961.52

CNX Nifty: 10312.40

NSE: ASTEC

BSE: 533138

Reco Price

Rs. 825

3 years to get optimum return

Date

June 29, 2020

Sensex

34961.52

CNX Nifty

10312.40

Exchange

Code

NSE

ASTEC

BSE

533138

Stock Data

CMP (Rs)

804.20

Face value (Rs)

52 Week Range (Rs)

944.50 - 305.00

Market cap (Rs Crores)

1569.44

Price To Book Value (x)

7.73

P/E Ratio (x)

40.01

EV/EBIDTA (x)

20.57

One Year indexed Stock Performance

Astec Lifesciences Ltd Sensex

Return (%)

12m

36m

Absolute

8.76

124.95

68.94

42.16

Sensex

7.83

22.93

-11.91

13.30

Shareholders

(in %)

31-Mar

Promoter

71.33

Public

28.67

Others

Total

100

+91 22 6639 3000

research@stockaxis.com

Profile

Established in 1994, Astec Life sciences 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. With over two decades of experience in development and production of selected chemicals, the company has forged enduring relationships with large and small companies all over the world. This is evident in the fact that more than half of its business comes from export sales, to more than 25 countries. The company 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. The 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.

The company will start yielding better margins through backward integration of its products.

Rationale for investment

Strong parentage backing with established track record in manufacturing fungicides:
Due to strong parentage backing of Godrej group, the company gets good platform for distributing its product on a PAN india basis . The company has an extensive track record spanning more than two decades and it enjoys an established position in the manufacturing of technical grade fungicides. The company has long term relationship with its clients and is one of the preferred suppliers of technical grade fungicides to a reputed clientele, comprising large MNCs, supported by its technical competency.

Backward integration and cater to new products:
The company commenced new intermediates plant in FY19 which enabled them to reduce its dependence on China and led to improvement and stability in margins. The timing of commencement of the new plant is appropriate as the company is already seeing increased demand for its products. In a bid to reduce dependence on China the company has undertaken additional projects to cater to the new products that the company intends to launch going forward. These new products will help the company in becoming a preferred partner for its customer.

Leveraging new capacities to capitalise new markets:
The company derives majority of its revenue from the fungicides segment thus in a bid to reduce segment concentration, it is working on few products in herbicides segment. There is an ongoing capex towards setting up a herbicides manufacturing facility, which is expected to commence operations in FY2021. Furthermore, it is making investments for setting up a new R&D facility, which is expected to result in a quantum jump in their R&D capabilities and will facilitate its new product development plans.

Strong demand for its product portfolio:
The company has long term relationship with few US and Japanese customers who are driving demand in the contract manufacturing segment. The global as well as domestic demand for its triazole fungicide product is robust, majorly due to launch of few combination fungicides with new chemistries and existing molecules. The company is also working on enhancing its offering within the azole fungicide products and developing a robust pipeline for contract manufacturing business.

Covid-19 impact:
Due to Covid-19 pandemic, there will be no significant impact on the business of the company as agrochemical industry was relatively insulated from the disruption.

Key Risks
Client concentration: The company’s clientele in the CRAMS portfolio has remained concentrated and dependent on a few select clients.

Susceptible to the regulatory risks associated with the ban of products by regulatory authorities upon review or change in regulations.

Industry

The opportunity for Indian agrochemical players remains high, both in the domestic and the international markets. Increasing usage of agrochemicals is needed in India, given the high focus on increasing the yield per hectare, limited arable land, rising labour costs and increase in growth of herbicides and fungicides. Globally, disruption of Chinese agrochemical supply chain has shifted the focus on India, thereby increasing the opportunity for contract manufacturing business for Indian players. Also, as large number of molecules are going off-patent in the next 3 to 5 years, it further augments the opportunity for Indian players. 50% of the Indian agrochemical industry’s value is derived from exports and therefore, exports are expected to grow at a faster pace in the coming years as compared to the domestic market. As global companies look for alternate manufacturing locations outside China, the opportunity available to Indian manufacturers will be huge. Organizations with deep technical capabilities of technical or intermediate chemistries are likely to gain from this shift / diversification of the manufacturing base.

Profit & Loss Statement:- (Consolidated)

(Rs Crores)

Particulars	Mar-17	Mar-18	Mar-19	Mar-20	Mar-21E	Mar-22E
Net Sales	298.60	367.50	430.90	522.60	586.60	671.90
Total Expenditure	236.20	298.70	354.40	437.40	490.20	559.10
EBITDA	62.40	68.80	76.50	85.20	96.40	112.80
Margin (%)	20.90%	18.72%	17.75%	16.30%	16.43%	16.79%
Depreciation	13.60	14.60	19.30	23.10	27.40	29.50
EBIT	48.80	54.20	57.20	62.10	69.00	83.30
Other Income	2.80	8.10	11.10	11.90	11.10	11.00
Interest	12.20	10.60	12.30	12.50	10.00	8.00
Profit Before Tax & Exceptional Items	39.40	51.70	56.00	61.50	70.10	86.30
Exceptional Items	-10.60	4.10
Profit before Tax	28.80	55.80	56.00	61.50	70.10	86.30
Provision for Tax	9.50	20.60	20.10	13.80	17.50	21.60
Tax rate	33.00%	36.90%	35.90%	22.44%	25.00%	25.00%
Profit After Tax	19.30	35.20	35.90	47.70	52.60	64.70
Adjusted EPS	9.80	17.80	18.30	24.30	26.80	33.00

Source: Stockaxis Research, Company Data

Valuation

We expect the company’s dominant position in the Triazole fungicide manufacturing business, backward integration for its key products and investments in the new R&D centre to provide stable growth going forward. The company is developing new products supported by deep technical capabilities and is likely to benefit from the opportunities that the global demand shift from China may present for the Indian entities.The stock is currently trading at 24.9x FY22E EPS and we expect 80% to 100% returns in next 2 to 3 years.

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