Recommendation From Pesticides & Agro Chemicals Sector

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon. 

NACL INDUSTRIES LTD. : ON AN ASSURED GROWTH PATH

HERE IS WHY
✓Strong financial position
✓Focus on expansion
✓High growth potential

Nagarjuna Agrichem Ltd. (NACL Industries) has a pan-India presence and is a dominant player in the agro-chemical space. It has over 50 products covering all major crops across geographies. The company has also forayed into foreign markets with exports to over 30 countries in Southeast Asia and Africa and has a quarter of its sales outside India. As a matter of concern, an estimated 20-30 per cent of the agricultural produce is wasted due to pest infestation and diseases in India. NACL plays a crucial role in providing essential services to farmers. The branded product portfolio includes insecticides, herbicides, fungicides and plant growth regulators.

The company reported its highest ever net sales of Rs 1,191 crore in FY21 compared to Rs 1,015 crore in FY20. That is a growth of nearly 17.3 per cent. This growth is mainly attributable to the rise in exports by 20 per cent and domestic sales by 11 per cent. There has been a consistent demand from MNCs for insecticides and fungicides that has kept the order book healthy. The company’s EBIDTA stood at Rs 127.3 crore in FY21 as against Rs 76 crore in the previous year. 

That is a growth of over 67 per cent attributable to higher volumes of production and experiencing economies of scale.

Also, the PAT grew by 215 per cent, rising from Rs 16 crore to Rs 50.4 crore from FY20 to FY21, respectively. A decline of 19.4 per cent can be seen in the cash flows from operating activities decreasing from Rs 103 crore in FY20 to Rs 83 crore in FY21. The company had an excellent last quarter. Net sales for the quarter ended March 2021 stood at almost Rs 330.4 crore. That’s a growth of 24.5 per cent on QoQ basis and 19.5 per cent on YoY basis. The EBITDA, exclusive of other income, was Rs 28.7 crore which saw a growth of 11.5 per cent QoQ and nearly 50 per cent YoY.

The net profit was Rs 17.33 crore, a growth of 92 per cent QoQ and a huge growth of 247 per cent YoY. The Indian crop protection market is expected to grow to about Rs 600 billion by 2025, which provides healthy room for NACL Industries’ growth. Thus, the company is highly focused on expanding its manufacturing capacities by setting up greenfield sites in Gujarat and Andhra Pradesh, strengthening its research and development capability and enriching its product portfolio. It has introduced a new product, Cubit (rice herbicide) in Q1 and two new products in Q2, namely, Eraze Plus (herbicide) and Fenny (insecticide), marking expansion in the oil seed and rice crop segment.

Two new subsidiaries, namely, NACL Spec-Chem Ltd. and NACL Multi-Chem (P) Ltd., have been set up in FY21 to build greenfield projects for agrochemical, active ingredients, formulations and synthetic organic chemicals. The company has a customer base of five million farmers and 12,500 retailers. Its EBITDA stood at 9 per cent in FY21, a rise of nearly 200 bps from the previous year. PAT margin jumped to 4.3 per cent from 1.7 per cent in FY20 a growth of 260 bps. On the returns’ front, it has a decent ROE of 13.2 per cent and good ROCE of 16.7 per cent. The company has reduced its debt to adequate levels with debt-to-equity ratio of 0.45. In FY21, the pledged shares of promoters of up to 23.84 per cent have been released. Given this financial status of the company, we recommend our reader-investors to BUY the stock.