Agro Chemicals

Agro Chemicals
Sector Report
Rising from the ashes!!!

Prashant Biyani prashantbiyani@plindia.com 91-22-6632 2260
Agro Chemicals
Contents
Page No.
Valuation Matrix ................................................................................................... 4
Investment Argument .......................................................................................... 5
Secular growth story intact ................................................................................. 5
Domestic demand drivers ............................................................................... 5
Export growth drivers ...................................................................................... 5
Factors driving growth in domestic market’ ................................................. 5
Factors driving growth in exports .............................................................. 10
Start of the next upcycle ................................................................................... 14
Timing and spatial distribution of monsoon has been better ......................... 14
Pest Incidence higher than last year but lower than expectations ................ 17
In times of crisis, both Central and State governments are providing helping
hand to farmers ............................................................................................ 20
Financials ........................................................................................................... 22
Global Agrochemical/ Agriculture Industry- Story in charts ......................... 26
COMPANIES
Bayer Cropscience .............................................................................................. 29
Dhanuka Agritech ................................................................................................ 39
Insecticides India ................................................................................................. 49
P.I. Industries ....................................................................................................... 59
Sharda Cropchem................................................................................................ 70
UPL...................................................................................................................... 79
Rallis India ........................................................................................................... 95
January 8, 2019 2
Agro Chemicals
Sector Report
January 8, 2019
Rising from the ashes!!!

Companies covered in the report Agrochemical Industry is showing initial signs of recovery post severe
Name of the Company Recommendation pressures witnessed in the past 3 years mainly due to adverse timing &
Bayer Cropscience Accumulate
spatial distribution of rainfall, lower than expected pest incidence and short
Dhanuka Agritech BUY
Insecticides India BUY supply & increase in price of raw materials. We expect better days ahead with
P.I. Industries Accumulate acceleration in sales growth and profits led by 1) expected increase in global
Sharda Cropchem BUY
UPL BUY
agro chemical industry post consolidation of past 3 years 2) rising exports
Rallis India BUY (14.4% growth in volume @ 2.5 lakh MT and 28.1% growth in value @ US$ 1.7
bn YTDFY19) enabled by INR depreciation and cost competitiveness of
domestic industry 3) Industry showing pricing power by passing on input
cost increase and 4) Structural rise pest infestation due to global warming
(Number of weeds up 86% between 2010-2016).
Although we don’t rule out growth pangs for another 3-6 months, worst
seems to be over for the agrochemical industry. We initiate coverage on the
agrochemical sector. Insecticides India (INST) is our top pick with 57%
upside; UPLL (Buy) and PI (Accumulate) are structural plays. Sharda
Cropchem (SHCR) and Dhanuka Agritech (DAGRI) offers decent upside, but
SHCR is sensitive to the raw material supply situation in China and DAGRI’s
fortunes are dependent fully on the domestic market. BYRCS remains a
structural pick, although returns might be back ended.
Secular growth story intact: The structural growth story of the Indian
agrochemicals industry is intact and is driven by both domestic and export business
growth. Rise in labour cost (7.2% CAGR between FY14-17), Scope for increasing
yields (potential to increase framers profit by 12-27%), competitive manufacturing
cost and US$ 3 bn worth of agrochemicals going off-patent globally (26 molecules
going off-patent between 2017-2020) are the key growth drivers for the industry.
Start of the next upcycle: Levers are in place for the start of the next upcycle in
the agrochemical industry. Better timing and spatial distribution of rainfall, higher
pest incidence via-a-vis last year, steps being taken by the government to improve
farmer’s income, etc are expected to increase application of agrochemicals. While
the availability of raw materials in China has increased recently, high base effect of
price from last year coupled with price hike taken by the industry and claw back of
rupee from ~74/ US$ levels is expected to improve margins going forward.
Developing India as an alternative procurement base: India is likely to emerge

as a procurement base for the global agrochemical industry in the wake of shutting
down of various chemical plants in China and their shift to structurally higher cost
of production due to adherence to the anti-pollution norms. Indian companies are
Prashant Biyani
currently expanding capacities in calibrated manner and enquiries from MNCs are
prashantbiyani@plindia.com | 91-22-66322260
fast turning into actual transaction aiding topline growth and higher utilization for
technical manufacturers. ~70-80% Large innovator customers are eyeing long term
supply commitments from manufacturers which would support industry growth.
January 8, 2019 3
Agro Chemicals
Valuation Matrix
PL Agri Universe Valuation Matrix
CMP TP M Cap Net Sales (Rs mn) EBITDA (%) Adjusted PAT (Rs mn)
Company
(Rs) (Rs) (Rs mn) ($ mn) FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E
BYRCS 4,261 4,523 146,280 2,087 27,099 28,467 31,030 34,443 15.1 17.7 17.8 18.7 2,671 3,276 3,706 4,443
DAGRI 418 624 19,888 284 9,626 10,293 11,425 12,453 17.2 15.8 17.3 17.9 1,262 1,212 1,467 1,649
INST 572 896 11,813 169 10,733 11,786 13,044 14,349 13.8 15.0 15.8 16.0 840 1,061 1,223 1,424
PI 864 924 119,207 1,701 22,771 27,433 32,810 37,984 21.6 19.5 20.3 21.3 3,665 3,774 4,575 5,538
RALI 170 242 33,099 472 17,909 20,212 22,467 24,713 15.1 17.7 17.8 18.7 1,676 1,827 2,261 2,616
SHCR 303 444 27,310 390 17,134 19,627 22,679 25,835 20.2 18.4 18.7 19.1 1,908 1,943 2,340 2,679
UPLL 764 975 389,513 5,558 173,780 191,059 208,409 226,098 20.2 20.7 21.1 21.0 22,050 24,590 27,533 30,962
Adjusted EPS (Rs) Total Debt (Rs mn) Net debt/Equity (x) RoCE (%)
Company
FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E
BYRCS 77.8 95.4 107.9 129.4 - - - - -0.2 -0.2 -0.3 -0.4 19.6 24.7 23.8 24.5
DAGRI 25.7 25.5 30.8 34.7 47 74 85 91 -0.2 -0.1 -0.2 -0.3 26.0 23.3 26.5 26.0
INST 40.6 51.3 59.2 68.9 1,050 1,700 1,450 - 0.2 0.2 0.2 -0.0 19.5 21.2 21.1 22.8
PI 26.6 27.4 33.2 40.2 834 385 385 385 -0.1 -0.2 -0.2 -0.3 22.0 20.8 22.7 23.8
RALI 8.6 9.4 11.6 13.5 200 150 105 60 -0.1 -0.1 -0.2 -0.2 18.5 19.5 21.7 22.2
SHCR 21.1 21.5 25.9 29.7 1,697 - - - 0.0 -0.0 -0.1 -0.1 24.3 21.8 24.3 24.3
UPLL 43.2 48.2 54.0 60.7 65,070 75,070 64,070 53,070 0.4 0.4 0.2 0.1 19.3 19.1 20.3 21.4
RoE (%) P/E (x) Price/Book Value (x) EV/EBITDA (x)

Company
FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E
BYRCS 13.9 17.2 17.1 18.0 54.8 44.7 39.5 32.9 8.2 7.2 6.3 5.5 34.7 28.3 25.2 21.0
DAGRI 21.8 19.1 21.3 20.7 16.3 16.4 13.6 12.1 3.2 3.1 2.7 2.3 11.8 11.8 9.4 7.9
INST 16.6 17.3 17.1 17.5 14.1 11.1 9.7 8.3 2.2 1.7 1.6 1.3 8.6 7.6 6.3 5.0
PI 20.8 18.3 19.0 19.6 32.5 31.6 26.1 21.5 6.2 5.4 4.6 3.9 23.8 21.7 17.1 13.7
RALI 14.6 14.6 16.3 16.9 19.7 18.1 14.6 12.7 2.8 2.5 2.3 2.0 12.1 10.5 8.5 7.2
SHCR 18.2 16.1 17.0 17.0 14.3 14.1 11.7 10.2 2.4 2.1 1.9 1.6 8.0 7.5 6.2 5.1
UPLL 26.6 25.3 26.1 25.6 17.7 15.8 14.1 12.6 4.2 3.8 3.6 2.9 12.1 10.9 9.5 8.5
Source: Company, PL
Business model of agrochemical companies and contribution of revenue from various segments
OTHER
AGROCHEMICALS / AGRI-INPUTS
SEGMENTS
Company \
Segments Domestic Exports
Segment Name
Technical Mfg. Branded/Formulations In-licensing tie-up CRAMS International Business/ Exports
Bayer Cropscience - 88% - - 7% Seeds- 5%
Dhanuka Agritech - 52% 48% - - -
Insecticides India 14% 63-68% 15-20% - 3% -
PI Industries 39% 61% - -
Rallis India 56% 27% Seeds- 16%,
Sharda Cropchem - - - - 88% Belts - 12%
UPL 18% - - 82% -
Source: Company, PL
January 8, 2019 4
Agro Chemicals
Investment Argument
Secular growth story intact
The structural growth story of the Indian agrochemical industry is intact and will be
driven by both domestic and export business growth. FICCI estimates Indian
agrochemical industry to double to US$ 8.1 bn by 2025. While the same is
achievable, the upside risk to those estimates would be hinge upon how fast India
is able to develop itself as an alternative source for raw material supplies.
Domestic demand drivers
 Rise in Labour cost
 Scope of increasing yields
 Reduction in crop losses
 Limited opportunity to expand arable land in India
 Increasing share of specialty molecules
Export growth drivers
 Competitive manufacturing cost
 Capitalizing on the CRAMS business opportunity
 Developing India as an alternative source (from China) for supply of raw

materials globally
 Opportunity arising out of US$ 3 bn worth of molecules going off-patent by

2022.
 Availability of cheap labour and Low processing costs offer opportunities for
both domestic companies and MNCs to set up manufacturing hubs in India for
their export markets. Large availability of technically skilled labour also
presents a huge opportunity for contract manufacturing and research for Indian
players.
Factors driving growth in domestic market
Rise in Labour Cost: Agriculture sector has witnessed sharp drop in availability of
labour and rising labour costs over the past decade due to migration to cities,
diversion of labour to rural infrastructure projects & government schemes like
MGNREGA. The government had also increased the minimum wage for agriculture
labourer to Rs 300-438/day last year. Currently the wage rate is highest in Kerala
at ~Rs 673/day and lowest in MP at ~Rs 202/day. Rising cost and reduced
availability of labour has led to increase in usage of herbicides. The share of
consumption of herbicides has increased by ~800 bps between FY12-16 and
currently stands at 24%. While Insecticides usage (53%) continue to dominate the
overall agrochemical consumption in India, herbicide usage is leading the growth
for the agrochemical industry. With government focus on increasing the production
of vegetable and horticulture crops, consumption pattern is expected to shift in favor
of herbicide and fungicide (FY12- 15%, FY16- 19%).
January 8, 2019 5
Agro Chemicals
Agriculture wages up 7.3% CAGR over past 3 years

Herbicide consumption boosted by Wage growth in states across India FY15 FY16 FY17
sharo increase in labour cost Andhra Pradesh 7.3% 6.5% 7.9%
Assam 22.2% 4.8% 7.1%
Bihar 16.2% 9.7% 1.5%
Gujarat 21.6% 6.9% 7.8%
Haryana 7.3% 3.6% 2.0%
Himachal Pradesh 9.0% 5.9% 6.0%
Karnataka 9.1% 12.6% 6.0%
Kerala 11.4% 6.4% 1.6%
Madhya Pradesh 18.1% 4.7% 8.8%
Maharashtra 5.9% 3.6% 10.2%
Odisha 18.8% -0.1% 7.9%
Punjab 3.7% 1.7% 3.4%
Rajasthan 17.8% -3.8% -1.2%
Tamil Nadu 23.9% -4.0% 4.4%
Uttar Pradesh 6.9% 7.4% 6.0%
West Bengal 9.1% 4.2% 4.7%
All India 12.8% 3.8% 5.3%
Source: Ministry of Agriculture, PL
Scope of increasing yields: (a) Indian farmers reap significantly lower yield vis-à-
vis other developing and developed economies due to lack of awareness of
agrochemical application, low quality seeds, improper use of water and fertilisers
and degrading soil quality. Proper application of agrochemicals has potential to
increase framers profit by 12-27% by reducing crop damage. (b) Limited land
availability per farmer requires optimum use of agri-inputs to maximize the yields
and income. Since the current per capita consumption of agrochemicals is sub-
optimal, agrochemical consumption is expected to increase going forward.
India’s per Ha yield (2017) is among the lowest… …given low per Ha agrochemical consumption
Wheat Rice Maize Soyabean

China 13
10.7
12.0
Japan 12
10.0
7.1
8.0 USA 7
5.8
5.9
5.8
5.3
5.3
5.3
5.2
5.1
4.7
4.2
6.0
4.0
3.7
3.4
France 5
3.2
3.0
3.2
3.0
2.6
2.8
2.8
2.6
2.4
4.0
1.8
1.8
1.8
UK 5
0.7
2.0
- India 0.75
USA Korea Japan China EU Brazil India
Source: OECD, PL Source: OECD, PL
January 8, 2019 6
Agro Chemicals
India lags in both average and highest yield comparison for major crops (Kg/Ha) with the world
World Highest State High est in Indi a

World Avg All India Avg Deviation from World avg
Deviati on from World highe st
-10.3% -7.9%
6000 0.0%
-22.2% 12000 0.0%
5000 10000 -36.0% -30.2%
-20.0% -42.7% -37.5% -20.0%
4000 8000
-48.2% -40.0%
3000 -54.6% -40.0% 6000
-76.3% -60.0%
2000 4000 -83.2%
-73.2% -60.0%
1000 2000 -80.0%
0 -80.0% 0 -100.0%
Source: OECD, PL
Only ~25-30% of the farmers are aware of the agrochemical products and their
usage (Source: UPL). With the help of awareness drive from the government and
product demonstration from agri-input companies, farmers are increasingly
realizing the benefit of agrochemical application. Herein lies the huge untapped
opportunity for the agrochemical industry which makes it a multi-year growth story.
With proper application of agri-inputs, farmers reap higher yields in the form of
increase in quality and quantity which has the potential to increase their profitability
by 12-27% as compared to their usual practice.
Agrochemical application can increase profits by up to 27%
Profit from Usual Practise Profit from proper application of agri-inputs
Source: Bayer Cropscience, PL
Reduction in crop loss: One of the solutions to achieve the challenging task of
doubling farmers’ income is to help farmers cut down on crop losses especially
occurring due to attacks by pests and diseases and improve productivity of their
crops which will in turn help multiply their revenues.
January 8, 2019 7
Agro Chemicals
Crop damage from pests without use of pesticide

Crop Avoidable losses (%) Cost: Benefit ratio of pesticide use
Cotton 49-90 1:07
Rice 21-51 1:07
Mustard 35-75 1:12
Sunflower 36-51 1:08
Groundnut 29-42 1:28
Maize 20-25 1:03
Sugarcane 08-23 1:13
Pulses 40-88 1:04
Vegetables 30-60 1:07
Fruits 20-35 1:04
Source: PL
Limited opportunity to expand arable land in India: The ever increasing need to
grow more food on less land, with minimal impact on human health and the
environment, creates a vast market for crop protection chemicals. Globally 90% of
the growth in crop production (80% in developing countries) is expected to come
from higher yields and increased cropping intensity, while the remainder is expected
to come from land expansion. Arable land would expand by ~70 million hectares
(or <4%), with the expansion in developing countries by about 120 million hectares
being offset by a decline of some 50 million hectares in the developed countries.
Almost all of the land expansion in developing countries would take place in sub-
Saharan Africa and Latin America. While India has the largest cropland area in
the world @ 179.8 mn Ha, the average size of land holding per farmer is ~1
Ha. With limited scope to expand farmland ownership, improving productivity
remain the only choice of farmers to increase farm income.
Import, manufacture and formulation Industry to take-in-stride the impact of ban of 18 molecules: On 8th August,
ban was w.e.f. 31st Dec 2018, while
2018 Government of India had banned the use of 18 molecules. Out of 18
the ban for use will start from 1st
January 2021. molecules, 12 has been banned for use immediately while the rest 6 (Alachlor,
Dichlorvos, Phorate, Phosphamidon, Triazophos, Trichlorfon) have been banned
for use from 31st December 2020. While the ban for use comes in ~2 years hence;
the import, manufacture and formulation of these 6 molecules will stop from January
2019. Insecticides India and UPL are likely to be most impacted as a result of this
move. INST & UPL derives ~15.0% & ~3.0% of revenue respectively from the
banned products. We expect the industry to accelerate the production/import of
these 6 molecules commensurate to the demand of ~2 years. This will elevate the
inventory days for players like Insecticides India for the next 6-18 months leading
to higher working capital costs.
The move is unlikely to have a material impact on the entire industry as they saw it
coming (since the report is in public domain for +3 years) and were shifting away
from these toxic chemistries to greener ones. The government’s action plan on the
Anupam Verma committee report, pressure from the NGOs and the honourable
Supreme Court, all made it clear that timing was the only unknown issue regarding
the ban of these molecules.
January 8, 2019 8
Agro Chemicals
INST derives ~Rs 1.6 bn in revenue INST’s 4 pesticides i.e. Nuvan (Dichlorvos), Thimet (Phorate), Titan (Trizophos) and
(~15%) from the banned products
Shark (Trizophos) falls under the prohibition of 18 pesticides. INST derives ~Rs 1.6
bn of revenue (~15.0%) from the banned products. The company already has a
strategy inplace to deal with the impact of the molecule ban. It will mitigate the
impact of the banned molecules by way of launching new products with greener
chemistries and gearing up the channel partners for the new products. INST’s plans
to launch 10 new products in FY19, most of which would be in 9(3) category. The
aggressive launch pipeline is expected to continue in FY20E as well. While the
impact of revenue loss post Q3FY21E would be substantially contained as a result
of robust growth in export and domestic businesses, profitability may be partly
impacted as the legacy products are high margin products whereas the new
products may take time to establish and become profitability driver.
Serious apprehensions on the new pesticides management bill: Based on our

interactions with various stakeholders Industry associations, individual companies
and farmers’ lobby, all have raised serious reservations about the draft Pesticides
Management Bill which is expected to replace the Insecticides Act 1968. The
objections have been raised on many issues like the role of regulators & pesticide
inspectors, definition of pesticides, registrations, responsibility of various
stakeholders in the value chain, penalty on manufacturers, etc. Following are the
key takeaways from our interactions with various stakeholders:
 The new bill allows importers to register final products without registering the
AIs. This would prevent the domestic manufacturers from registering for me-
too registrations thereby depriving farmers of newer chemistries at affordable
rates. The stakeholder cited the example of Bispyribac Sodium which has seen
price correction of +50% after domestic companies started to manufacture the
same in India. The existing law mandates the registration of active ingredients,
and allows for “me-too” registrations under Section 9(4). By not registering AIs,
the innovators would be effectively ever-greening their patents and harm the
domestic industry.
 The bill has been drafted improperly. The definition of terms like spurious,
pests, etc provide scope for misinterpretation and unnecessary litigation. The
bill defines the term “Pesticides” and resultantly may have expanded its scope.
The Insecticide Act has defined the term” Insecticide”.
 The active regulation on the part of concerned regulatory bodies is absent like
participatory and sustained monitoring of toxicity and impacts, price control,
etc. Lack of stringent regulation of toxic pesticides has probably resulted in
numerous pesticide poisoning related deaths over the years. Also, the practise
of false declaration (unless bribed) incase of test sampling of pesticides by
pesticide inspectors is rampant and well known. Even in the new bill,
Insecticides inspectors and analysts are free from any scrutiny even in case of
false declaration of sampling of pesticides. This practise discourages
innovation and rewards spurious manufacturers as they get away by bribing
the inspectors.
 Extending the time limit for ban of molecules by states to upto 6 months may
be detrimental for both farmers and companies as the decision to ban certain
molecules may be political rather than rational.
January 8, 2019 9
Agro Chemicals
 Farmers are not obliged to follow any labour or other relevant norms for
application of pesticides on their crops. This leaves room for
punishment/penalties to manufacturers and distributors even incase of no fault
of theirs.
Factors driving growth in exports
CRAMS, US$ 3 bn worth of Exports contribute ~50% of the India agrochemical market and is expected to grow
molecules going off-patent and higher at 8-10% CAGR over the next 7-8 years driven by
sourcing from India by the innovators
would drive growth in exports
CRAMS: Globally, the number of new molecules released in the market has been
declining for decades, while the complexity of these molecules is on the rise.
Innovation has now moved beyond a simple product innovation and has
transformed into diversified innovation with combined technology & services to
meet the complex & changing farmer needs with comprehensive & integrated
solutions. To control the time & monetary costs of the development & promotion of
new compounds and maximize profits, large enterprises prefer to choose partners
with the ability to provide high-end Contract Research and Manufacture Services
(CRAMS). Based on the current situation of massive consolidation in the industry,
CRAMS enterprises will usher in a new round of development. With rising R&D
costs for most of the global companies, the consolidation will help them focus more
on the core competency, cost cutting and improving synergies. Commercialization
and manufacturing of molecules would be another area of growth for the
established CRAMS companies.
Brazil, USA and Others (RoW) are driving exports growth
FY14 (US $ Bn) FY18 (US $ Bn) CAGR
1400 13% 14%

1211
1200 10% 12%
1000 8% 8% 9% 10%
800 7% 6% 8%
6%
600 486 6%
386 975
400 4%
200 126 108 87 78 75 2%
301 299 86 85 64 57 54
0 0%
Source: UPL, PL
Opportunity arising out of US$ 3 bn worth of molecules going off-patent by

Shift to generic molecules globally is
2020: The gradual shift to generic crop protection chemicals and products going
widening the opportunities for Indian
crop protection companies off-patent are likely to open up attractive growth avenues for the Indian
agrochemical industry. The share of generic molecules in the global agrochemical
market is set to increase (currently @ 66%) as molecules worth US$ 3 bn are likely
to go off-patent between 2017-2020. Products worth US$ 3.7 bn have already gone
off -patent between CY15 and CY17. Apart from pure generics, proprietary off-
patent market (16% of global agrochemical market) is immediately addressable.
While this would result in a contraction in the American and Latin American markets
in value terms, it would widen opportunities for Indian crop protection chemicals
companies leading to significant volume growth for these companies.
January 8, 2019 10
Agro Chemicals
Agrochemicals worth US$ 6.3 bn to go off-patent till 2020
8 0.2
0.7
7 0.4
1.6
6
5 1.2
4 0.9
3 1.3
0
CY14 CY15 CY16 CY17 CY18 CY19 CY20
Source: Industry, PL
AIs going off-patent between 2017-2022

Active Ingredient Inventor Company Category
Aminopyralid Dow Agrosciences Herbicide
Amisulbrom Nissan chemical industries Fungicide
Chlorantriniliprole DuPont Insecticide
Cyrposulfamide Bayer Safener
Fenpyrazamine Sumitomo chemical Fungicide
Flubendiamide Nihon Nohyaku Insecticide
Flucetosulfuron LG Chem investment Herbicide
Fluopicolide Bayer Fungicide
Isotianil Bayer Fungicide
Mandipropamid Syngenta Fungicide
Metamifop Dongbu Hannong chemicals Herbicide
Metofluthrin Sumitomo chemical Insecticide
Metrafenone BASF Fungicide
Orthosulfamuron Isagro Herbicide
Penflufen Bayer Fungicide
Pinoxaden Syngenta Herbicide
Pyrasulfotole Bayer Herbicide
Pyrifluquinazon Nihon Nohyaku Insecticide
Pyrimsulfan Ihara Chemical Industry Herbicide
Pyroxasulfone Kumiai Chemical Industry Herbicide
Pyroxsulam Dow AgroSciences Herbicide
Saflufenacil BASF Herbicide
Tembotrione Bayer CropScience Herbicide
Thiencarbazone Bayer CropScience Herbicide
Topramezone BASF Herbicide
Valifenalate Isagro Fungicide
Source: Agropages, PL
Scarcity of supplies from China opens a huge sourcing opportunity: Another

More than 10000 agrochemical
game-changing opportunity that has emerged over the last 2 years is the
factories have been closed in China
according to industry estimates opportunity of developing India as an alternative global procurement base in the
wake of drastic anti-pollution measures taken by the Chinese Environmental
Protection Agency (EPA). Implementing the anti-pollution measures has led to
shutting down of various chemical plants leading to shift to structurally higher cost
of production for the companies which are adhering to the anti-pollution norms.
January 8, 2019 11
Agro Chemicals
In 2017-H1 2018, large number of agrochemical enterprises in China suspended

production as they were not meeting the requirements of environmental protection
policies creating supply shortage of raw materials. Tight supply of pesticides and
intermediates caused by suspension has pushed up price of agrochemical products
on the market. Enterprises suffered from complete suspension include
Lianyungang Liben Crop Science and Technology Co., Ltd., Jiangsu Huifeng
Agrochemical Co., Ltd., etc. These enterprises were among the top 100 pesticide
manufacturers in China. Higher raw material cost coupled with subdued demand
led to severe gross margin pressure for the agrochemical companies.
Gross margins came under pressure starting Q2FY17 (+/-: Increase/Decrease)

Inc/(Dec) in GM (bps) Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19
Bayer 134 -215 -695 91 -339 -200 576 417 746 170
DAGRI 392 248 658 666 -126 -139 -134 -511 -240 -88
INST -456 -668 -212 -1,115 427 296 190 394 159 449
PI 429 503 326 416 280 -151 -95 -136 -409 -513
Rallis -163 -720 236 762 49 413 -736 133 -688 -97
SHCR 385 276 103 -251 -358 -107 -610 -123 -116 -452
UPLL 318 171 -74 -25 135 264 34 90 -25 -14
Source: PL
There are more than 2000 pesticides manufacturers in China. As of mid-July 2018,
856 pesticide enterprises across the country had obtained pollutant discharge
permits. It is expected that enterprises without pollutant discharge permit will suffer
from suspension or stoppage in the future.
China’s: Blue sky focus cuts output, improves terms of trade- As per 13th 5-
yr plan adopted by the Chinese government, China plans to reduce pesticide and
fertilizer consumption in the agricultural products and achieve zero-growth in its
use. They are also addressing issues of excess residues of pesticides & livestock
medicines. With the new plan, big consolidation is expected in the industry which
may reduce the total manufacturers by 30% and increase the market share of the
top 20 players. Production of eco-friendly and highly efficient products is expected
to take dominant place.
Massive short supply of raw materials led to hoarding and speculation which led to
further spike in price of raw materials. With the shortages prevailing over the past
year or so, credit terms have by and large disappeared. Buyers are buying on cash
basis or even have to paying advance in order to secure supplies.
Raw Material prices have more than doubled in the last 2 years
Raw Material (Rs/Kg) Q4FY16 Q1FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19
Insecticide
IMIDACLOPRID TECH. 1,050 1,700 2,200 2,200 1,900 2,100 2,050
ACETAMIPRID TECH. 1,000 1,800 2,000 2,350 2,100 2,100 2,100
CHLOROPHORIPHOS TECH. (on 100% basis) 300 400 550 530 585 600 530
Bifenthrin 2,000 2,900 3100-4000 5,000 NA
Herbicide
2,4-D AMINE SALT 58% SL 122 114 145 157 162 180 160
METRIBUZIN TECH 1,800 800 1,300 1,300 1,500 2,000 2,150
ATRAZINE TECH 225 220 240 270 320 325 290
Source: PL
January 8, 2019 12
Agro Chemicals
Calibrated capacity expansion: India can emerge as a global procurement base

for the agrochemical industry worldwide in the medium to long term. The companies
are hesitant to incur high capex in the near term fearing the return of Chinese
suppliers after complying with the pollution control norms in the international
markets in the next 18-24 months. Hence we are currently seeing investments
relating to small ticket expansions and debottlenecking of capacities. Technology
is not a bottleneck for the large domestic players. Currently the focus of domestic
manufacturers is into molecules whose raw material dependency on China is
miniscule like Chlorpyrifos, Fipronil, Cypermethrin, Deltamethrin, Synthetic
Pyrethroids, etc. Enquiries are fast turning into actual transaction aiding topline
growth and higher utilization for technical manufacturers. Large innovator
customers are also asking for long term supply commitments from manufacturers.
~70-80% of large clients are looking to enter into long term contracts. We expect
calibrated but recurring capacity expansion by the Indian agrochemical companies,
unless there is clarity about the supply issues from China. Utilization of the new
capacities may be fast as all the supplies are being taken up manufacturers
currently. High prices coupled with rapid utilization of capacities will aid sharp
growth for the agrochemical companies.
India's capability to manufacture multiple chemistries

India has capability to manufacture Molecule Manufacturing company
multiple chemistries Profenofos
Chlorpyriphos Gharda, UPL, Rallis, Excel, Coromandel,
Sudarshan, GSP, Nagarjuna, HIL, Spectrum, Hyd
Monocrotophos chem, Meghmani
Acephate
Lambda Cyhalothrin
Bifenthrin
Alpha-Cypermethrin Gharda, UPL, Tagros, Bayer, IIL, Hemani,
Cypermethrin Heranba, Meghmani, HPM, Best Agro
Fenvalerate
Allethrins
Imidachloprid
Thiomethoxan Bayer, IIL, UPL, Bharat, Nichino, GSP
Acetamiprid
2,4-D Atul, Meghmani, Others
Glyphosate
Excel, IIL, Coromandel, Meghmani
Paraquat
Bispyribac
Excel, IIL, Coromandel, Meghmani
Pretilachlor
Sulfosulfuron
Clodinafop UPL, IIL, Best Agro, Atul, Bharat, Nichino, Rallis
Metrebuzin
Pendimethalin
Imazethapir UPL, Rallis, GSP, Atul
Pyrazosulfuron
Propineb
UPL, Indofil, Coromandel, HIL, HPM
Mancozeb
Hexaconazole
Rallis, GIL, Astec, Meghmani, IIL, Indofil
Tricyclazole
Thiophanate IIL, Coromandel, Astec
Source: Industry, PL Research
January 8, 2019 13
Agro Chemicals
Start of the next upcycle
Levers are in place for the start of the next upcycle in the agrochemical industry.
The key demand drivers for agrochemical consumption like better monsoon,
higher pest infestation, improving farmers’ income, etc are indicating towards
uptrend in the agrochemical demand.
Timing and spatial distribution of monsoon has been better
The quantum of rainfall (@ 7% below normal), timing (June/July/August at -10%/-

5%/-6% below LPA) and spatial distribution (monsoon in 6 metrological sub-
divisions in deficit v/s 10 last year) has been better this year vis-à-vis last year. In
FY18, June and July were month of better than normal rainfall but there was wide
deviation from LPA in August and September leading to prolonged dry spell and
loss of sprays in many areas. In FY19E we have seen 1 or 2 phases of dry spell in
between periods of rainfall. Well spread rainfall across all the entire monsoon period
resulted in minimal re-sowing & crop burning, events which occurs as a result of
continuous dry spell and heat waves.
Well distributed rainfall across the entire Kharif cycle aided crop growth across
sowing, vegetative and flowering stage thereby reaping better crop yields for
farmers.
Timing and Spatial distribution of rainfall in FY19 marginally better than FY18
FY18 (In mm) FY19E (In mm)
Stages of a cropping
Month Deviation from Deviation from cycle Agrochemical Sprays
Actual Actual
LPA LPA
Jun-18 148 0.0% 125.9 -10.1% Sowing Stage Herbicide sprays were marginally better
YoY; some areas saw lower pre-
Sowing Stage, emergence herbicide sales; Granule
Jul-18 276 7.0% 305.7 -5.1% insecticides sales started on a positive
Vegetative Stage
note.
Aug-18 260 -13.6% 173.4 -6.4% Vegetative Stage Insecticides and Fungicide sales were
higher YoY is August. Dry spell in
Sep-18 140 -16.7% 199 -17.2% Flowering Stage September led to resulted in lower than
expected sales growth.
Source: IMD, PL Few rounds of sprays were lost due to lower rainfall and dry spells
January 8, 2019 14
Agro Chemicals
Rainfall has been satisfactory in North, Central and South India vis-à-vis last year....
For the period from 1st June to
Meteorological Sub-
30 Sep 30 Sep 30 Sep 30 Sep 30 Sep 30 Sep Key Findings
Divisions
2013 2014 2015 2016 2017 2018
North East
Arunachal Pradesh -34 2 2 -4 -11 -32 Overall North-east (NE) monsoon
deficiency of 24% impact the rainfall
Assam & Meghalaya -35 -6 -1 -30 -10 -26
equation for entire India. Except NE, all
Naga, Mani, Mizo and Tripura -34 -17 -17 -17 25 -16 India rainfall is at 96% of LPA
East
Gangetic West Bengal 0 -14 10 0 -3 -20
"East- Inferior than FY18 but the region
Odisha -3 9 -10 -10 -9 12 contributes mere 10% of India's
Jharkhand -23 -15 -14 0 -10 -28 agrochemical consumption.
Key Crops: Rice, Maize, Coarse Cereals"
Bihar -30 -17 -27 -3 -9 -25
North
East UP -4 -42 -47 -12 -28 -16
West UP -1 -56 -43 -17 -31 1
Uttarakhand 12 -27 -28 -10 -2 -3 "North- Better than last year. 23% below
NCR -22 -57 -36 -27 -26 -9 LPA rainfall in West Rajasthan comes after
3 consecutive years of excess rainfall.
Punjab -2 -50 -31 -28 -22 7 Key Crops: Rice, Sugarcane, Millets,
Himachal Pradesh -6 -37 -23 -24 -13 11 Pulses, Coarse Cereals"
West Rajasthan 29 0 46 20 39 -23
East Rajasthan 26 0 -10 32 -8 3
Central India
West MP 46 -12 5 19 -16 -4 "Central- Substantially better than last year
East MP 26 -29 -29 19 -24 -13 Key Crops: Oilseeds, Pulses, Rice, Coarse
Chattisgarh 2 -4 -10 2 -10 -4 Cereals"
Western India
Gujarat 31 -14 -27 -24 9 -24
Saurashtra 64 -4 6 -13 35 -34
Konkan & Goa 20 -6 -31 22 10 -1 "West- Significantly lower than last year
except Vidarbha region
Marathwada 9 -42 -40 21 -6 -22 Key Crops: Cotton, Sugarcane, Pulses"
Vidarbha 42 -14 -11 9 -23 -8
Madhya Maharashtra 21 -6 -33 12 17 -9
South India
Coastal Andhra -10 -23 11 14 14 0 "South- Overall Positive.
Key point to note is that Andhra, Telangana
Telangana 26 -34 -20 19 -13 -2
are equally dependent on North-East and
Rayalaseema 6 -22 -10 -2 27 -37 South West monsoon while Tamil Nadu is
TN 1 -1 -10 -19 31 -8 more dependent on North East monsoon
(October- December).
Coastal Karnataka 17 1 -26 -21 -16 -1 Tamil Nadu Agrochemical Consumption
North Karnataka 6 -5 -30 4 3 -29 break up- Kharif: Rabi- 40:60
AP & Telangana Agrochemical
South Karnataka 25 20 -8 -21 2 4
Consumption break up- Kharif: Rabi-
Kerala 26 6 -26 -34 -9 23 50:50"
Large Excess (+60% or More)

Excess (+20% to +59%)
Normal (+19% to -19%)
Deficient (-20% to -59%)
Large Deficient (-60% to -99%)
Source: IMD, PL
January 8, 2019 15
Agro Chemicals
…higher reservoir water levels in 4 out of 5 regions (end Monsoon)

Reservoir levels were higher
This Year Last Year Avg. of Last 10 Year
compared to both last year and 10-
year average in all regions except 100 92
West at the end of South-West 90 82 82 84
80
monsoon 80 75 72 75 75 72 74 72
66 68 65 68
70
56 55
60
50
40
30
20
10
0
All India Northern Eastern Western Central Southern
Region Region region Region Region
Source: Central Water Commission, PL
Current water levels a worry in west
This Year Last Year Avg. of Last 10 Year
80 73
70 69
70 65
57 59 59
60 53 54 56 56 56 55 54
52
47 48
50
40
40
30
20
10
0
All India Northern Eastern Western Central Southern
Region Region region Region Region
Source: PL
Kharif sowing has been stable despite high base of last year…
Kharif sowing lower across crops Crops FY15 FY16 FY17 FY18 FY19E
except rice and oil-seeds Rice 375 379 382 379 384
Pulses 105 113 147 142 136
Coarse Cereals 178 184 190 187 175
Oilseeds 180 185 190 173 176
Sugarcane 54 50 46 50 52
Jute & Mesta 8 8 8 7 7
Cotton 127 116 103 123 123
January 8, 2019 16
Agro Chemicals
… But Rabi sowing is lower than last year

Delayed winter causing YTD YTD
Crops FY15 FY16 FY17 FY18 YoY
postponement of sowing FY18 FY19
Wheat 306 297 318 304 284 288 1.7%
Rice 27 24 27 32 19 14 -24.8%
Pulses 142 145 161 169 153 144 -6.5%
Coarse Cereals 57 62 58 57 52 43 -17.3%
Oil Seeds 82 80 85 81 76 75 -1.5%
Pest Incidence higher than last year but lower than expectations
Higher incidence of pests and fungal
infection entails frequent sprays of
Climate change especially rainfall and temperature can strongly influence the life
insecticides and fungicides
cycle and fitness of pests in terms of its growth & development, reproduction &
survival, etc. It has been estimated that a 2o C temperature increase, insects might
experience one to five additional life cycles per season.
 Temperature may change gender ratios of some pest species such as thrips
potentially affecting reproduction rates.
 Pests can lower plant defensive systems, making them susceptible to further
attacks.
 Normal monsoon which is well balanced w.r.t. timing and spatial distribution
increases humidity, optimizes the temperature and other environmental
conditions for multiplication of pests & surge in fungal infection. Higher
incidence of pests and fungal infection entails frequent sprays of insecticides
and fungicides.
Since the timing and distribution of rainfall/monsoon has been marginally better
during the Kharif season, the natural environment was ripe for increase in pest
attacks vis-à-vis last year which led to higher demand of agrochemicals. High
Incidence of few prominent pests currently infesting the crops across India
are Fall Armyworm (Maize) in Karnataka; Pink Bollworm, Thrips & Jassids
(Cotton) in Maharashtra, Gujarat, Andhra Pradesh and Telangana; Stem borer
& Leaf holder (Rice) in Chhattisgarh, Andhra Pradesh and Telangana;
Whitefly & Thrips (Cotton) in Rajasthan, Punjab and Haryana; Leaf Minor
(Tomato), Snails (Vegetable), Diamondback moth (cabbage and cauliflower)
in Maharashtra.
We expect pick-up in demand (liquidation) for agrochemicals due to

expectation of high pest incidence and fungal infections. While insecticides
are applied on both preventive and curative basis, fungicides are largely
applied on preventive basis for fungus, which implies that liquidation is also
dependent on infestation expectation rather than only on actual pest
occurrence.
January 8, 2019 17
Agro Chemicals
Channel checks indicate that states like AP & TG, Tamil Nadu, MP, Chhattisgarh, Punjab, UP, etc saw decent
agrochemical consumption growth
Ag-chem Generic:
Kharif: Rabi Irrigated: Rainfed
State Market (~Rs Top players Key Takeaways Specialty
business mix Area
mn) mix
~12% growth in liquidation in Kharif. Pest attack is
similar to last year but due to higher acreages,
Andhra Pradesh & Bayer, Adama, UPL,
37000 overall consumption is high. BPH attack has started 70:30 60:40 50:50
Telangana Syngenta
2 weeks earlier and infestation is much higher than
last year.
19% growth in sales. Innovators have seen growth
of +25%. Cotton (PBW), Maize (Fall Armyworm)
Bayer, Adama, UPL, and Paddy were the key growth drivers.
Tamil Nadu 8500 - 40:60 35:65
Syngenta, Dhanuka Government has increased the direct purchase
centres for procurement of produce. Warehousing
receipts business has also picked up well.
Kerala 1500 - - - - -
Industry has declined by ~8% due to deficit rainfall
Bayer, Adama,
Karnataka 18000 (No rains after July). Yields are expected to come 60:40 70:30 15:85
Dupont, Syngenta
down significantly. Pest Infestation was lower.
~12% decline for Ag-chem industry. UPL, PI,
Sumitomo did well. Pest Infestation was normal on
Bayer, Syngenta, all crops (except Cotton) but draught like situation
Maharashtra 25000 55:45 50:50 25:75
Dupont, UPL, Adama in various pockets led to reduction in rounds of
spray. Frequent govt. intervention led to confusion
among all stakeholders.
Industry growth of 5-7% in Kharif. Herbicide sales
Bayer, PI, UPL, declined while Insecticides & Fungicide segment
Chattisgarh 7000 25:75 75:25 20:80
Syngenta, Adama has done well. Pest infestation was less than last
year but preventive spray by farmers drove growth.
Industry grew by 15% YoY. Herbicide sales grew
UPL, Adama, Bayer, 20%. Preventive spray drove growth for the
Madhya Pradesh 14000 - 70:30 -
PI industry. With normal rainfall, the season has been
good for agriculture in the state.
Pesticide sales was tepid due to sub-par monsoon.
Pest attack infested all kinds of crop. There is hope
Gujarat 10000 UPL, Bayer, Dhanuka for continued reduction in yield loss this year also - 70:30 20:80
(3rd consecutive year) with integrated pest
management.
Industry has declined by ~20% in the Jodhpur
region. Deficit rainfall post June led to lower
UPL, Syngenta, Insecticides and fungicides sale. Herbicide sales
Rajasthan 10000 50:50 50:50 -
Bayer, Rallis was better than last year. There has been crop
damage in Bajra, Moong and Cotton due to deficit
rainfall.
5-6% consumption growth. Lower pest Infestation
Syngenta, Bayer,
Punjab 15000 except in Rice (BPH, Leaf folder). Decent yield loss 40:60 65:35 100:0
UPL, FMC
expected due to rains during harvest time.
Bayer, Syngenta,
Haryana 12000 - - -
Dupont
Agrochemical industry has grown by ~5-7% in UP.
Even though pest attacks were normal, continuous
Dupont, Bayer, PI,
Uttar Pradesh 14000 rains led to lower application of agrochemcials. 80:20 50:50 80:20
UPL, Adama
Central UP saw low rains which resulted in high
Bispyribac Sodium sales.
Dhanuka, Crystal,
Bihar 4500 Insecticides India, 60:40 65:35 80:20
UPL
Jharkhand 1500 50:50 40:60 30:70
Kharif not as good as usual due to continuous rains.
FMC, Syngenta,
WB 9000 Potato prices are very low since the last 2.5 months. - - -
Bayer, UPL
Moderate attack of BPH in West Bengal.
North East 2500 - - - -
PI, Bayer, Dupont,
Orissa 4000 - - -
UPL
INDIA MARKET SIZE 193500
Source: PL
January 8, 2019 18
Agro Chemicals
Pest Infestation will continue to increase owing to global warming
Pest Infestation has increased 7x since 1940 till date. Currently ~13% of the crop
is lost world over owing to pest attacks. Crop losses for critical food grains will
increase substantially as the climate warms as rising temperature increases the
metabolic rate and population growth of insect pests. Mere 2% increase in global
average temperature is expected to result in 213 mn tons of crop loss for just wheat,
maize and rice. Losses are expected to increase 10-25% for each degree of
increase in temperature.
Pest infestation has increased ~7x since 1940

At Present 1940
Crop
Total Pests Serious Pests Total Pests Serious Pests
Rice 240 17 35 10
Wheat 100 19 20 2
Sugarcane 240 43 28 2
Groundnut 100 12 10 4
Mustard 38 12 10 4
Pulses 250 34 35 6
Source: TSM, PL
Increasing number of weeds is becoming resistant
No of weeds (2010) No of weeds (2016) Change
180 177% 200%

160 180%
140 160%
120 140%
120%
100 85% 89%
76% 78% 100%
80 68%
52% 80%
60 60%
40 40%
20 20%
0 0%
ALS Photo AC Case EPSP Synthetic PSI Other MOA
Inhibitors system Inhibitors Inhibitors Auxins Diverters
Inhibitors
Source: SHCR, PL
Record Crop Production ≠ High Farm Income
2018 is the 3rd consecutive year of normal monsoon in India. With largely flattish
sowing, foodgrain production is also expected to grow 0.6% on a high base (record
foodgrain production 141 mn tonnes) of last year. Despite normal monsoon and
healthy crop production, farmer’s income is under severe pressure due to reduced
procurement by procurement agencies and non-remunerative crop prices. In FY18,
the market prices for some of the crops (especially pulses) were hovering below the
cost of production.
January 8, 2019 19
Agro Chemicals
In 22 years, farmers’ nominal income has increased by +9.2x

Taking away the effect of inflation,
real farm income has only doubled in Market Price Real Price
the past 22 years 1,80,000
1,60,000
1,40,000
1,20,000
(Rs bn)
1,00,000
80,000
60,000
40,000
20,000
-
FY94 FY00 FY05 FY12 FY13 FY14 FY15 FY16
Source: NITI Aayog, FICCI, PL
In times of crisis, both Central and State governments are providing

helping hand to farmers
State government initiatives: Amidst rising rural distress, both central and state
governments have provided helping hand to farmers. Most of the measures taken
by the central government have been structural and long term in nature. State
governments have resorted to loan waivers, compensating farmers for
difference between the model rate and MSP (MP government’s Bhavantar
Bhugtan Yojana), providing free power (Telangana) & cost of agri-inputs (Rs
4000/acre twice a year; Rythu Bandhu- Telangana), Life Insurance at minimal
premium (Rythu Bima), etc.
Loan Waivers announced by various States

Amount Year of People
States Ceiling Amount
(Rs Bn) Announcement Benefiting
Telangana 170 FY15 Max Rs 1 lakh/family 35 lakh farmers
Andhra Pradesh 240 FY15 Rs 1.50 lakh/ family 49 lakh families
Chattisgarh 1.3 FY16 2 lakh farmers
Tamil Nadu 53.2 FY17 Farmers who owned land up to 5 acres 12.0 lakh farmers
J&K 100 FY17 KCC loans upto Rs 1 lakh were given 50% waiver in a phased manner 10 lakh farmers
Puducherry 0.22 FY17 Loans availed by the farmers from cooperative institutions 6306 farmers
Uttar Pradesh 364 FY18 Restricted to marginal farmers with outstanding loans of Rs 1 lakh 86 lakh farmers
Maharashtra 305 FY18 Rs 1.50 lakh/ family 31 lakh farmers
Karnataka 82 FY18 Rs 50000/ farmer 22.3 lakh farmers
Punjab 100 FY18 Upto Rs 2 lakh/ farmer 10.2 lakh farmers
Rajasthan 20 FY18 Upto Rs 50000/farmer -
Source: GOI, PL
Central government initiatives: Doubling farmers’ income, securing them, making

them tech savvy, boosting agriculture research & education and building farm-
related infrastructure are some of the major goals on which the government is
working upon for the growth of agriculture sector and farmers’ welfare. From
technology to crop insurance, from easier credit access to modern irrigation
methods, the government intends to implement a comprehensive action plan to
empower farmers throughout the farming cycle. There is a multi-pronged,
integrated approach being ushered in to boost farmer welfare and enhance
agricultural productivity at every stage. Some of the long term measures taken by
the government to make agriculture more lucrative as a profession are
January 8, 2019 20
Agro Chemicals
 Adequate availability of agri- inputs
 Deregulation of marketing of fruits & vegetables
 Increasing area under irrigation in mission mode
 Integrated nutrient management
 Issue of soil health cards
 Crop insurance scheme
 Electronic national agriculture market (E-NAM)
MSP for Kharif crops at one and half times of cost of production: To aid farmer
income growth, the government, has set the MSP for Kharif crops at one and half
times of cost of production. Since there has been implementation issues w.r.t
procurement system by the agencies like FCI, the government is looking at various
options like Market Assurance Scheme, Deficiency procurement scheme, etc to
make sure that the total payoff to farmer is equivalent to MSP. Apart from grain
farmers, the government has also been supporting the dairy farmers (by providing
direct subsidy, export incentive and arresting price erosion due to oversupply of
skimmed milk powder) and Oil Palm plantation farmers (by increasing the import
duty to prevent higher imports as a result of decline in international palm oil price).
Higher MSP will increase purchasing power of farmers leading to increase is
demand of agri-inputs.
Average Kharif crop MSP has increased by ~22% Average Rabi crop MSP has increased by 8.2%
YoY YoY
YoY CAGR YoY CAGR
Crop (Rs' Quintal) FY15 FY16 FY17 FY18 FY19 Crop (Rs' Quintal) FY15 FY16 FY17 FY18 FY19
(%) (%) (%) (%)
Paddy Common 1,360 1,410 1,470 1,550 1,750 12.9% 6.5% Wheat 1,450 1,525 1,625 1,735 1,840 6.1% 6.1%
Jowar-Hybrid 1,530 1,570 1,625 1,700 2,430 42.9% 12.3% Barley 1,150 1,225 1,325 1,410 1,440 2.1% 5.8%
Jowar-Maldandi 1,550 1,590 1,650 1,725 2,450 42.0% 12.1% Gram 3,175 3,425 4,000 4,400 4,620 5.0% 9.8%
Bajra 1,250 1,275 1,330 1,425 1,950 36.8% 11.8% Lentil (Masur) 3,075 3,325 3,950 4,250 4,475 5.3% 9.8%
Ragi 1,550 1,650 1,725 1,900 2,897 52.5% 16.9% Rapeseed/ 3,100 3,350 3,700 4,000 4,200 5.0% 7.9%
Maize 1,310 1,325 1,365 1,425 1,700 19.3% 6.7% Safflower 3,050 3,300 3,700 4,100 4,945 20.6% 12.8%
Tur (Arhar) 4,350 4,625 5,050 5,450 5,675 4.1% 6.9% Average 2,500 2,692 3,050 3,316 3,587 8.2% 9.4%
Moong 4,600 4,850 5,225 5,575 6,975 25.1% 11.0% Source: Ministry of Agriculture, PL
Urad 4,350 4,625 5,000 5,400 5,600 3.7% 6.5%
Groundnut 4,000 4,030 4,220 4,450 4,890 9.9% 5.2%
Sunflower Seed 3,750 3,800 3,950 4,100 5,388 31.4% 9.5%
Soyabean Yellow 2,560 2,600 2,775 3,050 3,399 11.4% 7.3%
Sesamum 4,600 4,700 5,000 5,300 6,249 17.9% 8.0%
Nigerseed 3,600 3,650 3,825 4,050 5,877 45.1% 13.0%
Long Staple Cotton 4,050 4,100 4,160 4,320 5,450 26.2% 7.7%
Average 2,961 3,053 3,225 3,428 4,179 21.9% 9.0%
January 8, 2019 21
Agro Chemicals
Financials
Margins would be under pressure due to rupee depreciation: The sharp

depreciation of rupee is expected to put pressure on the margins of the
agrochemical companies. Over the last 9-12 months the industry has already been
struggling to pass on the impact of higher raw material cost, the run-up of US dollar
vis-à-vis most currencies including India Rupee is expected to add to the woes of
the domestic players. Rupee has depreciated by 7.2% and 13.4% respectively
since July’18 and April’18 till date.
While most of the players had stocked up seasonal requirement of raw materials at
the start of the Kharif season, the outstanding payables corresponding to the Kharif
raw material purchases will have more rupee outflow. The effect of rupee
depreciation by way of higher raw material cost will largely be felt from the Rabi
season and the industry has started to pass on the impact of rupee depreciation by
way of price hikes in select molecules. We anticipate some pressure on the margins
as industry is expected to absorb partial cost because demand is not resilient
enough to absorb sharp price increase. Farmers have also seen rise in other inputs
like diesel cost, labour charges and fertilizer etc.
Ceteris Paribus, 1% impact of depreciation in India Rupee vis-à-vis US Dollar will

have the following impact on the profitability of the agrochemical industries:
INST is most vulnerable to rupee depreciation while UPLL is the biggest beneficiary
Particulars BYRCS DAGRI INST PI RALI SHCR UPLL
Inc/(Dec) in profitability with 1% depreciation of INR -1.6% -0.8% -1.8% 1.9% -0.1% 1.4% 2.0%
Source: PL Research
January 8, 2019 22
Agro Chemicals
3 Yr CAGR Rev/PAT- 8.3%/18.5% 3 Yr CAGR Rev/PAT- 9.0%/9.3%

BYRCS FY17 FY18 FY19E FY20E FY21E DAGRI FY17 FY18 FY19E FY20E FY21E
Revenue (Rs mn) 28,028 27,099 28,467 31,030 34,443 Revenue (Rs mn) 8,833 9,626 10,293 11,425 12,453
EBITDA Margin 14.8% 15.1% 16.8% 17.8% 18.7% EBITDA Margin 19.2% 17.2% 15.8% 17.3% 17.9%
APAT (Rs mn) 2,910 2,671 3,102 3,700 4,437 APAT (Rs mn) 1,219 1,262 1,212 1,467 1,649
EPS (Rs) 82.2 77.8 90.3 107.8 129.2 EPS (Rs) 24.8 25.7 25.5 30.8 34.7
P/E (x) 51.8 54.8 47.2 39.5 33.0 P/E (x) 16.8 16.3 16.4 13.6 12.1
EV/EBITDA (x) 34.3 34.7 29.9 25.3 21.1 EV/EBITDA (x) 12.0 11.8 11.8 9.4 7.9
Source: Company, PL Source: Company, PL
3 Yr CAGR Rev/PAT- 10.2%/19.2% 3 Yr CAGR Rev/PAT- 18.6%/14.7%

INST FY17 FY18 FY19E FY20E FY21E PI FY17 FY18 FY19E FY20E FY21E
Revenue (Rs mn) 9,942 10,733 11,786 13,044 14,349 Revenue (Rs mn) 22,765 22,771 27,433 32,810 37,984
APAT (Rs mn) 594 840 1,061 1,223 1,424 APAT (Rs mn) 4,574 3,665 3,774 4,575 5,538
EPS (Rs) 28.8 40.6 51.3 59.2 68.9 EPS (Rs) 33.2 26.6 27.4 33.2 40.2
P/E (x) 19.9 14.1 11.1 9.7 8.3 P/E (x) 26.0 32.5 31.6 26.1 21.5
3 Yr CAGR Rev/PAT- 14.7%/12.9% 3 Yr CAGR Rev/PAT- 9%/12%

SHCR FY17 FY18 FY19E FY20E FY21E UPLL (w/o Arysta) FY17 FY18 FY19E FY20E FY21E
Revenue (Rs mn) 13,992 17,134 19,627 22,679 25,835 Revenue (Rs mn) 1,63,118 1,73,780 1,91,059 2,08,409 2,26,098
APAT (Rs mn) 1,903 1,908 1,943 2,340 2,679 APAT (Rs mn) 18,636 22,050 24,590 27,533 30,962
EPS (Rs) 21.1 21.1 21.5 25.9 29.7 EPS (Rs) 36.8 43.2 48.2 54.0 60.7
P/E (x) 14.4 14.3 14.1 11.7 10.2 P/E (x) 20.8 17.7 15.8 14.1 12.6
3 Yr CAGR Rev/PAT- 11.3%/16.0%

RALI FY17 FY18 FY19E FY20E FY21E
Revenue (Rs mn) 16,635 17,909 20,212 22,467 24,713
EBITDA Margin 15.8% 14.8% 14.7% 16.0% 16.3%
APAT (Rs mn) 1,866 1,676 1,827 2,261 2,616
EPS (Rs) 9.6 8.6 9.4 11.6 13.5
P/E (x) 17.7 19.7 18.1 14.6 12.7
EV/EBITDA (x) 11.8 12.1 10.5 8.5 7.2
Source: Company, PL
January 8, 2019 23
Agro Chemicals
BYRCS - Quality comes at a price
BYRCS is a compelling play in the Indian Crop protection space given 1) broad
based product portfolio (Insecticides/ Fungicides/ Herbicides are 47%, 27% and
18% of revenues) 2) 14% market share (86% domestic sales) 3) aggressive new
launch pipeline (50 new products by 2022) 4) most extensive and professionally
planned distribution network and 5) Rs1.2bn synergy benefits from Monsanto
Merger. we estimate that MCHM merger will be EPS accretive by 30% for BYRCS
shareholders (7% dilutive for MCHM shareholders). We estimate 18.5% PAT CAGR
over FY18-21 and expect premium valuations to sustain given strong parentage
and growth visibility. Initiate coverage with ACCUMULATE and a target price of Rs
4517 (35x FY21E EPS).
DAGRI - All negatives priced in
Dhanuka Agritech’s asset light business model enables it to concentrate on building

superior product portfolio, setting up extensive distribution network & creating
brands (branded products- ~65% of sales). Its focus on high growth categories of
herbicides (32% of sales) and fungicides (15%) augurs well as rising labour cost
and Govt’s emphasis on increasing the production of horticulture crops are driving
superior demand for these segments. FY20E holds a promising outlook for DAGRI
as benefit of new launches (15 products in FY17 & FY18 cumulatively), price hikes
and increasing penetration is expected to drive growth. We estimate 9.3% PAT
CAGR over FY18-21. We initiate coverage on DAGRI with a BUY rating for a target
price of Rs624 based on 18x FY21E earnings.
INST - Growth to bypass the impact of molecule ban
Insecticides India, an integrated agrochemical manufacturer is in the midst of a

transition period from a me-too agrochemical manufacturer to a research-driven
integrated player with focus on creating brands (+107 branded and +15 technical
products). INST’s revenue from new launches (10 in FY19E and pipeline of 35
products) is expected to neutralize the expected revenue loss from FY22E due to
ban of DDVP and Phorate. Backward integration for key inputs will aid in securing
supplies for its Maharatna range of products apart from increasing the sale of
technicals. We estimate 19.2% PAT CAGR over FY18-21. We initiate coverage on
the stock with a BUY recommendation for a target price of Rs 896 based on 13x
FY21E earnings.
PI - Growth all set to make a comeback
PI Industries is all set to make a comeback (revenue CAGR of 18.6% between

FY18-21E) driven by both domestic (~39% of revenues) and CSM business (61%
of revenues). Domestic business is expected to get a boost with the launch of 2
potential-blockbuster products i.e. Pyroxasulfone and PB rope L.
Commercialization of new molecules, production ramp up led by debottlenecking of
capacity and commencement of production at its new plant is expected to aid PI in
clocking +20% growth in CSM business in FY20E. we estimate PAT CAGR of
14.7% over FY18-21. We initiate coverage with ACCUMULATE rating and target
price of Rs 924 (23x FY21E earnings).
January 8, 2019 24
Agro Chemicals
SHCR - Risk of structural grind down in gross margin…
Sharda Cropchem’s (SHCR) USP lies in identifying generic molecules, preparing

dossiers and garnering registrations which enables it to broad base its offering
across wide range of crops and product segments. Its highest dependency on
highly profitable but toughest agrochemical market i.e. Europe speaks volume
about its ability to anticipate potential issues and comply with regulatory
requirements proficiently to get registrations. With deep penetration, good product
portfolio and excellent brand recall being established in Europe, it is now eyeing
increased presence in NAFTA & LatAM region (at the risk of declining the blended
margins). With increasing application of generic molecules globally coupled with 26
molecules going off-patent between 2017-2022, SHCR’s fluid and dynamic
business model places it in a sweet spot of significantly scaling up the operations
over the next decade. We initiate coverage on the stock with a Buy rating for a
target price of Rs 444 based on 15x FY21E earnings.
UPLL - Behemoth in the making
UPLL, after successfully transforming itself from a domestic phosphorus based

chemicals company to an end to end global crop solutions provider, is on the verge
of becoming an agrochemical behemoth with the acquisition of Arysta Lifesciences
(for US$ 4.2 bn). Arysta’s overall set up (product portfolio, geographical presence,
infrastructure and capabilities) compliments UPLL in all aspects, hence we estimate
US$ 160 mn worth of synergy benefits by FY21E. Sizeable presence across major
geographies globally makes UPLL a global proxy on the generic agrochemical
companies. UPL is well placed to capture significant share of US$ 3.7 bn off-patent
products between CY15-CY17, given its cost competitive manufacturing
capabilities. Despite being amongst the largest companies, size is unlikely to hinder
growth for UPLL over the next few years. We estimate 15.9% (UPLL Ex-Arysta) &
34.7% (UPLL + Arysta) PAT CAGR over FY18-21. We initiate coverage on the stock
with a BUY rating and a target price of Rs 975 (8.0x FY21E EV/EBITDA, including
Arysta).
RALI - International business and price hikes driving growth
Rallis’s strategy of de-risking its pesticide business had resulted in stagnating

portfolio in the domestic business leading to loss of market share. Its subsequent
efforts on improving the operational performance despite macro headwinds both in
the domestic and international market was driven by price hikes, higher demand
from LatAM & European countries and traction towards herbicides portfolio. Growth
in international business is likely to continue with commercialisation of new
registrations. On the domestic side we expect margin pressure to persist due to the
impact of rupee depreciation, heightened competition and soft agro-commodity
prices. We roll over to FY21 numbers and change our rating to Buy (Previous-
Accumulate) with revised target price of Rs 242 (Previous- 233).
January 8, 2019 25
Agro Chemicals
Global Agrochemical/ Agriculture Industry- Story in charts
Chemical crop protection usage flat for 3 years Asia and LatAM are the largest market (US$ bn)
Crop protection chemical usage Non-crop chemicals usage RoW

2
80 Europe
70
10 Asia
7 20
60 6 6 7 7
6 6
50
(US$ bn)
6
40
South
30 58 61 56 55 55 America
51 54
20 46 15 Africa
5
10 North
- America
CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 10
Source: Agropages, UPL, PL Source: PL
Share of Post-patent products going up Segment-wise global crop protection mix
Patent Proprietary off-patent Post patent

Insecticides
100% 20%
30% 37%
80%
52% 52% 59% 58% 61% 66%
60% Herbicides
35% 54%
33%
40% 25% 25% 18% 21% Fungicides
20% 17%
20% 26%
35% 30% 24% 23% 23% 21% 20% 18%
0%
CY00 CY05 CY10 CY11 CY13 CY14 CY15 CY16
Source: PL Source: PL
Global consumption and trade by crop

Feed Crops Food Crops
Corn Soybean Wheat Rice
EU, China, India, Russia, China, India. Indonesia,
Major producer US, China, EU, Brazil US, Brazil, Argentina
US Bangladesh
CIS, US, EU, Canada,
Major exporter US, Argentina, Brazil US, Brazil, Argentina India, Thailand, Vietnam
Australia
Japan, Mexico, South East North Africa, Middle East, Middle East, Philippines,
Major importer China, EU
Asia, South Korea Southeast Asia Nigeria, China
Source: Industry, PL
January 8, 2019 26
Agro Chemicals
Wheat and Corn prices have been on uptrend in the last 12 months
Wheat Brazil Soya US Corn US Soya Cotton
Month\Crop
Price YoY(%) Price YoY(%) Price YoY(%) Price YoY(%) Price YoY(%)
Nov-18 5.0 31.4% 385.0 -0.5% 8.4 30.5% 336.0 -11.1% 0.8 2.8%
Oct-18 5.0 44.5% 419.0 10.2% 8.4 30.5% 318.0 -15.2% 0.8 12.4%
Sep-18 5.1 36.3% 392.0 -0.8% 7.3 30.4% 314.0 -16.7% 0.8 11.1%
Aug-18 5.5 54.9% 383.5 5.6% 6.9 32.8% 317.0 -15.5% 0.8 15.2%
Jul-18 5.9 37.9% 406.9 13.4% 6.3 30.5% 350.0 -9.8% 0.9 28.1%
Jun-18 5.2 5.1% 402.5 8.9% 7.1 21.2% 339.0 -6.9% 0.9 13.4%
May-18 5.4 35.0% 413.7 14.8% 6.9 7.3% 398.0 12.7% 0.9 21.0%
Apr-18 5.2 32.1% 397.4 0.8% 7.0 1.0% 414.0 14.7% 0.8 5.5%
Mar-18 4.6 21.5% 391.0 -3.6% 7.3 6.2% 400.0 11.1% 0.8 5.3%
Feb-18 5.1 24.8% 381.3 -4.1% 7.2 0.0% 407.0 2.3% 0.8 8.4%
Jan-18 4.6 23.8% 389.2 -8.0% 6.8 -4.9% 382.0 -2.8% 0.8 3.1%
Dec-17 4.1 16.5% 389.0 -4.7% 6.4 0.3% 366.0 -6.4% 0.8 11.3%
Source: PL
Crop prices have started to inch up in the last 3 quarters

Wheat Brazil Soya US Corn US Soya Cotton
Quarter\Crop
Price YoY(%) Price YoY(%) Price YoY(%) Price YoY(%) Price YoY(%)
Q2FY19 5.1 36.3% 392.0 1.3% 7.3 30.4% 314.0 -16.7% 0.8 11.1%
Q1FY19 5.2 5.1% 406.9 12.0% 7.1 21.2% 339.0 -6.9% 0.9 13.4%
Q4FY18 4.6 21.5% 413.7 14.8% 7.3 6.2% 400.0 11.1% 0.8 5.3%
Q3FY18 4.1 16.5% 381.3 -4.1% 6.4 0.3% 366.0 -6.4% 0.8 11.3%
Q2FY18 3.8 11.6% 386.8 1.1% 5.6 0.0% 377.0 -2.6% 0.7 1.2%
Q1FY18 4.9 29.6% 363.3 -16.1% 5.9 -21.5% 364.0 -22.2% 0.8 19.9%
Q4FY17 3.8 -16.3% 360.5 4.6% 6.9 -13.6% 360.0 3.4% 0.8 32.3%
Q3FY17 3.5 -20.7% 397.4 14.2% 6.4 -19.6% 391.0 11.7% 0.7 11.6%
Q2FY17 3.4 -28.1% 382.6 4.2% 5.6 -30.8% 387.0 5.4% 0.7 14.8%
Q1FY17 3.8 -38.1% 432.8 14.8% 7.5 -16.0% 468.0 11.2% 0.6 -6.9%
Q4FY16 4.5 -20.4% 344.8 -16.6% 8.0 -20.3% 348.0 -10.3% 0.6 -7.4%
Q3FY16 4.4 -29.0% 348.0 -33.6% 8.0 -21.7% 350.0 -14.4% 0.6 5.0%
Source: PL
January 8, 2019 27
Agro Chemicals
COMPANIES
January 8, 2019 28
Bayer Cropscience (BYRCS IN)
Rating: ACCUMULATE | CMP: Rs4,261 | TP: Rs4,517
January 8, 2019 Quality comes at a price

Company Report BYRCS is a compelling play in the Indian Crop protection space given 1)
broad based product portfolio (Insecticides/ Fungicides/ Herbicides are 47%,
27% and 18% of revenues) 2) 14% market share (86% domestic sales) 3)
aggressive new launch pipeline (50 new products by 2022) 4) most extensive
and professionally planned distribution network and 5) Rs1.2bn synergy
benefits from Monsanto Merger. we estimate that MCHM merger will be EPS
Key Financials accretive by 30% for BYRCS shareholders (7% dilutive for MCHM
FY18 FY19E FY20E FY21E shareholders). We estimate 18.5% PAT CAGR over FY18-21 and expect
Sales (Rs. m) 27,099 28,467 31,030 34,443 premium valuations to sustain given strong parentage and growth visibility.
EBITDA (Rs. m) 4,094 4,783 5,523 6,441
Initiate coverage with ACCUMULATE and a target price of Rs 4517 (35x FY21E
Margin (%) 15.1 16.8 17.8 18.7
PAT (Rs. m) 2,671 3,102 3,700 4,437 EPS).
EPS (Rs.) 77.8 90.3 107.8 129.2
Gr. (%) (5.4) 16.1 19.3 19.9 New launches to drive growth: BYRCS is on-track to launch +50 new products
DPS (Rs.) 17.5 18.1 21.6 25.8 (20 in Crop Protection and 30 in Seeds) and 100 label extensions between 2018-
Yield (%) 0.4 0.4 0.5 0.6 2022 which will drive growth over the next few years. New launches will further
RoE (%) 13.9 16.4 17.2 18.0
propel the Innovation Turnover Rate (ITR), which increased by 600 bps in FY18 to
RoCE (%) 19.6 23.4 24.0 24.6
EV/Sales (x) 5.2 5.0 4.5 3.9 18% (ITR Target is +20%). BYRCS plans to launch 7 new products in CY2019
EV/EBITDA (x) 34.7 29.9 25.3 21.1 which is expected to contribute upto Rs6 bn in peak sales.
PE (x) 54.8 47.2 39.5 33.0
P/BV (x) 8.2 7.3 6.4 5.6 Bayer’s parentage gives huge competitive advantage to BYRCS: Bayer AG’s
parentage (68.7% stake), apart from giving it a good brand recall, provides BYRCS
access to world class product portfolio, global sourcing advantage, greener
chemistries, superior innovative capabilities and resources to invest in marketing
and distribution. Bayer AG owns 48100 valid patent applications and patents
worldwide relating to more than 4700 protected inventions.
Key Data BAYE.BO | BYRCS IN
52-W High / Low Rs.4,880 / Rs.3,635 Marketing & distribution leadership: BYRCS’s most extensive distribution
Sensex / Nifty 35,850 / 10,772
Market Cap Rs.146bn/ $ 2,096m
network is result of continuous investment in strengthening the network for a very
Shares Outstanding 34m long time and a testimony to the fact that they recognize supply chain as a very
3M Avg. Daily Value Rs.60.67m important pillar. The company follows a very targeted & professionally planned
approach in improving the quality of penetration every year by increasing the depth
of its reach. While its 3500 field officers are spread across India, key markets for
BYRCS is Maharashtra, Madhya Pradesh, Andhra Pradesh, Tamil Nadu,
Chhattisgarh, Jharkhand, Gujarat, etc.
Shareholding Pattern (%)
Merger with Monsanto to create Rs1.2bn synergy benefits: Bayer’s merger with
Promoter’s 50.50
Foreign 4.05 Monsanto has created excellent portfolio for the merged entity with leadership in
Domestic Institution 18.13 seed, plant traits and chemical & biological CP. There are cost saving opportunities
Public & Others 27.32 in procurement and logistics efficiencies, scale economies, commercial functions
Promoter Pledge (Rs bn) -
and administrative costs. The management expects synergy savings of Rs 1.2 bn
on EBITDA by 2022 which we expect will mostly be back-ended.
Outlook & Valuation: Our channel checks indicate farmers’ inclination towards
BYRCS products due to its efficacy, superior brand recall and vast distribution
Stock Performance (%) reach. Bayer is the only brand which comes in top of the mind recall among farmers
1M 6M 12M across all states. BYRCS merger with MCHM is expected to have synergy benefits
Absolute (0.9) (6.8) (7.9) worth Rs 1.2 bn (by 2022) and a more comprehensive product portfolio to cater to
Relative (1.4) (7.3) (12.2) farmer’s needs. For the standalone BYRCS, we expect topline and bottom line
growth (CAGR) of 8.3% and 18.5% respectively between FY18-21E. At CMP, the
Prashant Biyani stock offers limited upside (trading @ 33.0x FY21E earnings) but we expect
prashantbiyani@plindia.com | 91-22-66322260 premium valuations to sustain given healthy return ratios (+22% RoCE), robust
business model, healthy free cash flow generation, MNC pedigree, low float due to
high promoter holding and potential delisting triggers.
January 8, 2019 29
Bayer Cropscience
New launches to drive growth
150 products to be launched between BYRCS is on-track to launch +50 new products between 2018-2022 which will drive
2018-2022
growth for the company over the next few years some of which would be globally
renowned and excellent high technology products. The company plans to launch 7
new insecticides, 6 Herbicides, 4 Fungicides and 3 Seed growth products over the
next 4 years in the crop protection division. In the seed segment, the pipeline
consists of 11 new products in rice, 5 in Cotton, 8 in Millets and 6 in Mustard. Bayer
also plans to have 100 label extensions for its products. New launches will further
propel the Innovation Turnover Rate (ITR), which increased by 600 bps in FY18 to
18%. The target for ITR is +20%.
In FY18, Bayer secured approvals to launch (a) Alion Plus 560 SC (b) Velum 400
SC and (c) Regent Gold 200 SC. FY19 has an interesting line-up with expected
approval/ launch of 7 globally renowned products in Crop Protection which is
expected to contribute upto Rs 6 bn in peak sales for the company.
BYRC has Strong Pipeline of launches for CY2019

Segment Brand Disease
Fungicide seed treatment with superior
Seed growth Evergel Xtend Rhizoctonia, Seclortinum and Fusarium control
cross field crops
Non Selective Herbicide with season long
Alion Plus
protection
Herbicides Wheat Herbicide Focus on resistant Phalaris
Council Activ Broad spectrum rice post emergent herbicide
Oomycetes segment. For potato late blight and
Fungicides Infinito
vegetable blight segments
Velum Prime Nematode segment
Insecticides Old chemistry… for improving presence in chewing
Fenos quick
pest segment. Value for money product
Source: Company, PL
The company has recently got approvals from CIB for label extension of Fluopyram
17.7% + Tebuconazole 17.7% SC on rice; indigenous manufacture of
Flubendiamide 8.33% w/w + Deltamethrin 5.56% w/w SC u/s 9(3); Triafamone 20%
w/w + Ethoxysulfuron 10% WG % w/w SC for formulation import u/s 9(3); import of
Trifloxyztrobin Technical 96% w/w min. u/s 9(3); indigenous manufacture of
Tebuconzole 38.39% w/w SC u/s 9(3); indigenous manufacture of Penflufen
13.28% w/w + Trifloxyztrobin 13.28% FS u/s 9(3), etc.
Product launches- BYRCS aggressive in launches since last year

On track to launch 7 new products in FY13 FY14 FY15 FY16 FY17 FY18
2019 whose peak sales contribution Nativo Lesenta Raxil easy Profiler Luna Experience Sivanto Price
could be ~Rs 6 bn Confidor Luna Laudis Movento OD
Regent Regent Ultra
Solomon Movento Energy
Sivanto Belt expert Simbola
Fame
Emesto Prime
Source: Company, PL
January 8, 2019 30
Bayer Cropscience
BYRCS has 50 new products lined up for coming year

Product Launch Pipeline
Segment New Products Category/Crop Bifurcation
Crop Protection 20 Insecticides- 7 | Herbicides- 6 | Fungicides-4 | Seedgrowth-3 |
Seeds 30 Rice- 11 | Cotton- 5 | Millet-8 | Mustard-6 |
Label Extensions More than 100 ---
Source: Company, PL
Bayer’s parentage gives it a huge competitive advantage
Bayer AG’s parentage (holds 68.7%), apart from giving it a good brand recall,
provides BYRCS access to world class product portfolio, global sourcing
advantage, greener chemistries, superior innovative capabilities and resources to
invest in marketing and distribution. Bayer AG owns 48100 valid patent applications
and patents worldwide relating to more than 4700 protected inventions. Over the
last 12 months, while most of the Indian agrochemical companies have seen
pressure on gross margins, BYRCS has been able to minimise the impact of the
same as it procures the raw materials from the parent (Bayer AG buys initial stage
raw materials and does most of the value addition in-house which contains cost
inflation to a large extent).
BYRCS operates across segments in pesticides and seeds

Application Operating segments Main products and brands
Flint, Fox, Luna, Nativo, Prosaro,
Fungicides Protect from fungal diseases
Serenade, Xpro
BioAct, Confidor, Movento,
Insecticides Harmful insects and their larvae
Sivanto
Adengo, Alion, Basta, Corvus,
Herbicides Chemical to control weeds
Liberty, Atlantis
Seed treatments to protect against CropStar, Gaucho, Poncho,
Seed Growth
fungal infection and pests Sonido
Seeds and traits for cotton, canola,
Arize, Credenz, FiberMax, InVigor,
Seeds rice, soybeans, wheat and
Nunhems, Stoneville
vegetables
Source: Company, PL
Impressive product pipeline with 7 seeds and 2 Crop protection products

Market launch Product group Indication/crop Product/plant trait
2018 Chemical and biological crop protection Insecticide/Seed growth Poncho/VOTiVO 2.0
2019 Seeds Rice Salt and flood tolerance (native trait)
2019 Chemical Crop Protection Insecticide/Seed growth Tetraniliprole
2019 Chemical Crop Protection Fungicide Tiviant
2019 Seeds OilSeed rape/canola Herbicide tolerance
2019 Seeds OilSeed rape/canola New oil profile
2019 Seeds Rice Dual disease tolerance
2019 Seeds Soybeans Triple herbicide tolerance
2020 Seeds OilSeed rape/canola Dual disease tolerance
2020 Seeds OilSeed rape/canola Dual disease tolerance
Source: Company, PL
January 8, 2019 31
Bayer Cropscience
Marketing & distribution leadership in Agrochemicals
Professionally articulated approach Bayer has the most extensive distribution network in India. The company
and continuous investment over multi
recognizes distribution as a very important pillar and has been investing in
years has led to setting up of the
most extensive distribution network strengthening the network for a very long time. BYRCS’s marketing activities are
which is both admired and envied aligned particularly to the local needs of farmers whose satisfaction is individually
upon by peers determined by using standardized questionnaires.
 BYRCS is investing considerably in efficient go to market initiatives, improving

the quality of penetration every year by increasing the depth of its reach.
 The company follows a very targeted & professionally planned approach and
set goals for itself in terms of desired number of outlets to be reached enabling
it to maintain market distribution leadership.
 Bayer with its product offerings, distribution reach and strong network of more
than 3,500 field officers is well geared to support Indian farmers.
 While the company operates on a pan-India basis, Maharashtra, Madhya

Pradesh, Andhra Pradesh, Tamil Nadu, Chattisgarh, Jharkhand, Gujarat, etc
are key markets for Bayer’s crop protection division.
 Bayer has extended the scope and number of demonstrations across multiple
crops (Chilli tomato, etc) and geographies and has commercialized the concept
in the form of “Labhsutra Kits” in some the key geographies.
 In its Food Chain Partnership, Bayer provides farmers with innovative crop
protection products, seeds and services, as well as advice on the optimal use
of products and application technologies. In FY18, the company had 53 food
chain partnership projects across 86000 hectares covering 96000 farmers in
vegetables, fruits and Basmati Rice.
 Some of BYRCS’s marketing initiatives like Labhsutra program, Food Chain

Partnership, etc aids in creating high impact for farmers. Bayer’s Labhsutra
program aims to increase per acre earnings and qualitative yield for
progressive farmers. Through Bayer Labhsutra, a farmer gets 15-20% higher
return versus farmer practise by investing ~5-10% more on Bayer package.
Upto 27% incremental profit by using Bayer Labhsutra

7-18% yield increase with the
application of Bayer Labhsutra
Incremental Yield Incremental Profit
30% 27%
24% 25%
25%
20% 20%
20% 17%
15%
15% 12% 12%
10% 10%
10% 8%
5%
0%
Rice Cotton Apple Tomato Red Chilli Potato
Source: Company, PL
January 8, 2019 32
Bayer Cropscience
BYRCS recognized the significance of distribution at a very early stage and has
been investing heavily in it since then to improve the quality of penetration and
depth of reach. Aligning marketing activities with the satisfaction of farmers has
made BYRCS their preferred choice.
Our channel checks also indicate farmers’ inclination for BYRCS’s product
across states. Bayer is the only brand which came in top of the mind recall
among the channel partners in all of the states as among the top 3 companies
in the respective state. All other companies were missing in one state or the
other. Product efficacy, superior brand recall and vast distribution reach
places Bayer in the enviable position of enjoying farmers’ trust which few
companies enjoy.
Merger with Monsanto India to create synergies
Combination to create an industry Bayer’s merger with Monsanto has created excellent portfolio in all categories for
leader with integrated offering of
the merged entity. While Monsanto is leader seeds & plant traits, Bayer’s strengths
Seeds & Traits, Crop Protection,
Biologics and Digital Farming are in chemical and biological crop protection. With their digital tools and agronomic
insights Bayer can develop solutions to meet the needs of the farming. The
combination will create an industry leader in Crop science with integrated offering
of Seeds & Traits, Crop Protection, Biologics and Digital Farming. The merger will
provide synergistic benefits to the combined entity by way of comprehensive
product portfolio, lower employee cost and rationalization of marketing & distribution
cost, etc. The merged entity is targeting synergy of Rs 1.2 bn on EBITDA by 2022
excluding one-time integration cost of Rs 1.8 bn. The synergy benefits are expected
to be back ended while most of the integration costs are expected to be front ended.
 Cost Synergies:
 Commercial Functions
o Consolidation of the organization and optimization of structures
o economies of scale
o increased automation/standardization in light of higher scale/number

of transactions
 Procurement and logistics efficiencies
o Procurement- bundling, improvement, extension of favorable prices,

terms and conditions
o Consolidation of warehouses
 Administrative Costs
o Office consolidation (to start in 2019) to reduce rental expenses
o Savings in IT cost by moving on to single ERP (ERP cons on a global

level)
o Drive efficiency by revisiting decision of e.g. Lease vs Buy fleet for

customer facing positions
January 8, 2019 33
Bayer Cropscience
We await clarity from the management for more insights on the ways they plan to
achieve the synergistic benefits. Hence we are not factoring in any financial impact
of possible merger in our estimate for BYRCS.
BYRCS-MCHM to merge in the ratio of 2:3
BYRCS board has approved the merger MCHM with itself. 2 shares of BYRCS will
be allotted for every 3 shares of MCHM. The deal values MCHM at ~Rs 45.6 bn or
Rs 2639/share (@ 22.0x TTM earnings). BYRCS holds 1350000 shares in MCHM
which will get cancelled at the time of merger. Hence ~10.6 mn new shares of
BYRCS will be issued to the remaining MCHM shareholders. High cash generating
nature of business even for the merged entity would mean return ratios are
expected to remain at elevated levels even post-merger.
BYRCS MCHM Merger to increase promoter holding by 2.7% to 71.4%

BYRCS standalone MCHM standalone Merged BYRCS
O/s Shares (Mn shares) 34 17
Promoter Holding (Mn shares) 23.6 14.1
Promoter Holding (%) 68.7% 81.8%
BYRCS shareholding in Monsanto (Mn shares) 1.4
Share of BYRCS to be issued to promoter i.e. Bayer AG (Mn shares) 8.5

Share of BYRCS to be issued to public (Mn shares) 2.1
Total shares to be issued (Mn shares) 10.6
Total New shares of BYRCS (Mn shares) 44.9
Promoter Holding (%) 71.4%
Public Shareholding (%) 28.6%
Source: Company, PL
EPS Accretive for Existing BYRCS BYRCS-MCHM merged financials- TTM 1HFY19
shareholders by 30% while EPS (Rs mn) BYRCS MCHM Merged BYRCS
Dilutive for Existing MCHM
Net Sales 27,158 7,296 34,454
shareholders by 7%”
COGS 15,141 3,082 18,223
As a % of Sales 55.8% 42.2% 52.9%
Gross Margins 44.2% 57.8% 47.1%
Employee benefits expense 2,794 535 3,329
Other expenses 4,676 1,504 6,180
Total Expenditure 22,611 5,120 27,731
EBITDA 4,547 2,176 6,723
Margin 16.7% 29.8% 19.5%
Depreciation 343 139 482
Interest 133 14 147
Other Income 301 171 472
PBT 4,372 2,194 6,566
EOI - - -
Tax expense 1,495 182 1,677
RPAT 2,877 2,013 4,890
APAT 2,877 2,013 4,890
O/s Shares (mn) 34.3 17.3 44.9

EPS (Rs) 83.8 116.6 108.8
Source: Company, PL
January 8, 2019 34
Bayer Cropscience
Outlook & Valuation

BYRCS had struggled for growth in the last 2 years due to its inability to launch high
efficacy molecules, which is expected to reverse. BYRCS’s aggressive launch
pipeline (50 new products till 2022) will be its key organic growth driver. The
company is all set to capitalize on the new launches and gain market share by virtue
of its most extensive and professionally planned distribution network.
Inorganic growth will be driven by merger with Monsanto (MCHM) which is 30%
EPS accretive for BYRCS shareholders in our view (7% dilutive for MCHM
shareholders). BYRCS merger with MCHM is expected to have synergy benefits
worth Rs 1.2 bn (by 2022) by way of creation of a comprehensive product portfolio
and cost benefits due to economies of scale, efficiency in procurement, optimisation
of commercial functions, etc. For the standalone BYRCS, we expect topline and
bottomline growth (CAGR) of 8.3% and 18.5% respectively between FY18-21E.
At CMP, the stock offers limited upside (@ 33.0x FY21E earnings) but it is expected
to continue to trade at premium multiples courtesy its healthy return ratios (+22%
RoCE), robust business model, healthy free cash flow generation, MNC pedigree,
low float due to high promoter holding and potential delisting triggers. We initiate
coverage on the stock with ACCUMULATE recommendation with a target price of
Rs 4517 based on 35x FY21E earnings.
Little growth over past 3 years on down trading by farmers

FY16 FY17 FY18
Revenue 27,690 28,028 27,099
YoY -22.8% 1.2% -3.3%
Domestic 21,598 22,429 23,813
Exports 4,707 3,877 2,492
Others 1,385 1,385 1,385
Gross margins 42.8% 41.3% 40.9%
EBITDA 4,346 4,136 4,094
Margin 15.7% 14.8% 15.1%
YoY -46.3% -4.8% -1.0%
PAT 3,151 2,910 2,671
YoY -53.4% -7.6% -8.2%
Source: Company, PL
Domestic revenue shares up 800 bps over FY16-18
Domestic Exports Others
100% 5% 5% 5% 5%
90% 14% 14% 9%
17%
80%
70%
60%
50%
40% 81% 81% 86%
78%
30%
20%
10%
0%
FY15 FY16 FY17 FY18
Source: Company, PL
January 8, 2019 35
Bayer Cropscience
ROE and ROCE to inch up by 480bps and 320bps over FY18-21
RoCE RoE
45.0% 41.5%
40.0%
35.0%
30.0% 35.8%
23.4% 24.0% 24.6%
25.0% 21.2% 19.7% 19.6%
20.0%
15.0% 18.0%
16.3% 16.4% 17.2%
10.0% 14.9% 13.9%
5.0%
0.0%
FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Source: Company, PL
Lower Other Income is also a drag on profitability in FY19E
EPS Cash/share
Rs 3.9 bn
350
Investment in
300 shares of Monsanto
250 Buy back of

Rs 5 bn
200
150
100
185
309
229
114
100
105
260
208
104
178
121
50
89
82
78
-
Source: Company, PL
Working Capital days is expected to have peaked in FY18
Inventory Days Debtor Days

Creditor Days Net Working Cap Days (RHS)
150
250 142 138 160
135 132
140
200 114 38
37 36 34 120
32
88
150 27 100
72 89 83
27 80 76 80
53
100 60
58
40
50 88 100 100 95 92 88
57 20
0 0
FY15 FY16 FY17 FY18 FY19 FY20 FY21
Source: Company, PL
January 8, 2019 36
Bayer Cropscience
Financials
Income Statement (Rs m) Balance Sheet Abstract (Rs m)
Y/e Mar FY18 FY19E FY20E FY21E Y/e Mar FY18 FY19E FY20E FY21E
Net Revenues 27,099 28,467 31,030 34,443 Non-Current Assets
YoY gr. (%) (3.3) 5.1 9.0 11.0
Cost of Goods Sold 16,006 15,942 17,377 19,116 Gross Block 4,156 4,356 4,586 4,836
Gross Profit 11,093 12,526 13,653 15,327 Tangibles 4,063 4,252 4,477 4,691
Margin (%) 40.9 44.0 44.0 44.5 Intangibles 93 104 109 145
Employee Cost 2,639 2,904 3,165 3,444
Other Expenses 4,360 4,839 4,965 5,442 Acc: Dep / Amortization 812 1,152 1,510 1,887
Tangibles 761 1,080 1,415 1,769
EBITDA 4,094 4,783 5,523 6,441 Intangibles 51 72 95 119
YoY gr. (%) (1.0) 16.8 15.5 16.6
Margin (%) 15.1 16.8 17.8 18.7 Net fixed assets 3,344 3,204 3,076 2,949
Tangibles 3,302 3,172 3,061 2,922
Depreciation and Amortization 331 340 358 377 Intangibles 42 32 15 27
EBIT 3,763 4,442 5,166 6,064 Capital Work In Progress 361 430 445 445
Margin (%) 13.9 15.6 16.6 17.6 Goodwill - - - -
Non-Current Investments 174 4,121 4,136 4,157
Net Interest 113 133 110 90 Net Deferred tax assets (104) (104) (104) (104)
Other Income 388 252 386 551 Other Non-Current Assets 708 712 776 861
Profit Before Tax 4,368 4,561 5,441 6,525 Current Assets

Margin (%) 16.1 16.0 17.5 18.9 Investments - 200 800 1,300
Inventories 7,399 7,409 7,821 8,304
Total Tax 1,367 1,460 1,741 2,088 Trade receivables 6,588 6,473 6,801 7,172
Effective tax rate (%) 31.3 32.0 32.0 32.0 Cash & Bank Balance 4,178 3,165 5,910 9,348
Other Current Assets 2,095 1,566 776 -
Profit after tax 3,001 3,102 3,700 4,437 Total Assets 25,348 27,849 31,161 35,224
Minority interest - - - -
Share Profit from Associate - - - - Equity
Equity Share Capital 343 343 343 343
Adjusted PAT 2,671 3,102 3,700 4,437 Other Equity 17,440 19,783 22,579 25,936
YoY gr. (%) (8.2) 16.1 19.3 19.9 Total Networth 17,784 20,126 22,923 26,279
Margin (%) 9.9 10.9 11.9 12.9
Extra Ord. Income / (Exp) 330 - - - Non-Current Liabilities
Long Term borrowings - - - -
Reported PAT 3,001 3,102 3,700 4,437 Provisions 842 854 931 1,033
YoY gr. (%) 3.1 3.4 19.3 19.9 Other non current liabilities - - - -
Margin (%) 11.1 10.9 11.9 12.9
Current Liabilities
Other Comprehensive Income - - - - ST Debt / Current of LT Debt - - - -
Total Comprehensive Income 3,001 3,102 3,700 4,437 Trade payables 2,838 2,808 2,890 3,020
Equity Shares O/s (m) 34 34 34 34 Other current liabilities 3,780 3,957 4,313 4,788
EPS (Rs) 77.8 90.3 107.8 129.2 Total Equity & Liabilities 25,348 27,849 31,161 35,224
Source: Company Data, PL Research Source: Company Data, PL Research
January 8, 2019 37
Bayer Cropscience
Cash Flow (Rs m) Key Financial Metrics

Y/e Mar FY18 FY19E FY20E FY21E Y/e Mar
Year FY18 FY19E FY20E FY21E
PBT 4,368 4,561 5,441 6,525 Per Share(Rs)
Add. Depreciation 331 340 358 377 EPS 77.8 90.3 107.8 129.2
Add. Interest 113 133 110 90 CEPS 87.4 100.3 118.2 140.2
Less Financial Other Income 388 252 386 551 BVPS 518.0 586.2 667.6 765.4
Add. Other (66) (153) (397) (686) FCF 22.6 108.8 112.3 128.7
Op. profit before WC changes 4,746 4,882 5,512 6,306 DPS 17.5 18.1 21.6 25.8
Net Changes-WC (2,248) (147) (542) (594) Return Ratio(%)
Direct tax (1,284) (730) (871) (1,044) RoCE 19.6 23.4 24.0 24.6
Net cash from Op. activities 1,214 4,006 4,099 4,668 ROIC 17.2 19.4 23.7 29.6
Capital expenditures (419) (269) (245) (250) RoE 13.9 16.4 17.2 18.0
Interest / Dividend Income 183 252 386 551 Balance Sheet
Others 619 (4,134) (638) (551) Net Debt : Equity (x) (0.2) (0.2) (0.3) (0.4)
Net Cash from Invt. activities 383 (4,151) (498) (250) Net Working Capital (Days) 150 142 138 132
Issue of share cap. / premium (5,049) - - - Valuation(x)
Debt changes - - - - PER 54.8 47.2 39.5 33.0
Dividend paid (721) (723) (746) (890) P/B 8.2 7.3 6.4 5.6
Interest paid (41) (133) (110) (90) P/CEPS 48.7 42.5 36.1 30.4
Others 2 (12) - - EV/EBITDA 34.7 29.9 25.3 21.1
Net cash from Fin. activities (5,809) (868) (856) (980) EV/Sales 5.2 5.0 4.5 3.9
Net change in cash (4,212) (1,013) 2,745 3,438 Dividend Yield (%) 0.4 0.4 0.5 0.6
Free Cash Flow 777 3,737 3,854 4,418 Source: Company Data, PL Research
Source: Company Data, PL Research
Quarterly Financials (Rs m)

Y/e Mar Q4FY18 Q1FY19 Q2FY19 Q3FY19
Net Revenue 3,002 8,318 11,041 4,557
YoY gr. (%) 39.4 19.2 (10.4) (5.0)
Raw Material Expenses 1,714 3,946 6,638 2,712
Gross Profit 1,288 4,372 4,403 1,846
Margin (%) 42.9 52.6 39.9 40.5
EBITDA (163) 2,298 2,186 27
YoY gr. (%) (172.1) (1,509.8) - -
Margin (%) (5.4) 27.6 19.8 0.6
Depreciation / Depletion 88 87 84 89
EBIT (251) 2,211 2,102 (62)
Margin (%) (8.4) 26.6 19.0 (1.4)
Net Interest 22 23 36 60
Other Income 63 111 98 55
Profit before Tax (210) 2,299 2,164 (67)
Margin (%) (7.0) 27.6 19.6 (1.5)
Total Tax (81) 827 737 (22)
Effective tax rate (%) 38.6 36.0 34.1 33.0
Profit after Tax (129) 1,472 1,427 (45)
Share Profit from Associates - - - -
Adjusted PAT (129) 1,472 1,427 (45)
YoY gr. (%) (64.3) 87.0 (25.1) (141.9)
Margin (%) (4.3) 17.7 12.9 (1.0)
Extra Ord. Income / (Exp) - - - -
Reported PAT (129) 1,472 1,427 (45)
YoY gr. (%) (64.3) 87.0 (25.1) (141.9)
Margin (%) (4.3) 17.7 12.9 (1.0)
Other Comprehensive Income - - - -
Total Comprehensive Income (129) 1,472 1,427 (45)
Avg. Shares O/s (m) 34 34 34 34
EPS (Rs) (3.8) 42.9 41.6 (1.3)
January 8, 2019 38
Dhanuka Agritech (DAGRI IN)
Rating: BUY | CMP: Rs418 | TP: Rs624
January 8, 2019 All negatives priced in

Company Report Dhanuka Agritech’s asset light business model enables it to concentrate on
building superior product portfolio, setting up extensive distribution network
& creating brands (branded products- ~65% of sales). Its focus on high
growth categories of herbicides (32% of sales) and fungicides (15%) augurs
well as rising labour cost and Govt’s emphasis on increasing the production
of horticulture crops are driving superior demand for these segments. FY20E
Key Financials
holds a promising outlook for DAGRI as benefit of new launches (15 products
FY18 FY19E FY20E FY21E
in FY17 & FY18 cumulatively), price hikes and increasing penetration is
Sales (Rs. m) 9,626 10,293 11,425 12,453
EBITDA (Rs. m) 1,661 1,626 1,977 2,229 expected to drive growth. We estimate 9.3% PAT CAGR over FY18-21. We
Margin (%) 17.2 15.8 17.3 17.9 initiate coverage on DAGRI with a BUY rating for a target price of Rs624 based
PAT (Rs. m) 1,262 1,212 1,467 1,649 on 18x FY21E earnings.
EPS (Rs.) 25.7 25.5 30.8 34.7
Gr. (%) 3.5 (0.9) 21.0 12.4
Asset Light business model with focus on marketing and creating brands:
DPS (Rs.) 5.5 6.4 8.0 9.0
Yield (%) 1.3 1.5 1.9 2.2 DAGRI’s strategic focus on formulation manufacturing has resulted in lower capital
RoE (%) 21.8 19.1 21.3 20.7 investments and higher asset turn & return ratios. Resultantly management
RoCE (%) 26.0 23.3 26.5 26.0 bandwidth is concentrated on building superior product portfolio, setting up
EV/Sales (x) 2.0 1.9 1.6 1.4
extensive distribution network & creating product brands (2/3rd of revenue). It has
EV/EBITDA (x) 11.8 11.8 9.4 7.9
PE (x) 16.3 16.4 13.6 12.1 well entrenched distribution with 8000 direct dealers (+1500 Dhanuka Doctors) and
P/BV (x) 3.2 3.1 2.7 2.3 80000 retailers reaching out to more than 85% of India’s districts & 10 mn farmers
in the interiors which will continue to drive growth for DAGRI.
Focus on high growth categories of herbicides and fungicides: Sharp drop in

availability of labour & rising labour costs due to migration to cities, diversion of
labour to rural infrastructure projects & government schemes like MGNREGA and
Key Data DHNP.BO | DAGRI IN Govt’s emphasis on increasing the production of horticulture crops is driving
52-W High / Low Rs.804 / Rs.357
superior growth for herbicides and fungicides. Herbicide consumption share has
Sensex / Nifty 35,850 / 10,772
Market Cap Rs.21bn/ $ 294m increased ~800 bps between FY12-16 (FY16 @ 24%) which augurs well for DAGRI
Shares Outstanding 49m as its portfolio is more tilted towards herbicides (32% of rev) and fungicides (15%).
3M Avg. Daily Value Rs.24.61m
Partner of choice for Innovators: Dhanuka’ s strong and long lasting relationship
with global innovators has led to technical tie-ups 4 American and 6 Japanese
companies for many of their products. In-licensing and specialty molecules
contribute ~2/3rd of revenue for DAGRI. Dhanuka has a track record of consistently
Shareholding Pattern (%) identifying, securing distribution rights, branding and marketing high value-high
Promoter’s 50.50 potential specialty agrochemicals in India which will enable it outperform the
Foreign 4.05 industry growth.
Domestic Institution 18.13
Public & Others 27.32
Promoter Pledge (Rs bn) - Product launches to continue the growth momentum: Dhanuka follows the
strategy of launching 4-5 new products every year including in-licensing and 9(3)
molecules. 9(3) and in-licensing molecules enjoy higher margin, good brand recall
and lesser credit period due to their efficacy. Consistently high Innovation Turnover
Rate (ITR) (20% in FY18, up 200 bps from FY17) is a testimony to Dhanuka’s
Stock Performance (%)
success rate in new launches. DAGRI plans to launch 2 products each under 9(3)
and 9(4) in the current year. 9(3) products would be for grapes (fungicide) and 9(4)
1M 6M 12M
Absolute (2.8) (23.6) (47.2) products would be for Paddy (1 each of herbicide and fungicide).
Relative (3.3) (24.0) (49.7)
Outlook & Valuation: While FY19 will be dragged by loss of Rs 200 mn worth of
institutional business and headwinds from sharp rupee depreciation (13.5%
Prashant Biyani
depreciation between Apr-Sept, 5.3% appreciation post that till date), FY20 holds a
promising outlook. Dhanuka is well placed to capture the upswing in agrochemical
industry driven by rising penetration, new launches and price hikes. The stock has
corrected by more than 55% from its highs in the last 18 months and at 12.1x FY21E
earnings prices in most of the concerns. We initiate coverage on DAGRI with a BUY
rating for a target price of Rs 624 based on 18x FY21E earnings.
January 8, 2019 39
Dhanuka Agritech
Asset Light business model with focus on branding
DAGRI has an asset light business model with no presence in manufacturing of

active ingredients i.e. technical. Technical manufacturing is a capital intensive
business leading to lower asset turns. Strategic focus on formulation manufacturing
resulted in lower capital investments; higher asset turns & return ratios.
 DAGRI has used its management bandwidth on building superior product

portfolio, setting up enviable distribution network & creating product brands.
Branded products account for more than 2/3 rd of revenue. Top 5 molecules
account for ~27% of revenue.
 DAGRI, has over 8,000 direct dealers servicing over 80,000 retailers, reaching
out to more than 85% of India’s districts & 10 mn farmers. Well-entrenched
distribution network penetrating in the interiors has been one of the growth
drivers of DAGRI.
 DAGRI has strong understanding with farmers through Dhanuka Doctors

(+1500 nos), who disseminate information about modern farming techniques.
To keep its dealers a credible source of Agriculture technology, DAGRI has
been at the forefront of continuously upgrading the farm skills of Agri-input
dealers, tying up with Agriculture Universities, etc.
Well entrenched distribution network

FY14 FY15 FY16 FY17 FY18
Distributor 8000 8600 8800 8000 8000
Doctor 1500 1500 1500 1500 1500
Employees 1100 1100 1250 1313 1300
Retailers 75000 80000 80000 80000 80000
Source: Company, PL
DAGRI has industry leading asset turnover ratio

BYRCS and DAGRI have highest
asset turnover ratio of between 6.0- BYRCS DAGRI INST PI
6.5 (FY18); while PI and UPL have
RALI SHCR UPLL
the lowest between 1.5-2.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
-
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Source: Company, PL
January 8, 2019 40
Dhanuka Agritech
RoCE has contracted over the last few years RoE expected to decline 112 bps between FY18-21
8.0 36.0% 34.7%

7.5 7.3
7.5 7.0 34.0%
31.5%
7.0 6.6 32.0% 30.5%
6.2 29.2%
6.5 6.0 30.0%
5.8
6.0 28.0% 26.0% 26.5% 26.0%
5.5 26.0%
4.7 23.3%
5.0 24.0%
4.5 22.0%
4.0 20.0%
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Business is well diversified across North, South and West
North South West East
31.7% 34.0% 33.5% 32.0%
13.2% 13.0% 11.1% 11.0%
29.7% 29.0% 29.9% 32.0%
25.3% 26.0% 25.5% 26.0%
FY15 FY16 FY17 FY18
Source: Company, PL
Partner of choice for Innovators
Dhanuka’s strong and long lasting relationship with global innovators has led to
technical tie-ups 4 American and 6 Japanese companies for many of their products.
Dhanuka has a track record of consistently identifying, securing distribution rights,
branding and marketing high value-high potential specialty agrochemicals in India.
In-licensing and specialty molecules contribute ~2/3rd of revenue for DAGRI.
January 8, 2019 41
Dhanuka Agritech
Strong products tied up for with innovators

Innovator Company Products tied up Technical name
Targa Super 5% EC Quizolofop ethyl 5% EC
Nissan Sakura 10% EC Quizolofop ethyl 5% EC
Sempra 75% WG halosulfuron-methyl
Mitsui Bombard 10% EC Ethofenprox 10% EC
Caldan 4G Cartap Hydrochloride 4% G
Sumitomo Chemical Caldan SP Cartap Hydrochloride 50% SP
Sheathmar 3L Validamycin 3% L
Kasu-B Kasugamacyin 3% SL
Hokko Kasugamycin 5%
Conika 50% WP + Copper
Oxychloride 45% WP
OAT Agrio Foster SC Cyflumetofen 20% EC
Omite 57$ EC Propargite 57% EC
Arysta Vitavax Power Carboxin 37.5% + Thiram 37.5%
Vitavax Ultra Carboxin 17.5% + Thiram 17.5%
Markar 10% EC Bifenthrin 10% EC
FMC Aatank 25% EC Carbosulfan 25% EC
Nabood 40% DF Carfentrazone-ethyl 40% DF
Cover 0.4% Granule Chlorantraniliprole
Corteva Cover 18.5% w/w SC Chlorantraniliprole
Qurin Chlorimuron ethyl 25% WP
Oro Agri Wetcit NA
Source: Company, PL
Farmers shift towards specialty products positive
Indian farming community is shifting towards higher-value crop protection brands.

Farmers are becoming more specialty molecule/brand focused due to their efficacy
on pests, weeds and fungus vis-à-vis generic molecules. Pests are developing
resistance against generic molecules in a relatively shorter span of time. After the
recent increase in price of ag-chem technical which has resulted in shooting up of
prices of generic molecules, its price difference with that of specialty molecules has
narrowed significantly. Hence the cost benefit proposition has further shifted in favor
of specialty molecules. Revenue mix from specialty molecules may continue to
increase leading to higher topline growth and margin expansion.
January 8, 2019 42
Dhanuka Agritech
Product launches to continue the growth momentum
Dhanuka follows the strategy of launching 4-5 new products every year including
in-licensing and 9(3) molecules. 9(3) and in-licensing molecules enjoy higher
margin, good brand recall and lesser credit period due to their efficacy. Innovative
products coupled with wide distribution reach and strong brand recall are critical
success factor for DAGRI’s product portfolio. Consistently high Innovation Turnover
Rate (ITR) (20% in FY18, up 200 bps from FY17) is a testimony to Dhanuka’s
success rate in new launches. In FY19, DAGRI plans to launch 2 products each
under 9(3) and 9(4). 9(3) products would be for grapes (fungicide) and 9(4) products
would be for Paddy (1 each of herbicide and fungicide). New launches will continue
to aid topline growth and margin expansion for the company.
Dhanuka has launched 7 products in FY17 and 8 in FY18, momentum increasing

Brigade Dhanzyme Gold GR Mortar Sempra Dhanvarsha Conika Dumil
Vitavax Ultra Fluid Defend Mortar Dozo Maxx-Soy Fenox-1000
Wetcit Lustre Media Super Sakura Goldy HiDice Super Godiwa
Onestar Danfuron Pager Delight Godiwa Super
Fuzi Super Fujita Markar Super
Bombard Cover Aashito D-One
Protocol Oxykill
Maxyld Bullon Suelo
Domar
Source: Company, PL
Innovation Turnover Rate consistently above 17% since FY16
25.0%
19.9% 20.2%
20.0%
17.5%
15.0% 13.1%
10.7%
10.0%
5.0%
0.0%
Source: Company, PL
Focus on high growth herbicides and fungicides
Consumption growth in herbicides and fungicides is far superior than that of

insecticides. The same is being driven by sharp drop in availability of labour, rising
labour costs and Government’s focus on increasing the production of vegetable and
horticulture crops. Dhanuka is expected to be a key beneficiary of the same as its
product portfolio is more tilted towards herbicides (32% of rev) and fungicides
(15%). Dhanuka has the highest share of revenue from herbicides amongst the
industry players. The new launches are also focused towards herbicides and
fungicides segment.
January 8, 2019 43
Dhanuka Agritech
Usage of Insecticides currently dominates the Indian crop protection industry with
53% consumption share. Herbicides, Fungicides and Others account for 24%, 19%
and 4% of consumption mix respectively. Globally the share of herbicides is highest
at 44% followed by Fungicides and Insecticides at 27% and 22% respectively. Plant
growth regulators (PGR) and other Biological products account for 7% of the pie.
India’s agrochemical consumption mix has started to converge with the global
pattern with increasing share of herbicides.
Insecticides dominate Agrochem industry in India Herbicides and fungicides dominate globally
Others Others
4% Fungicides 7%
Insecticides
Fungicides 27% 22%
19%
Herbicides
24%
Insecticides
53% Herbicides
44%
Insecticides/Herbicides dominate the product portfolio with

42%/32%
Insecticides Fungicides Herbicides Others
FY18 42% 15% 32% 11%
FY17 44% 15% 30% 11%
FY16 45% 14% 30% 11%
FY15 43% 16% 30% 11%
Source: Company, PL
Till the last decade the share of herbicides was lower in India due to the tradition of
manual weeding. Since the start of this decade, herbicide consumption has been
growing at a rapid pace due to sharp drop in availability of labour and rising labour
costs due to migration to cities, diversion of labour to rural infrastructure projects &
government schemes like MGNREGA. Herbicide consumption share has
increased by ~800 bps between FY12-16 and currently stands at 24%.
Government’s focus on increasing the production of vegetable and horticulture
crops will continue to drive consumption pattern in favor of herbicide and fungicide
(FY16-19%, FY12- 15%).
January 8, 2019 44
Dhanuka Agritech
Indexed Labor cost is inching up steadily

Input FY16 FY17 FY18 FY19E CAGR
Human Labour 157 165 172 179 4.5%
Bullock Labour 180 186 193 199 3.4%
Machine Labour 113 119 124 131 4.9%
Seeds 146 155 165 176 6.5%
Fertilisers 150 154 158 163 3.0%
Manures 149 154 158 163 2.9%
Agrochemicals 120 125 131 137 4.5%
Irrigation charges 106 108 109 111 1.6%
Input Price Index of Kharif Crop 147 154 161 167 4.3%
Source: Company, PL
January 8, 2019 45
Dhanuka Agritech
Outlook & Valuation
Dhanuka will suffer a revenue loss of Rs200mn as one of the large customers
(Institutional business) have started sourcing the product directly from innovators.
In addition, profitability in FY19 will be impacted by headwinds from sharp rupee
depreciation (13.5% depreciation between Apr-Sept, 5.3% appreciation post that till
date). However, FY20 hold a promising outlook as with upswing in agrochemical
industry, Dhanuka is well positioned to clock decent growth driven by increasing
penetration, new launches and price hikes. The stock has corrected by more than
55% from its highs in the last 18 months and at 12.1x FY21E EPS prices in most of
the concerns. We initiate coverage on DAGRI with a BUY recommendation for a
Sales and PAT CAGR at 9.0% and 9.3% CAGR between FY18-21E
(Rs mn) FY17 FY18 FY19E FY20E FY21E
Total Revenue 8,833 9,626 10,293 11,425 12,453
Raw Material Cost 4,987 5,622 6,073 6,626 7,161
Employee Cost 969 1,065 1,204 1,291 1,407
Other Expenses 1,179 1,279 1,390 1,531 1,656
Total Expenditure 7,135 7,966 8,666 9,448 10,224
EBITDA 1,699 1,661 1,626 1,977 2,229
Margin 19.2% 17.2% 15.8% 17.3% 17.9%
PAT 1,219 1,262 1,212 1,467 1,649
EPS (Rs) 24.8 25.7 24.7 29.9 33.6
Source: Company, PL
January 8, 2019 46
Dhanuka Agritech
Financials
YoY gr. (%) 9.0 6.9 11.0 9.0
Employee Cost 1,065 1,204 1,291 1,407
Other Expenses 1,279 1,390 1,531 1,656 Acc: Dep / Amortization 290 421 556 696
Tangibles 283 412 546 684
YoY gr. (%) (2.2) (2.1) 21.5 12.8
Tangibles 1,280 1,209 1,133 1,052
EBIT 1,518 1,496 1,841 2,089 Capital Work In Progress 1 - - -

Margin (%) 15.8 14.5 16.1 16.8 Goodwill - - - -
Non-Current Investments 934 936 941 945

Margin (%) 17.3 16.1 17.7 18.4 Investments 925 725 1,325 1,925
Inventories 2,050 2,256 2,598 2,798
Total Tax 408 448 556 641 Trade receivables 2,080 2,228 2,441 2,661
Effective tax rate (%) 24.4 27.0 27.5 28.0 Cash & Bank Balance 114 77 43 333
Other Current Assets 228 239 268 294
YoY gr. (%) 3.5 (3.9) 21.0 12.4 Total Networth 6,334 6,363 7,384 8,531
Margin (%) 13.1 11.8 12.8 13.2
Extra Ord. Income / (Exp) - - - - Non-Current Liabilities
Long Term borrowings - - - -
Reported PAT 1,262 1,212 1,467 1,649 Provisions 18 31 34 37
YoY gr. (%) 3.5 (3.9) 21.0 12.4 Other non current liabilities - - - -
Margin (%) 13.1 11.8 12.8 13.2
Current Liabilities
Other Comprehensive Income - - - - ST Debt / Current of LT Debt 47 74 85 91
Total Comprehensive Income 1,262 1,212 1,467 1,649 Trade payables 830 790 814 887
Equity Shares O/s (m) 49 48 48 48 Other current liabilities 629 690 753 820
January 8, 2019 47
Dhanuka Agritech

PBT 1,670 1,661 2,024 2,291 Per Share(Rs)
Add. Other (91) (175) (192) (211) FCF 26.8 16.0 17.2 24.9
Net Changes-WC 58 (335) (523) (328) Return Ratio(%)
Direct tax (403) (430) (534) (616) RoCE 26.0 23.3 26.5 26.0
Net cash from Op. activities 1,385 861 919 1,286 ROIC 23.9 19.5 23.9 26.0
Others (1,120) 200 (600) (600) Net Debt : Equity (x) (0.2) (0.1) (0.2) (0.3)
Net Cash from Invt. activities (1,118) 277 (507) (491) Net Working Capital (Days) 125 131 135 134
Issue of share cap. / premium - (828) - - Valuation(x)
Debt changes (34) 27 11 7 PER 16.3 16.4 13.6 12.1
Dividend paid (154) (355) (446) (502) P/B 3.2 3.1 2.7 2.3
Others - (8) - - EV/EBITDA 11.8 11.8 9.4 7.9
Net cash from Fin. activities (196) (1,174) (446) (505) EV/Sales 2.0 1.9 1.6 1.4
Net change in cash 70 (37) (34) 290 Dividend Yield (%) 1.3 1.5 1.9 2.2
Free Cash Flow 1,314 763 820 1,184 Source: Company Data, PL Research

Net Revenue 1,851 2,130 3,834 2,164
YoY gr. (%) 16.5 2.4 10.2 (2.3)
Gross Profit 835 749 1,539 931
Margin (%) 45.1 35.2 40.2 43.0
EBITDA 314 159 756 303
YoY gr. (%) (11.0) (49.6) - -
Margin (%) 17.0 7.4 19.7 14.0
EBIT 279 127 724 271
Margin (%) 15.0 6.0 18.9 12.5
Profit before Tax 345 211 746 319
Margin (%) 18.6 9.9 19.5 14.7
Total Tax 59 49 196 83
Profit after Tax 286 162 550 236
Adjusted PAT 286 162 550 236
YoY gr. (%) 14.6 0.3 4.2 (17.5)
Margin (%) 15.5 7.6 14.4 10.9
Reported PAT 286 162 550 236
YoY gr. (%) 14.6 0.3 4.2 (17.5)
Margin (%) 15.5 7.6 14.4 10.9
Total Comprehensive Income 286 162 550 236
Avg. Shares O/s (m) 49 49 49 49
EPS (Rs) 5.8 3.3 11.2 4.8
January 8, 2019 48
Insecticides India (INST IN)
January 8, 2019 Growth to bypass the impact of molecule ban

Company Report Insecticides India, an integrated agrochemical manufacturer is in the midst of
a transition period from a me-too agrochemical manufacturer to a research-
driven integrated player with focus on creating brands (+107 branded and +15
technical products). INST’s revenue from new launches (10 in FY19E and
pipeline of 35 products) is expected to neutralize the expected revenue loss
Key Financials from FY22E due to ban of DDVP and Phorate. Backward integration for key
FY18 FY19E FY20E FY21E inputs will aid in securing supplies for its Maharatna range of products apart
Sales (Rs. m) 10,733 11,786 13,044 14,349
EBITDA (Rs. m) 1,478 1,768 2,061 2,296 from increasing the sale of technicals. We estimate 19.2% PAT CAGR over
Margin (%) 13.8 15.0 15.8 16.0 FY18-21. We initiate coverage on the stock with a BUY recommendation for a
PAT (Rs. m) 840 1,061 1,223 1,424
EPS (Rs.) 40.6 51.3 59.2 68.9
Gr. (%) 41.3 26.3 15.3 16.4
DPS (Rs.) 2.0 3.7 4.9 5.6
Revenue from new launches to more than offset the impact of molecule ban:
Yield (%) 0.3 0.7 0.8 1.0
RoE (%) 16.6 17.3 17.1 17.5 INST’s business growth from new products (plan to launch 10 new products in
RoCE (%) 19.5 21.2 21.1 22.8 FY19E and pipeline of 35 products) is expected to more than offset the revenue
EV/Sales (x) 1.2 1.1 1.0 0.8
EV/EBITDA (x) 8.6 7.6 6.3 5.0
loss from FY22E due to ban of molecules. For the period till 31 st Dec 2020, INST is
PE (x) 14.1 11.1 9.7 8.3 expected to cash in on demand-supply gap for DDVP (Nuvan) and Phorate (Thimet)
P/BV (x) 2.2 1.7 1.6 1.3
as it has produced requisite quantity of both the molecules to supply till the ban
kicks in. The price of Phorate and DDVP has shot up by ~20-25% in anticipation of
supply shortage going forward, which coupled with higher volume growth over the
next 2 years will boost profitability for INST.
Key Data ISIL.BO | INST IN

Backward integration will secure input supply and aid gross margins: INST is
52-W High / Low Rs.860 / Rs.361
Sensex / Nifty 35,850 / 10,772 reviewing entire backward integration value chain. Amidst scarcity of supplies in
Market Cap Rs.12bn/ $ 169m
raw material from China, INST is planning to gradually commence in-house
Shares Outstanding 21m
3M Avg. Daily Value Rs.40.94m manufacturing and secure supplies of its key intermediates required in its
Maharatna range of products. Some of the intermediates that INST plans to
manufacture are Lambda acid, Bifenthrin alcohol, 3-methyl-4-nitroimino perhydro
1,3,5- oxadiazine (MNIO), 2-(Nitroimino) Imidazolidine (NII), 2-Chloro-5-
(Chloromethyl) Thiazole (CCMT), Phenyl 4,4-dimethoxy pyrimidine-2ylcarboxilate,
Diethyl thiophosphoryl chloride (DETCl) and few initial stage molecules. INST plans
Promoter’s 50.50
Foreign 4.05 to invest Rs 1.3 bn over the 18-24-month period post the approval to start
Domestic Institution 18.13 manufacturing technical products. The Rs 1.3 bn capex will involve both backward
Promoter Pledge (Rs bn) - integration and 3rd party sale.
Outlook & Valuation: We expect revenue/EBITDA/PAT to grow at

10.2%/15.8%/19.2% CAGR between FY18-21E led by pick up in revenue from new
generation products, higher demand for the banned molecules in the short term and
Stock Performance (%) traction from overseas geographies. EBITDA growth will be lower due to the inability
1M 6M 12M
of the industry to pass on the full impact of rupee depreciation and rising raw
Absolute 2.2 (14.8) (32.1)
Relative 1.7 (15.2) (35.3) material prices. With +40% correction in the last one year, INST is available at 8.5x
FY21E earnings and largely factors in most of the concerns relating to higher cost
Prashant Biyani pressures and potential revenue loss from the molecule ban. We initiate coverage
prashantbiyani@plindia.com | 91-22-66322260 on the stock with a BUY recommendation for a target price of Rs 896 based on 13x
FY21E earnings.
January 8, 2019 49
Insecticides India
Revenue from new launches to more than offset the

impact of molecule ban
Launch pipeline of 35 products; 10 to
be launched in FY19E
INST has launched 11 products over the last 2 years and is in the midst of launching
10 new products in FY19E, most of which would be u/s 9(3). Going forward the
company has very aggressive launch pipeline of ~35 products and we expect
revenue from new products to more than offset the revenue loss due to ban of
certain molecules. The sale/use of 18 molecules has been implemented from 31 st
December 2020 (24 months from now) i.e. 4QFY21. By then, the market seeding
stage of the newly launched products would be over and the molecules would be in
the midst of take-off stage w.r.t. volume uptick. Over the next 3-4 years INST is
expected to clock healthy volume growth and the revenue from the newly launched
products are likely to more than offset the impact of revenue loss due to molecule
ban in FY21E and beyond.
Product launches have picked up since FY17

INST has shown aggression in FY17 FY18 FY19E till date
product launches since FY17 Green Label Kayakalp Encounter
Suzuka Aikido
Hakko Sofia
Focus Hercules
Navi
Pendamil Super
Victor Gold
Streptomil Gold
Agrospred Max
Mycoraja Xpert
Source: Company, PL
Strategy for the next 5 years is to

launch 4-5 products every year, Portfolio rejig of INST was already underway: In 1HFY18, the management
withdraw 50 products and end with unveiled its strategy of changing the product mix by introducing new generation
75-80 products in total
products with focus on R&D. Simultaneously it would withdraw old generic
chemistries. Superior growth in new products will offset the expected revenue
drawdown of 5% every year from withdrawal of old chemistry/legacy molecules.
Over the next few years, INST plans to launch 4-5 products every year, withdraw
50 products and end with 75-80 products in the long term.
INST has 4 pronged strategy on new launches: INST’s R&D team comprising of
+80 scientists are working on increasing their product portfolio on the basis of 4
pronged strategy i.e New product discovery, reverse engineering of off-patented
molecules, making combination formulations and more bio-logical products.
 Product Discovery – INST has a JV with a Japanese company, OAT Agrio.

The JV is working on discovery of new molecules. The discovered products
are under toxicology stage. The company is very close to the 1 st discovery
which will be followed by data generation for the molecule. After data
generation, it will take a minimum of ~3 years to launch the product in the
market. The JV has a 25000 sq.ft R&D centre led by internationally renowned
scientists with more than 25 years of experience in the field of agrochemical
research. The lab is equipped with latest machines and equipment like NMR
and has one of its kind Breeding centers, Bio assay rooms and Spray cabinets.
January 8, 2019 50
Insecticides India
 Reverse Engineering – INST is doing reverse engineering on off-patented

products to launch molecules in short time span at low cost. The target is to be
2nd or 3rd player to enter the segment so as to create brand awareness. The
company plans to launch 2 such products in FY19 and 3 more in FY20.
 Making of new formulations – Mixing 2 products to create a new combination

product and apply for patent for the same. 4 mixture combination products are
expected to be launched in FY19 and 2 in FY20.
 R&D for Bio products – INST has set up a dedicated R&D unit for Bio
products. The unit is equipped with bio assay and product development
facilities like Isolation, detection and multiplication of biological
microorganisms. The R&D division has developed and commercialized
Mycoraja and Kayakalp and is looking to develop 3-4 new biological products.
Stocked up inventory and high prices to limit molecule

Nuvan and Thimet are the key brands ban impact in near term
impacted by the molecule ban
Potential revenue hit of Rs 1.6 bn as a result of molecule ban: Out of the 18

molecules banned by the government of India vide its notification dated 9 th August
2018, the company manufactures 3 molecules (a) Dichlorvos (Brand- Nuvan) (b)
Phorate (Brand- Thimet) (c) Trizophos (Bands- Titan and Shark). These products
contribute ~Rs 1.6 bn to the topline.
FY18 revenue from banned products

Banned Products Rs Mn
Nuvan (Dichlorvos) 6,936
Thimet (Phorate) 8,103
Titan and Shark (Trizophos) 961
Source: Company, PL
INST is likely to stock up inventory of banned molecules commensurate to

1.5 years of demand: INST is expected to accelerate the production of these
molecules commensurate to the demand of ~1.5 years. This will elevate its
inventory days for the next 6-18 months leading to higher working capital costs.
Phorate and Thimet prices have Price of Thimet (Phorate) and Nuvan (DDVP) have increased by ~20-25% post
increased by +20% post the announcement of ban: The price of Phorate and DDVP have shot up significantly
announcement of ban
post the announcement of ban of these molecules. While Thimet prices have
increased by ~20-25%, DDVP has seen price increase to the extent of ~50% in
some areas in anticipation of lower availability of these molecules going forward.
Increased realizations on these molecules will boost profitability for INST.
Backward integration to ensure input supply and aid

margins
Brownfield expansion for products
like Lambda-cyhalothrin, Bifenthurin,
INST is reviewing entire backward integration value chain. Amidst scarcity of
Thiamethoxam, etc
supplies in raw material from China. INST is planning to gradually commence in-
house manufacturing of intermediates required in its Maharatna range of products,
thereby securing the supplies for its key products. Some of the intermediates that
INST plans to manufacture are Lambda acid, Bifenthrin alcohol, 3-methyl-4-
nitroimino perhydro 1,3,5- oxadiazine (MNIO), 2-(Nitroimino) Imidazolidine (NII), 2-
January 8, 2019 51
Insecticides India
Chloro-5-(Chloromethyl) Thiazole (CCMT), Phenyl 4,4-dimethoxy pyrimidine-

2ylcarboxilate, Diethyl thiophosphoryl chloride (DETCl), etc. In some cases, it plans
to start manufacturing of initial stage molecules. The company is awaiting EC
approval to start manufacturing of these products. INST plans to invest Rs 1.3 bn
over the 18-24-month period post approval to start manufacturing technicals. The
Rs 1.3 bn capex will involve both backward integration and 3rd party sale.
Exports to grow at 50% CAGR over FY18-21E
Exports on track to grow ~7x between IIL is pursuing exports aggressively. After achieving early success in select middle
FY17-19E, albeit on a low base
east and Asean countries the company is targeting Japan, US, LatAM and Europe.
In the exports business, the company has already tied up with 100 partners and
has 500 contracts in hand. There is continuous data generation for various
molecules and the company expects to bag some registrations this year. Toxicology
data submitted in various geographies. From 6 countries in FY16, exports have
increased to 17 in FY18 and the company is planning to register its presence in 10
other geographies taking the total count to 27 countries. Export revenue is expected
to double YoY to Rs 700 mn in FY19E and to Rs 1200 mn by FY21E.
Exports likely to double in FY19E
Countries Present Export (Rs Mn)
30 700 800
700
25
600
20 341 500
15 116 400
300
10
66 200
5
100
6 12 17 27
0 0
FY16 FY17 FY18 FY19E
Source: Company, PL
Profitability on Green Label sales to increase due to push

for brand sales; overall sales to remain flat
Opportunity market size of Bispyribac Within a year of launch, Green Label has grabbed market share of ~25-30% in India
Sodium is ~900-1000 Kl while the
due to its affordability, higher B2B sales and extensive distribution reach. INST is
current penetration is ~300-400 Kl.
the first company to indigenously manufacture Bispyribac Sodium herbicide in India.
In FY18 the company derived more than 70% of revenue from B2B sales while the
remaining came from brand sales i.e. Green Label. FY18 revenue from Green Label
stood at Rs 1.5 bn. We expect flattish revenue growth from Bispyribac Sodium (B2B
+ brand sales) due to some channel inventory and further price correction in the
B2B segment. Brand sales is expected to register robust growth due to brand recall
among farmers. The scope of market expansion is immense for Bispyribac Sodium
molecule in India as the penetration is still very low. According to industry experts,
the opportunity market size of the molecule is ~900-1000 Kl while the current
penetration is ~300-400 Kl.
January 8, 2019 52
Insecticides India
Bispyribac’s B2B sales is +70% for Bispyribac Sodium sales break up (Rs mn)
INST
Brand Sales
(Green Label)
27%
B2B Sales
73%
Source: Company, PL
January 8, 2019 53
Insecticides India
Outlook and Valuation
Current market price factors in most of the concerns: We expect

revenue/EBITDA/PAT to grow at 11.1%/10.8%/14.2% CAGR between FY18-20E
led by pick up in revenue from new generation products, higher demand for the
banned molecules in the short term and traction from overseas geographies.
EBITDA growth will be in-line with the revenue growth due to the inability of the
industry to pass on the full impact of rupee depreciation. Demand is not resilient
enough to absorb the impact of sharp depreciation in rupee which comes in the
backdrop of industry coping up with the difficulty of passing on the impact of rising
raw material prices. With +40% correction in the last one year, INST is available at
10.5x FY20E earnings and largely factors in most of the concerns relating to higher
cost pressures and potential revenue loss from the molecule ban. We initiate
coverage on the with a BUY recommendation for a target price of Rs 896 based on
13x FY21E earnings.
FY18-21E Sales / PAT CAGR - 10.2% / 23.3% EBITDA Margins on consistent upwards trajectory
Revenue growth EBITDA Margin APAT growth
Branded formulation sales 72% 70% 68% 69% 69%
60.0%
Institutional Sales 28% 30% 32% 31% 31%
Total Revenue 9,942 10,733 11,786 13,044 14,349 40.0%
20.0%
Employee Cost 455 506 589 652 703
Other Expenses 951 1,114 1,355 1,435 1,621 0.0%
EBITDA 1,114 1,478 1,768 2,152 2,504 -20.0%
Margin 11.2% 13.8% 15.0% 16.5% 17.5%
-40.0%
PAT 594 840 1,061 1,288 1,573 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
EPS 28.8 40.6 51.3 62.3 76.1
Source: Company, PL
Source: Company, PL
Higher inventory to stretch WC in FY19E RoCE to expand by ~530 bps between FY18-21E
Inventory Days Debtor Days RoCE RoE

Creditor Days Net WC Days (RHS) 22.8%
25.0% 21.2% 21.1%
400 180 200 19.5%
161 18.0%
350 145 20.0%
132 128 136 20.4% 15.0%
300 80 125 150
73 15.0% 12.8%
250 79 78 83 75 16.6% 17.3% 17.1% 17.5%
80 70
200 78 75 100 13.6%
63 77 80 10.0%
150 70 11.2%
100 180 50 5.0%
148 130 156 139 145 125
50
- - 0.0%
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY15 FY16 FY17 FY18 FY19E FY20E FY21E
January 8, 2019 54
Insecticides India
About the company

8 brands of INST garner more than Insecticides India is engaged in manufacturing of formulation (+107 branded
Rs 250 mn in revenue
products) and technical products (+15). The company has 5 formulation, 2 technical
and a biological manufacturing unit alongwith 4 R&D facilities. INST’s 8 brands
garner more than Rs 250 mn in revenue. The company has technical tie-ups with
AMVAC, OAT Agrio, Nissan Chemical Industries, Nihon Nohyaku and Momentive
Materials. Monosil, Hakama, Pulsor, Victor, Lethal, Xplode, Hijack, Green Label and
Mycoraja are its leading brands.
Share of Insecticides continue to dominate the product portfolio
70% 66%
60% 58%
60% 64%
50% 57%
40%
28%
30% 23% 25%
20% 27%
23% 11% 10%
8%
10% 3% 5% 4%
10% 11% 2% 5%
0%
Insecticides Herbicides Fungicides PGR
Source: Company, PL
Institutional sales account for 30% of revenue
B2B
30%
B2C
70%
Source: Company, PL
January 8, 2019 55
Insecticides India
Revenue contribution from Navratna and Super-11 contributes more than 50% to revenue
Institutional business (largely
technical sales) has increased by 500 Navratna Super-11 Other branded formulations Institutional sales
bps over the last 5 years
25.4% 22.7% 28.0%

29.8% 30.1%
26.6%
29.8% 22.0% 26.6% 23.6%
10.8% 10.3% 7.6%

9.0% 8.3%
35.8% 37.4% 40.4% 37.2% 38.8%
Source: Company, PL
Timeline of new product launches

FY13 FY14 FY15 FY16 FY17 FY18 FY19E
Hakama Xplode Myocraja Green Label Kayakalp 10 new products planned
Suzuka Encounter
Hakko Aikido
Focus Sofia
Navi Hercules
Nil
Nuvan Logo Prime Gold Pendamil Super
Victor Gold
Streptomil Gold
Agrospred Max
Mycoraja Xpert
Source: Company, PL
January 8, 2019 56
Insecticides India
Financials
YoY gr. (%) 8.0 9.8 10.7 10.0
Employee Cost 506 589 652 703
Other Expenses 1,114 1,355 1,435 1,621 Acc: Dep / Amortization 327 504 730 999
Tangibles 316 489 708 969
YoY gr. (%) 32.7 19.6 16.6 11.4
Tangibles 2,284 2,598 3,361 3,493
Margin (%) 12.2 13.5 14.1 14.1 Goodwill - - - -

Margin (%) 11.0 12.6 13.1 13.9 Investments - - - -
Inventories 4,073 5,812 5,182 4,914
Total Tax 341 423 488 568 Trade receivables 2,348 2,583 2,680 2,752
Profit after tax 840 1,061 1,223 1,424 Total Assets 10,001 12,207 12,907 12,924
Adjusted PAT 840 1,061 1,223 1,424 Other Equity 5,269 6,556 7,306 8,595
YoY gr. (%) 41.3 26.3 15.3 16.4 Total Networth 5,475 6,762 7,513 8,801
Margin (%) 7.8 9.0 9.4 9.9
Long Term borrowings 83 100 650 -
Reported PAT 840 1,061 1,223 1,424 Provisions 6 6 6 6
Margin (%) 7.8 9.0 9.4 9.9
Current Liabilities
Other Comprehensive Income - - - - ST Debt / Current of LT Debt 968 1,600 800 -
Total Comprehensive Income 840 1,061 1,223 1,424 Trade payables 2,434 2,583 2,680 2,752
Equity Shares O/s (m) 21 21 21 21 Other current liabilities 847 966 1,070 1,177
January 8, 2019 57
Insecticides India

PBT 1,181 1,483 1,711 1,992 Per Share(Rs)
Add. Interest (3) (30) (35) (35) CEPS 48.9 59.9 70.1 81.9
Add. Other 148 138 160 70 FCF 74.1 (23.9) 31.6 77.2
Net Changes-WC 579 (1,645) 421 295 Return Ratio(%)
Direct tax (262) (117) (830) (596) RoCE 19.5 21.2 21.1 22.8
Net cash from Op. activities 1,812 5 1,652 1,995 ROIC 14.3 15.5 15.6 16.9
Capital expenditures (280) (500) (1,000) (400) RoE 16.6 17.3 17.1 17.5
Others 22 - - - Net Debt : Equity (x) 0.2 0.2 0.2 0.0
Net Cash from Invt. activities (255) (470) (965) (365) Net Working Capital (Days) 136 180 145 125
Issue of share cap. / premium - - - - Valuation(x)
Debt changes (1,220) 650 (250) (1,450) PER 14.1 11.1 9.7 8.3
Dividend paid (50) (90) (117) (136) P/B 2.2 1.7 1.6 1.3
Others (18) (5) - - EV/EBITDA 8.6 7.6 6.3 5.0
Net cash from Fin. activities (1,448) 417 (526) (1,656) EV/Sales 1.2 1.1 1.0 0.8
Net change in cash 109 (48) 161 (25) Dividend Yield (%) 0.3 0.7 0.8 1.0
Free Cash Flow 1,531 (495) 652 1,595 Source: Company Data, PL Research

Net Revenue 1,689 3,189 4,583 1,865
YoY gr. (%) 2.5 2.3 10.0 6.0
Gross Profit 524 986 1,372 658
Margin (%) 31.0 30.9 29.9 35.3
EBITDA 187 556 692 252
YoY gr. (%) (18.8) 197.8 - -
Margin (%) 11.0 17.4 15.1 13.5
EBIT 139 508 643 203
Margin (%) 8.2 15.9 14.0 10.9
Profit before Tax 115 480 621 174
Margin (%) 6.8 15.1 13.6 9.3
Total Tax 38 141 192 54
Adjusted PAT 77 340 430 120
YoY gr. (%) 4.9 11.4 18.9 24.2
Margin (%) 4.6 10.7 9.4 6.4
Reported PAT 77 340 430 120
YoY gr. (%) 4.9 11.4 18.9 24.2
Margin (%) 4.6 10.7 9.4 6.4
Avg. Shares O/s (m) 21 21 21 21
EPS (Rs) 3.7 16.4 20.8 5.8
January 8, 2019 58
P.I. Industries (PI IN)
Rating: ACCUMULATE | CMP: Rs864 | TP: Rs924
January 8, 2019 Growth all set to make a comeback

Company Report PI Industries is all set to make a comeback (revenue CAGR of 18.6% between
FY18-21E) driven by both domestic (~39% of revenues) and CSM business
(61% of revenues). Domestic business is expected to get a boost with the
launch of 2 potential-blockbuster products i.e. Pyroxasulfone and PB rope L.
Commercialization of new molecules, production ramp up led by
Key Financials debottlenecking of capacity and commencement of production at its new
FY18 FY19E FY20E FY21E plant is expected to aid PI in clocking +20% growth in CSM business in FY20E.
Sales (Rs. m) 22,771 27,433 32,810 37,984
EBITDA (Rs. m) 4,920 5,336 6,660 8,072 we estimate PAT CAGR of 14.7% over FY18-21. We initiate coverage with
Margin (%) 21.6 19.5 20.3 21.3 ACCUMULATE rating and target price of Rs 924 (23x FY21E earnings).
PAT (Rs. m) 3,665 3,774 4,575 5,538
EPS (Rs.) 26.6 27.4 33.2 40.2
Gr. (%) (20.0) 3.0 21.2 21.0 2 potential-blockbuster molecules launch in the offing: PI plans to introduce 2
DPS (Rs.) 4.0 3.8 4.6 5.6
new molecules (Pyroxasulfone and PB Rope L) which have the potential to become
Yield (%) 0.5 0.4 0.5 0.7
RoE (%) 20.8 18.3 19.0 19.6 blockbuster molecules. Pyroxasulfone, likely to be branded as Awkira, is for pre-
RoCE (%) 22.0 20.8 22.7 23.8 emergence control of certain grassy weeds like Phalaris Minor in Wheat. Phalaris
EV/Sales (x) 5.1 4.2 3.5 2.9
EV/EBITDA (x) 23.8 21.7 17.1 13.7
minor can affect ~50-70% of wheat production and is rampant across North India.
PE (x) 32.5 31.6 26.1 21.5 Based on our assessment of the potential impact area and competitor’s product
P/BV (x) 6.2 5.4 4.6 3.9
pricing, we expect potential market size of pyroxasulfone to be ~Rs 43 bn. Initially
Awkira would be launched only for the wheat crop and the company plans to extend
it to Corn and Soyabean.
PB Rope L (a pheromone based product), likely to be branded as PB Knot, is for

Key Data PIIL.BO | PI IN
the management for Pink Bollworm (PBW) in Cotton. PBW, most destructive pest
52-W High / Low Rs.1,035 / Rs.676
Sensex / Nifty 35,850 / 10,772 in Cotton inflicts significant damage & reduces yield by up to 60%. Pheromone
technology has been available in India for long but has not been popular till date is
3M Avg. Daily Value Rs.165.53m due to its complexity. PI has managed to reduce the complexity by introducing new
technology knot that makes disposal and dissemination method completely unique
and easy. We expect potential market opportunity of PB Knot to be ~Rs 124 bn.
CSM business to grow at 20% CAGR between FY19-21E: CSM business is

expected to grow at +20% in FY20E on the back of pick up in the global
Promoter’s 50.50
Foreign 4.05 agrochemical industry, commercialization of new molecules, production ramp up
Domestic Institution 18.13 led by debottlenecking of capacity and commencement of production at its new
Promoter Pledge (Rs bn) - plant. Innovators are anticipating pickup in demand and have started to build
inventories to cash in on the demand. PI has also received confirmed shipment
schedules from clients indicating significant improvement in the outlook of the
innovators w.r.t. agrochemical offtake. The company plans to commercialize 3-4
molecules in FY19E to continue with its growth momentum.
1M 6M 12M
Absolute 6.8 8.7 (11.9)
Outlook & Valuation: PI’s brand building capabilities, competencies in R&D,
Relative 6.3 8.1 (16.1) strong relationship with innovators, debt free balance sheet and healthy return
ratios makes it a structural story. Over the next 2-3 years we expect PI to fire from
Prashant Biyani both the cylinders and register non-linear growth. Plans to reduce dependence and
prashantbiyani@plindia.com | 91-22-66322260 diversify from rice crop to Cotton and Wheat bodes well for the domestic business.
We initiate coverage on the stock with a ACCUMULATE rating for a target price of
Rs 924 based on 23x FY21E earnings. The recent run up in stock price from Rs
700 levels limits the upside in the near term.
January 8, 2019 59
P.I. Industries
2 potential-blockbuster molecule launch in the offing
PI, among other launches, plans to introduce 2 new molecules (Pyroxasulfone and
PB Rope L) over the next 12 months which have the potential to become
blockbusters due to non-availability of substitutes in the market currently for control
of certain pest/weed. We expect the market opportunity size for both these
molecules to be ~Rs 166 bn p.a. cumulatively.
Pyroxasulfone, planned to be launched soon, is a water dispersible granule

formulation. Ideally the application should be 3 days prior to sowing. It is intended
for pre-emergence control of certain grassy weeds like Phalaris Minor (commonly
known as mandusi or gulli-danda) in wheat.
 The occurrence of phalaris minor is rampant in the wheat fields in North India
and is increasing by the day.
 Phalaris minor can affect around 50-70 per cent of wheat production.
 Currently there is no dedicated chemistry available in the Indian market for

control of the weed. Hence farmers spray 2-3 rounds of other herbicides
without achieving any desired visible results.
 Even labourers are hired many times to manually remove weeds despite
herbicide application.
PI is likely to launch Pyroxasulfone molecule under 9(3) with the brand name
Till last year there was no product to
address the problem of Phalaris of AWKIRA. While there is no other substitute available for Pyroxasulfone till
minor. Awkira from PI and Max from date, Sumitomo has launched Max herbicide in September 2018 for phalaris
Sumitomo are the only 2 products minor application. Phalaris minor is rampant in northern states of Punjab;
currently available in the market. Max
Haryana; Rajasthan; Uttar Pradesh; parts of Bihar, Madhya Pradesh, etc.
was launched by Sumitomo in
September, 2018. Based on our assessment of the potential impact area and competitor’s
product pricing, we expect potential market size of ~Rs 43 bn.
 While PI would be launching the product in the domestic market for the first
time, it is already manufacturing the same for innovators at its plant in Gujarat.
 As per our channel checks, the performance of the molecule during trials has
been reasonable and the molecule is expected to work satisfactorily for the
next 3-4 years.
 Initially Awkira would be launched only for the wheat crop and the company
plans to extend it to Corn and Soyabean.
January 8, 2019 60
P.I. Industries
Key Specification of Awkira

Rs 43 bn is the opportunity market Product Herbicide
size for Awkira Crop application Wheat, Corn, Soyabean
For Disease Phalaris minor
Brand Name Awkira
Technical Pyroxasulfone
Pricing Rs 1300/acre
Substitute Max Herbicide from Sumitomo (recently launched)
Potential application areas 328 lakh acres
Opportunity size Rs 43 bn
Source: PL
The second product that PI is expected to launch is PB Rope L under the brand
name of PB Knot for the Cotton crop for the management for Pink Bollworm
(PBW). PBW is the most destructive pest in Cotton crop and has emerged as the
real threat to cotton cultivation in Central & Southern parts of India inflicting
significant damage & reducing the crop yield (upto 60%).
PI has managed to reduce the
complexity of PB Knot by introducing  PB Rope is Pheromone based rope that uses pheromones to attract insects.
new technology makes disposal and These pheromone formulations disrupt mating of bollworms by attracting the
dissemination method is completely
male’s attention with its aroma resulting into pest reduction by more than 80%.
unique and easy
This curbs the population of the pest to the extent of 70%.
 PI plans to use Gossyplure formulation in its product.
 Our channel checks reveal that the farmers’ response for PB Rope L during
trial period have been encouraging.
 The technology has been available in India for long but has not been
popular till date is due to product complexity and higher price point.
 Pheromone products have to be used properly to be effective. PI has

managed to reduce the complexity of the product by introducing new
technology knot makes disposal and dissemination method is
completely unique and easy.
 Existing traps are able to only understanding the population but they were not
able to disrupt the mating while PI’s Gossyplure formulation has the capability
to disrupt the mating.
 As per our channel checks, one PB Rope Knot package is expected to be

thousand times more effective as a typical Pheromone traps uses a gel which
needs to be changed ~3-5 times while Gossyplure efficacy is long lasting.
 PB Knot ropes demands refrigerated transport up to the farmer’s field. One

rope is aluminum and copper blended rope to tie the plant. Other rope is a
specialized material which is tied up with Gossyplure.
 Based on our assessment of the potential impact area and interaction

with various stakeholders, we expect potential market opportunity of PB
Knot to be ~Rs 124 bn.
January 8, 2019 61
P.I. Industries
Key Specification of PB Knot

Product Pheromone trap with Insecticide
Crop application Cotton
For Disease Pink Bollworm
Brand Name PB Knot
Technical Gossyplure
Pricing Rs 5300/acre
Pheromone traps are currently available in the market.
Substitute Existing traps are only able to understand the population
but PB Knot has the ability to disrupt the mating process
Potential application areas 233 lakh acres
Opportunity size Rs 124 bn
Source: PL
Packing of PB Knot
Source: Bighaat.com, PL
CSM business to grow at 20% CAGR between FY19-21E
The Custom Synthesis Manufacturing (CSM) segment is marked by a significantly

de-risked business model, which provides healthy revenue visibility and stable
profitability. Innovators focus intensely on technological and innovation capability of
the outsourcing partners. CSM business is expected to grow at +20% in FY20E on
the back of pick up in the global agrochemical industry, commercialization of new
molecules, production ramp up led by debottlenecking of capacity and
commencement of production at its new plant.
 On the global agrochemical demand side, innovators are anticipating pickup in

demand and have started to build inventories to cash on it. PI has also received
confirmed shipment schedules from clients for FY19 indicating significant
improvement in the outlook of the innovators w.r.t. agrochemical offtake.
 The company plans to commercialize 3-4 molecules in FY19E (4

commercialized in FY18) to continue with its growth momentum. PI has
commercialised 24-25 molecules currently till date.
 PI plants to invest Rs 2.5 bn for 2 new plants. These plants will have asset
turnover of 1.2-2.0
January 8, 2019 62
P.I. Industries
 The on-going crackdown by the Chinese government also gives an opportunity

to PI to further scale up its CSM business by capitalising on the relationship
that it enjoys with the innovators.
PI’s orderbook currently stands at USD 1.2 bn and the business outside
orderbook/spot business is ~30-40%. Top 5 molecules account for ~50% of CSM
business revenue. Japan, US and Europe are the key export geographies for the
CSM business. The company has relationship with more than 18 global innovators.
CSM business to grow at 20% CAGR between FY19-21E
CSM segment revenue (Rs Mn) YoY% (RHS) Sales Mix (RHS)
30,000 120%
25,000 100%
80%
20,000
60%
15,000
40%
10,000
20%
5,000 0%
- -20%
Source: Company, PL
PI is present from Process Research till Commercial Manufacturing stage in CSM business…
Source: Company, PL
January 8, 2019 63
P.I. Industries
…And its services extend from pre-research analytical services to contract manufacturing i.e covering entire
spectrum of CSM space
Source: Company, PL
January 8, 2019 64
P.I. Industries
Launch of Awkira and PB Knot are likely to again place the domestic business on
high growth trajectory. Uptick in global agrochemical industry, commercialization &
ramp up of new molecules and debottlenecking of capacities are likely to drive
+20% growth in CSM segment in FY20E. While the performance in the last 3 years
has been sub-par (Revenue/EBITDA CAGR of 4.2%/6.8% between FY16-18)
owing to headwinds in both domestic and global agrochemical industry, PI is likely
to fire from both the cylinders over the next 2 years. We expect revenue/PAT to
grow at CAGR of 18.0%/21.0% between FY18-20E. We initiate coverage with
ACCUMULATE rating and target price of Rs 924 (23x FY21E earnings).
Sales and PAT CAGR at 16.0% and 14.7% over FY18-21E

Domestic Business 8,657 8,746 10,603 12,193 13,656
CSM Business 14,108 14,025 16,830 20,617 24,328
Total Revenue 22,765 22,771 27,433 32,810 37,984
Employee Cost 2,204 2,400 2,826 3,347 3,893
Other Expenses 3,425 3,760 4,115 5,086 5,888
EBITDA 5,505 4,920 5,336 6,660 8,072
Margin 24.2% 21.6% 19.5% 20.3% 21.3%
PAT 4,574 3,665 3,774 4,575 5,538
EPS (Rs) 33.2 26.6 27.4 33.2 40.2
Source: Company, PL
Lower profits and high capex impact return ratios CSM segment to dominate the overall revenue pie
RoCE RoE CSM Segment Domestic Segment
35% 31% 70% 61% 63% 64%

58% 59% 61%
30% 33% 60% 50% 52%
23% 24%
25% 22% 21% 50%
20% 40% 50% 48%
21% 20% 42% 41% 39%
15% 18% 19% 30% 39% 37% 36%
10% 20%
5% 10%
0% 0%
FY17 FY18 FY19E FY20E FY21E FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
January 8, 2019 65
P.I. Industries
About the company
PI Industries’ unique model of domestic branded business and CSM export

business is built on its pan India distribution reach, brand building capabilities,
principles of respect for IP and partnership & strong relationship with global
innovators. Domestic business which accounts for 39% of revenue has distribution
reach of 10000 distributors and more than 60000 retailers. Nominee Gold, Osheen,
Roket, Biovita, Fosmite are among the top selling brands in the domestic market.
PI is the largest CRAMS company in India with ~95% of revenue from patented
products. In the CSM business, PI’s capabilities extend from process research and
process development to scale up and commercial manufacturing. PI business
model in the CSM business is to partner with global innovators and focus on early
stage and proprietary molecules.
Orderbook largely constant over the past 4 quarters
1.4
1.2 1.2 1.2 1.2
1.2
1.0 1.0 1.0
1.0
0.9 0.9
0.8 0.8 0.8
(US$ m n)
0.8
0.6 0.6
0.6
0.4
0.2
Source: Company, PL
Active Ingredients (AIs) & Intermediates continue to dominate the

revenue pie
AIs & Intermediaries Formulations
38% 36%
62% 64%
FY17 FY18
Source: Company, PL
January 8, 2019 66
P.I. Industries
Asia (Incl India) and North America contributes ~90% of revenue
45% FY17 FY18

40%
40% 37% 38%
35%
29%
30%
25% 23%
20%
14%
15%
10% 8%
5%
3%
5% 1% 0% 2%
0%
India Asia (ex North Australia Europe RoW
India) America
Source: Company, PL
PI’s approach to brand building
Source: Company, PL
January 8, 2019 67
P.I. Industries
Financials
YoY gr. (%) 0.0 20.5 19.6 15.8
Employee Cost 2,400 2,826 3,347 3,893
Other Expenses 3,760 4,115 5,086 5,888 Acc: Dep / Amortization 2,077 2,996 4,097 5,355
Tangibles 2,033 2,933 4,011 5,243
YoY gr. (%) (10.6) 8.4 24.8 21.2
Tangibles 9,886 11,157 13,050 13,304
Depreciation and Amortization 826 919 1,101 1,258 Intangibles 71 73 78 66
EBIT 4,095 4,417 5,560 6,813 Capital Work In Progress 899 1,725 735 750
Margin (%) 18.0 16.1 16.9 17.9 Goodwill - - - -
Net Interest 59 65 60 60 Net Deferred tax assets 252 - - -

Margin (%) 20.4 17.9 18.6 19.4 Investments 1,595 2,200 2,500 3,000
Inventories 4,520 5,111 5,843 6,764
Total Tax 970 1,127 1,525 1,846 Trade receivables 5,268 6,013 6,742 7,285
Other Current Assets 1,667 1,151 1,378 1,595
Margin (%) 16.1 13.8 13.9 14.6
Long Term borrowings 463 385 385 385
YoY gr. (%) (19.9) 3.0 21.2 21.0 Other non current liabilities - - - -
Margin (%) 16.1 13.8 13.9 14.6
Current Liabilities
Other Comprehensive Income - - - - ST Debt / Current of LT Debt 371 - - -
January 8, 2019 68
P.I. Industries

PBT 4,636 4,902 6,100 7,383 Per Share(Rs)
Add. Depreciation 826 919 1,101 1,258 EPS 26.6 27.4 33.2 40.2
Add. Other (331) (550) (600) (630) FCF 10.5 11.9 17.7 27.7
Direct tax (957) (806) (465) (1,794) RoCE 22.0 20.8 22.7 23.8
Capital expenditures (1,695) (2,191) (3,000) (1,500) RoE 20.8 18.3 19.0 19.6
Others (390) (605) (300) (500) Net Debt : Equity (x) (0.1) (0.2) (0.2) (0.3)
Net Cash from Invt. activities (1,823) (2,246) (2,700) (1,370) Net Working Capital (Days) 98 93 87 85
Issue of share cap. / premium 88 - - - Valuation(x)
Debt changes (364) (449) - - PER 32.5 31.6 26.1 21.5
Dividend paid (662) (660) (801) (969) P/B 6.2 5.4 4.6 3.9
Others - - - - EV/EBITDA 23.8 21.7 17.1 13.7
Net cash from Fin. activities (997) (1,174) (861) (1,029) EV/Sales 5.1 4.2 3.5 2.9
Net change in cash 324 415 1,874 2,921 Dividend Yield (%) 0.5 0.4 0.5 0.7
Free Cash Flow 1,449 1,644 2,434 3,820 Source: Company Data, PL Research

Key Operating Metrics
Y/e Mar FY18 FY19E FY20E FY21E
Net Revenue 6,251 6,056 7,230 6,428
Revenues
YoY gr. (%) 3.2 9.5 28.9 19.5
CSM 14,025 16,830 20,617 24,328
Domestic 8,717 10,603 12,193 13,656
Gross Profit 3,024 2,821 3,105 2,860
Margin (%) 48.4 46.6 42.9 44.5
EBITDA 1,347 1,181 1,346 1,189
YoY gr. (%) 28.6 (12.3) - -
Margin (%) 21.5 19.5 18.6 18.5
EBIT 1,135 961 1,118 952
Margin (%) 18.2 15.9 15.5 14.8
Other Income 191 102 124 150
Profit before Tax 1,307 1,046 1,228 1,087
Margin (%) 20.9 17.3 17.0 16.9
Total Tax 253 229 284 217
Profit after Tax 1,054 817 944 870
Adjusted PAT 1,054 817 944 870
YoY gr. (%) (22.0) (18.4) 17.5 7.8
Margin (%) 16.9 13.5 13.1 13.5
Reported PAT 1,054 817 944 870
YoY gr. (%) (22.0) (18.4) 17.5 7.8
Margin (%) 16.9 13.5 13.1 13.5
Total Comprehensive Income 1,054 817 944 870
Avg. Shares O/s (m) 138 138 138 138
EPS (Rs) 7.6 5.9 6.8 6.3
January 8, 2019 69
Sharda Cropchem (SHCR IN)
January 8, 2019 Risk of structural grind down in gross margin…

Company Report Sharda Cropchem’s (SHCR) USP lies in identifying generic molecules,
preparing dossiers and garnering registrations which enables it to broad
base its offering across wide range of crops and product segments. Its
highest dependency on highly profitable but toughest agrochemical market
i.e. Europe speaks volume about its ability to anticipate potential issues and
Key Financials comply with regulatory requirements proficiently to get registrations. With
FY18 FY19E FY20E FY21E deep penetration, good product portfolio and excellent brand recall being
Sales (Rs. m) 17,134 19,627 22,679 25,835 established in Europe, it is now eyeing increased presence in NAFTA & LatAM
EBITDA (Rs. m) 3,454 3,601 4,248 4,942 region (at the risk of declining the blended margins). With increasing
Margin (%) 20.2 18.4 18.7 19.1
application of generic molecules globally coupled with 26 molecules going
PAT (Rs. m) 1,908 1,943 2,340 2,679
EPS (Rs.) 21.1 21.5 25.9 29.7 off-patent between 2017-2022, SHCR’s fluid and dynamic business model
Gr. (%) 0.3 1.9 20.4 14.5 places it in a sweet spot of significantly scaling up the operations over the
DPS (Rs.) 4.0 4.1 4.9 5.6
next decade. We initiate coverage on the stock with a Buy rating for a target
Yield (%) 1.3 1.4 1.6 1.9
RoE (%) 18.2 16.1 17.0 17.0 price of Rs 444 based on 15x FY21E earnings.
RoCE (%) 24.3 21.8 24.3 24.3
EV/Sales (x) 1.6 1.4 1.2 1.0 Unique Business Model: SHCR has an asset light business model with no
EV/EBITDA (x) 8.0 7.5 6.2 5.1 manufacturing facilities. Its USP in identifying generic molecules, preparing
PE (x) 14.3 14.1 11.7 10.2
P/BV (x) 2.4 2.1 1.9 1.6
dossiers and seeking registrations enables it to broad base its offering across wide
range of crops and product segments. Minimal investments in plant & machinery
and research & development related expenses helps the company in staying asset
light and boosts its return ratios.
SHCR’s has strong presence in a tough European market: SHCR’s reliance on

Key Data SHCR.BO | SHCR IN the European market (size - ~US$ 13 bn; industry gross margin- +40%), which has
52-W High / Low Rs.488 / Rs.255 the most stringent regulations, speaks volume about its ability to anticipate potential
Sensex / Nifty 35,850 / 10,772
Market Cap Rs.27bn/ $ 391m issues and comply with regulatory requirements proficiently to garner registrations.
Shares Outstanding 90m Although stringent regulations have led to higher expenses for creating dossiers,
fees, generating data, it has strong registration pipeline of 619 molecules (64% of
total pipeline registrations). With few major approvals in the kitty (Imazamox-
Herbicide, Tioconazole- Fungicide etc.) it has aggressive plans for the European
market. Higher growth in EU will enable superior growth in the NAFTA & LatAM
(low margin geographies) region without significantly impacting the margins.
Promoter’s 50.50 Outlook & Valuation: With increasing application of generic molecules globally
Foreign 4.05
Domestic Institution 18.13 coupled with 26 molecules going off-patent between 2017-2022, SHCR is in a
Public & Others 27.32 sweet spot of significantly scaling up the operations over the next decade. While
the fluidity in business model enables SHCR to rapidly realign its procurement with
market demand, the ongoing raw material supply crunch and increase in raw
material prices has contracted its gross margins by +500 bps over the last 2 years.
We expect 60 bps improvement in gross margins (@ 33.1% in FY21E) over the
next 2 years as the supply improves and the impact of price hikes kick in.
1M 6M 12M The scope of revenue growth is immense in NAFTA and LatAM once the distribution
Absolute 11.3 (10.2) (35.2)
Relative 10.7 (10.7) (38.3) is in place, but there is also a risk of structural grind down gross margins as these
geographies garner low margin for the industry. SHCR has been among the most
severely impacted due to short-supply of raw material, but at CMP the stock has
Prashant Biyani
prices in most of the concerns. Topline and bottom-line are expected to clock CAGR
of 14.7% and 11.9% between FY18-21E. We initiate coverage on the stock with a
Buy recommendation for a target price of Rs 444 based on 15x FY21E earnings.
January 8, 2019 70
Sharda Cropchem
Unique Business Model
SHCR has an asset light business model with no manufacturing facilities. The
company is focused on identifying generic molecules, preparing dossiers and
seeking registrations for marketing of those molecules through 3 rd party distributors.
Very focused business approach allows SHCR to channelize and efficiently utilise
time, resources and bandwidth towards developing core competency in seeking
registrations. Unfettered attention in seeking registrations and 3 rd party
procurement of molecules enables SHCR to broad base its offering across wide
range of crops and product segments. Minimal investments in plant & machinery
and research & development related expenses helps SHCR in staying asset light
and boosts its return ratios.
SHCR’s operating area
Source: Company, PL
Highest dependency on the toughest market (Europe)

showcases SHCR’s capability in garnering registrations
European market (size - ~US$ 13 bn) has highest barrier to entry due to tough
regulatory regime. SHCR derives ~47% of revenue from European region. SHCR’s
dependency on the European market speaks volume about its capability of
identifying molecules, garnering registrations. The company has successfully dealt
with the regulatory compliances in various geographies which has developed its
understanding to anticipate potential issues and comply with regulatory
requirements proficiently.
With gross margins of ~44%, the region is also the highest margin contributor for
the company. SHCR has aggressive plans for the European market. Between
FY16-18, the total registration count has increased by 23.4% to 1049 (49% of total
registrations) while the registration pipeline count has increased by 43.3% over the
same period to 619 for the European region (64% of total registrations in the
pipeline). The company got approval of Imazamox technical (Herbicide). SHCR was
the first generic company (Innovator – BASF) to get approval for the product and it
quickly ramped up sales to eat into market share of BASF.
January 8, 2019 71
Sharda Cropchem
The regulatory regime getting tougher bodes well for SHCR as it acts as a barrier
to entry for other generic players. Stringent regulations have led to higher expenses
for creating dossiers, fees, generating data especially for small and medium sized
companies, hence the region is also highest gross margin contributor for the
industry. Regulatory actions in the EU could lead to older, lower cost products being
replaced by newer products, potentially boosting the value of the market.
European business revenues have Europe contributes 47% of total agrochemical segment sales
grown at a CAGR of 19.5% between
FY14-18 Revenue from EU (Rs mn) YoY% % of Agrochem Sales
8,000 55.4% 60.0%

50.6% 50.6% 50.4%
7,000 47.0%
50.0%
6,000
32.5% 40.0%
5,000 31.4% 31.1%
4,000 30.0%
3,000 15.8% 20.0%
2,000
5.9% 10.0%
1,000
3,285 4,353 5,707 6,042 6,994
- 0.0%
Source: Company, PL
EU region gross margins consistently above 43%
Europe NAFTA LATAM RoW
50.0%
43.0%
45.0%
40.0%
35.0%
30.0% 25.0%
25.0%
20.0%
15.0% 20.0%
10.0%
5.0%
0.0%
4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19
Source: Company, PL
Crop loss from insect damage to double by 2050: Crops loss due to insect
damages could double as a result of increase in global temperatures over the next
3 decades. Containing crop loss would involve more sprays of agrochemicals which
would benefit generic companies like SHCR due to favorable cost-benefit ratio for
farmers. The crop damage in 11 countries including UK, Sweden and Ireland is
expected to rise by 75% by 2050 even if countries meet their existing commitments
to reduce greenhouse gas emissions. Insect damage currently reduces yield by
2.5% which is expected to increase by 75% to 4.4% going forward with pest induced
yield losses reaching to 16 mn tons in wheat. Warmer temperature can increase
insect’s metabolic rate which will enable it to consume more food in its lifespan.
January 8, 2019 72
Sharda Cropchem
Robust registration pipeline
The legal and procedural requirements for seeking registrations are cumbersome,
time consuming and differ in each jurisdiction. SHCR, with its continued navigation
through the regulatory requirements in these jurisdictions has acquired the ability
to anticipate potential issues and prepare for complying with the regulatory
requirements in an efficient manner. Capital investment required for preparing
dossiers and seeking registrations is a barrier for entry. SHCR’s investment in
registrations has grown at a CAGR of 51.8% between FY16-18. The registration
portfolio for the company is up by ~48% since 1QFY16 to 2209 while the registration
pipeline is up 35.5% over the same period to 984. SHCR also hires experienced
pool of consultants at times and seek assistance in facilitating to secure
registrations in their respective geographies. The company is present in all the
highly regulated markets like Europe, US, Canada, Japan, etc. It is also increasing
its presence in the world’s largest agrochemical market i.e. Brazil.
Registration pipeline count stands at Registration pipeline has grown at a CAGR of 10.3% over the last 4
930 currently with Europe dominating
years
the overall portfolio
Europe NAFTA LatAM RoW
122
41 57 119
131 209 199 112
164 132 131

92
625
436 458
342
FY15 FY16 FY17 FY18
Source: Company, PL
January 8, 2019 73
Sharda Cropchem
With increasing application of generic molecules globally coupled with 26 molecules

going off-patent between 2017-2022, SHCR is in a sweet spot of significantly
scaling up the operations over the next decade. While the flexibility in business
model enables SHCR to rapidly realign its procurement with market demand, the
ongoing raw material supply crunch and increase in raw material prices has
contracted its gross margins by +500 bps over the last 2 years. We expect 140 bps
improvement in gross margins (@ 33.5% in FY21E) over the next 2 years as the
supply improves and the impact of price hikes kick in.
Once the distribution is in place, the scope of revenue growth is immense in NAFTA
and LatAM, but there is also a risk of structural grind down gross margins as these
geographies garner low margin for the industry. SHCR has been among the most
severely impacted due to short-supply of raw material, but at CMP the stock has
prices in most of the concerns. Topline and bottom-line are expected to clock CAGR
of 14.7% and 12.9% between FY18-21E. We initiate coverage on the stock with a
Buy recommendation for a target price of Rs 444 based on 15x FY21E earnings.
Gross margins expected to be under NAFTA’s revenue share has nearly doubled over the last 4 years
pressure as NAFTA and LatAM,
which are the key growth drivers of Europe NAFTA LatAM RoW
future, are low margin geographies
vis-à-vis Europe
FY18 47% 34% 11% 9%
FY17 50% 27% 13% 10%
FY16 55% 20% 13% 11%
FY15 51% 19% 19% 12%
FY14 51% 20% 12%
0% 20% 40% 60% 80% 100%
Source: Company, PL
Return ratios likely to bottom out in FY19E Payout ratio largely stands at ~18-19%
RoCE RoE DPS Yield (%)

1.9%
35.0% 31.5% 6.0 2.0%
29.0% 1.6%
30.0% 25.8% 5.0 1.3% 1.3% 1.4%
24.3% 24.3% 24.3% 1.5%
22.6% 21.8%
25.0% 4.0 1.0%
0.8%
20.0% 23.4% 22.8% 3.0 0.7% 1.0%
21.7% 21.6%
15.0% 18.2% 2.0
16.1% 17.0% 17.0% 0.5%
10.0% 1.0
2.0 2.5 3.0 4.0 4.0 4.1 4.9 5.6
5.0% - 0.0%
0.0%
January 8, 2019 74
Sharda Cropchem
About the company

Sharda Cropchem, promoted by Mr RV Bubna, is engaged in global marketing and
distribution of a wide range of formulations and generic active ingredients (AIs),
SHCR’s Top 10 products across the Fungicide, Herbicide and Insecticide segments. The company has a
Metribuzin Chlorpyriphos unique asset light business model in which it specializes in identifying winning
Diquat Acetochlor opportunities in generic chemicals and active ingredients, preparing their dossiers,
Azoxystrobin Tebuconazole and seeking out registrations in the relevant jurisdiction, all within the shortest
Imidacloprid Glyphosate possible time-frame. Asset light model enables SHCR to adopt new molecules
Paraquat Bifenthrin swiftly and with relatively more ease than most of the peers. The company engages
with experienced consultants in different countries across regions to benefit from
Source: PL
their knowledge about the registration processes in the local jurisdiction as well as
the market conditions. Over the years, it has also developed a knowledge base of
local weather and soil conditions, which enables it to foresee and satisfy local
demand patterns. SHCR has operations across 80 countries in Europe, NAFTA,
Latin America, and Rest of the World regions.
Agrochemicals account for +85% of revenue
Agrochemicals Belts & Others
17% 19% 16% 14% 12%
83% 81% 84% 86% 88%
Source: Company, PL
Europe & NAFTA revenues CAGR at 19.5% & 49.2% respectively

The opportunity for growth NAFTA &
LatAM is high but these geographies Europe NAFTA LatAM RoW
garner lower margins
12.2% 11.9% 11.4% 10.4% 8.6%

12.7% 10.8%
17.3% 18.6% 13.4%
19.7% 26.5% 33.6%

19.9% 18.9%
50.6% 50.6% 55.4% 50.4% 47.0%
Source: Company, PL
January 8, 2019 75
Sharda Cropchem
Currency impact earlier a drag, has started to aid revenue growth
Price & Mix impact Volumes impact Currency impact
40%
3%
30% 9%
5%
4%
20%
3% 31% 31% 18% 8%
10% 13% 20% 21%
6% 16% 17%
11%
5% 4% 6%
0% 1%
-1% -2% -3% -3%
-4% -7%
-13% -5%
-10% -2% -1%
-20%
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
Source: Company, PL
Herbicide and Fungicide are 74% of sales

Share of revenue from Herbicides
has increased by 1100 bps over the Herbicide Fungicide Insecticide Others
last 2 years to 54% in FY18
FY18 20% 54% 26% 0
FY17 23% 49% 28% 0%
FY16 25% 43% 29% 3%
Source: Company, PL
RM availability has stretched working capital in FY18

Inventory days jumped by 29 days to
87 in FY18 as SHCR had stocked up Inventory Days Receivable Days Creditor Days Net WC Days
inventory for the season 200 165 180
180 160
160 127 126 131
118 140
140 120
113
120
100
100 190
185 185 75 175 80
80 156
48 48 138 60
60 115 119
37 95
40 78 40
20 20
0 -
Source: Company, PL
January 8, 2019 76
Sharda Cropchem
Financials
YoY gr. (%) 22.5 14.5 15.6 13.9
Gross Profit 5,696 6,379 7,416 8,551 Tangibles 129 175 222 267
Margin (%) 33.2 32.5 32.7 33.1 Intangibles 3,661 4,815 6,118 7,372
Employee Cost 335 373 424 483
Tangibles 22 33 46 62
EBITDA 3,454 3,601 4,248 4,942 Intangibles 1,509 2,263 3,140 4,222
YoY gr. (%) 10.6 4.3 17.9 16.3
Tangibles 107 141 176 206
Depreciation and Amortization 699 779 906 1,118 Intangibles 2,152 2,552 2,978 3,150
EBIT 2,755 2,822 3,341 3,824 Capital Work In Progress 3,599 3,588 3,929 4,434
Margin (%) 16.1 14.4 14.7 14.8 Goodwill 4 4 4 4

Margin (%) 16.8 14.9 15.5 15.6 Investments 221 200 200 800
Inventories 5,304 5,377 5,903 5,662
Total Tax 964 978 1,178 1,349 Trade receivables 8,919 9,679 10,563 11,608
Effective tax rate (%) 33.6 33.5 33.5 33.5 Cash & Bank Balance 1,010 123 647 1,149
Minority interest 0 (2) (2) (2)
YoY gr. (%) 0.3 1.9 20.4 14.5 Total Networth 11,348 12,856 14,672 16,753
Margin (%) 11.1 9.9 10.3 10.4
Long Term borrowings 1 - - -
Margin (%) 11.1 9.9 10.3 10.4
Current Liabilities
Other Comprehensive Income - - - - ST Debt / Current of LT Debt 1,696 - - -
January 8, 2019 77
Sharda Cropchem

PBT 2,872 2,919 3,516 4,026 Per Share(Rs)
Add. Depreciation 699 779 906 1,118 EPS 21.1 21.5 25.9 29.7
Add. Interest (166) (232) (185) (213) CEPS 28.9 30.2 36.0 42.1
Add. Other 386 153 58 70 FCF (20.4) 12.4 9.6 16.6
Direct tax (945) (958) (1,154) (1,322) RoCE 24.3 21.8 24.3 24.3
Net cash from Op. activities 267 2,311 2,560 3,301 ROIC 18.1 14.9 17.2 18.5
Others 386 21 - (600) Net Debt : Equity (x) 0.0 0.0 (0.1) (0.1)
Net Cash from Invt. activities (1,559) (936) (1,505) (2,192) Net Working Capital (Days) 165 150 140 129
Debt changes 1,694 (1,697) - - PER 14.3 14.1 11.7 10.2
Dividend paid (424) (432) (520) (595) P/B 2.4 2.1 1.9 1.6
Others 1 2 - (1) EV/EBITDA 8.0 7.5 6.2 5.1
Net cash from Fin. activities 1,223 (2,262) (531) (607) EV/Sales 1.6 1.4 1.2 1.0
Net change in cash (69) (887) 524 502 Dividend Yield (%) 1.3 1.4 1.6 1.9
Free Cash Flow (1,844) 1,122 869 1,496 Source: Company Data, PL Research

Net Revenue 7,687 4,571 3,097 3,854
Revenues
YoY gr. (%) 29.2 34.0 11.4 18.4
Europe 6,994 7,693 8,771 9,823
NAFTA 5,000 6,050 7,139 8,210
Gross Profit 2,667 1,425 960 1,070
LatAM 1,607 1,945 2,334 2,754
Margin (%) 34.7 31.2 31.0 27.8
RoW 1,280 1,664 1,897 2,162
EBITDA 1,975 851 347 375
YoY gr. (%) 453.9 (56.9) - -
Margin (%) 25.7 18.6 11.2 9.7
EBIT 1,790 667 150 170
Margin (%) 23.3 14.6 4.9 4.4
Profit before Tax 1,719 526 291 185
Margin (%) 22.4 11.5 9.4 4.8
Total Tax 587 184 129 61
Profit after Tax 1,132 342 162 124
Adjusted PAT 1,176 482 162 124
YoY gr. (%) 25.8 47.5 (34.0) 65.2
Margin (%) 15.3 10.5 5.2 3.2
Reported PAT 1,176 482 162 124
YoY gr. (%) 25.8 47.5 (34.0) 65.2
Margin (%) 15.3 10.5 5.2 3.2
Total Comprehensive Income 1,176 482 162 124
Avg. Shares O/s (m) 90 90 90 90
EPS (Rs) 13.0 5.3 1.8 1.4
January 8, 2019 78
UPL (UPLL IN)
January 8, 2019 Behemoth in the making

Company Report UPLL, after successfully transforming itself from a domestic phosphorus
based chemicals company to an end to end global crop solutions provider, is
on the verge of becoming an agrochemical behemoth with the acquisition of
Arysta Lifesciences (for US$ 4.2 bn). Arysta’s overall set up (product
portfolio, geographical presence, infrastructure and capabilities)
Key Financials compliments UPLL in all aspects, hence we estimate US$ 160 mn worth of
FY18 FY19E FY20E FY21E synergy benefits by FY21E. Sizeable presence across major geographies
Sales (Rs. m) 1,73,780 1,91,059 2,08,409 2,26,098 globally makes UPLL a global proxy on the generic agrochemical companies.
EBITDA (Rs. m) 35,160 39,454 43,870 47,368 UPL is well placed to capture significant share of US$ 3.7 bn off-patent
Margin (%) 20.2 20.7 21.1 21.0
PAT (Rs. m) 19,480 23,890 26,913 30,312 products between CY15-CY17, given its cost competitive manufacturing
EPS (Rs.) 38.2 46.8 52.8 59.4 capabilities. Despite being amongst the largest companies, size is unlikely to
Gr. (%) 7.1 22.6 12.7 12.6
hinder growth for UPLL over the next few years. We estimate 15.9% (UPLL
DPS (Rs.) 8.0 9.6 10.8 12.1
Yield (%) 1.0 1.3 1.4 1.6 Ex-Arysta) & 34.7% (UPLL + Arysta) PAT CAGR over FY18-21. We initiate
RoE (%) 23.5 24.6 25.5 25.0 coverage on the stock with a BUY rating and a target price of Rs 975 (8.0x
RoCE (%) 19.3 19.1 20.3 21.4
EV/Sales (x) 2.4 2.3 2.0 1.8 FY21E EV/EBITDA, including Arysta).
EV/EBITDA (x) 12.1 10.9 9.5 8.5
PE (x) 20.0 16.3 14.5 12.9
Arysta compliments UPLL in all aspects: The complementarity in crop portfolio,
P/BV (x) 4.2 3.8 3.6 2.9
market presence and procurement infrastructure makes Arysta a perfect fit for
UPLL. While UPLL’s crop focus is food-grains, Arysta is widely present in
Horticulture, Cereals and Oilseeds. Geographically, Arysta will provide a strong
platform for large scale presence in Eastern Europe & Russia, deeper penetration
Key Data UPLL.BO | UPLL IN

is Asia and access to Africa and Middle East markets. We expect synergy to flow
52-W High / Low Rs.830 / Rs.537 through by way of insourcing of technicals, better sourcing price and terms of trade
Sensex / Nifty 35,850 / 10,772
for Intermediates (economies of scale), rationalization of plants in few geographies
Shares Outstanding 509m and Increased access to AIs given Arysta’s strong relationship with the innovators
(Arysta’s origin traces back to Japan).
Proxy to increase in usage of generic molecules and rising pest infestations:

Increase in temperatures results in more pest infestation and loss of crops.
Shareholding Pattern (%) Currently ~13% of the crop is lost world over owing to pest attacks. It is estimated
Promoter’s 50.50 that mere 2% increase in average global temperature can result in 213 mn tons of
Foreign 4.05 crop loss for just wheat, maize and rice. Losses are expected to increase 10-25%
Domestic Institution 18.13
Public & Others 27.32 for each degree of increase in temperature. Rising global temperature will increase
demand for pesticides and gradual shift to generic crop protection chemicals and
products going off-patent will open up more opportunities for UPLL.
Outlook and Valuation: UPPL is best placed as consolidation of global innovators

Stock Performance (%) is expected to accelerate its growth. In addition, shortage of raw material supplies
1M 6M 12M is creating demand-supply gap which will benefit backward-integrated players like
Absolute 0.8 22.9 (1.3)
Relative 0.3 22.2 (6.0) UPLL. Its critical success factor is the launch of high efficacy products which are
able to maintain resistance. While Arysta’s acquisition would require extraordinary
efforts by the management to make sure that the transition is smooth and financial
Prashant Biyani
prashantbiyani@plindia.com | 91-22-66322260 leverage is under control, we believe it is a perfect fit for UPLL given the
complementarity. We initiate coverage on the stock with Buy rating for a target price
of Rs 975 based on 8.0x FY21E EV/EBITDA (incl Arysta).
January 8, 2019 79
UPL
Arysta Acquisition- Compliments UPL in all aspects
Combined entity will enjoy significant UPL’s US$ 4.2 bn acquisition of Arysta Lifesciences for makes it the largest generic
complementarity in crop portfolio,
agrochemical company globally. Apart from scale, the combined entity also enjoys
market presence and infrastructure
leading to substantial cost savings significant complementarity in crop portfolio, market presence and infrastructure
which will lead to substantial synergistic benefits in the form of lower operating costs
(manufacturing cost, selling & distribution expenses) and other cost efficiencies.
There are several cross selling opportunities to take advantage of each other’s
distribution strength, market & brand positioning and portfolio quality. While the
management expects annual run-rate of synergistic benefits amounting to US$ 200
mn (Year 1- US$ 100 mn) on EBITDA, we anticipate benefits to be more back-
ended as reviewing and re-aligning operation and supply chain without causing
disruptions to business/stakeholders on this massive scale takes time.
 UPLL will have strong presence in Eastern Europe & Russia, deeper
penetration in Asia and will gain access to Africa and Middle East, its
erstwhile weaker geographies
UPL and Arysta complement their market presence

UPL Arysta UPL+Arysta
· Provide strong platform in Eastern
Europe & Russia, deeper penetration in
Asia and access to Africa & Middle East.
India, Americas, Africa, Russia, Eastern
· Deeper penetration and expanded
Western Europe Europe
reach.
· Opportunity to cross sell through
expanded geographical reach.
Source: Company, PL
Presence in European market Acquisition to increase penetration in North America and LATAM
doubles while penetration deepens in
North America and LatAM region UPL Arysta UPL+Arysta
45%
39%
40% 36% 36%
33% 34%
35%
30% 26%
24%
25%
20% 18%
16%
15% 13% 13% 12%
10%
5%
0%
North America Latin America Europe RoW
Source: Company, PL
January 8, 2019 80
UPL
 UPL’s presence in core food-grains will be complimented with Arysta’s

focus on Fruits & Vegetables, Cereals and Oilseeds.
Complementarity in crop presence

· Complimentary product and crop
portfolio in geographies such as Latin
· Bio solutions and Seed Treatment. America, North America and Western
Exposure to fast growing market Europe.
· Well diversified portfolio across the
segments and niche crops · While UPL’s crop focus is Fruits &
value chain from seeds to post harvest.
· Late stage R&D with strong pipeline of Vegetables, Rice, Soybean, Cotton,
Crop Portfolio
differentiated solutions Sugarcane and Corn, Arysta’s crop focus
· Crop focus: F&V, Rice, Soybean,
· Crop focus: F&V, Cotton, Sugarcane, is F&V, Cotton, Sugarcane, Sunflower,
Cotton, Sugarcane, Corn
Sunflower, Cocoa and Cereals Cocoa and Cereals. So with the
acquisition UPL will have a
comprehensive product portfolio
addressing arable and specialty crops.
Source: Company, PL
 Combined portfolio of UPL+Arysta will have well distributed presence in

all traditional product segments
UPL will gain entry in high growth Bio-solutions and seed treatment segments of agrochemical industry
UPL Product Mix Arysta Product Mix UPL + Arysta Product Mix
Others Others Others
Insecticides 11% Insecticides
20% Bio Insecticides 16%
25% 27%
Solutions 30% Bio
8% Solutions
3%
Fungicides
17%
Fungicides
Fungicides Herbicid Herbicides 23% Herbicides
26% es 34% 31%
29%
Source: Company, PL
Revenue synergies driven by complementary capabilities
Source: Company, PL
January 8, 2019 81
UPL
 The merged entity will have unique combination of UPL’s competitive

manufacturing capabilities and Arysta’s R&D, differentiated and
discovery capabilities
Complementarity in Manufacturing Infrastructure and R&D

Key
Strengths
· Unique combination of UPL’s
Unique asset light in-house AI and Arysta’s local
Industry leading
Manufacturing model underscoring ‘close to customer’ formulation
manufacturing
Infrastructure high capital manufacturing.
capabilities
efficiency Cost leadership driven by
backward integration.
· Strong · Exposure to fast · Meet grower/ channel needs
registration and growing market through complementary AI
Registration,
product segments and niche portfolio and access to new
Product
development crops. crops.
development
capabilities Differentiated R&D · Arysta has strong relationship
and R&D
focused on speed and discovery with innovators which will aid
capabilities
to market capabilities. UPL in gaining access to AIs.
· 6150 registrations · 6850 registrations · 13000+ registrations
Source: Company, PL
Annual synergy benefits of US$ 200 Potential areas where synergy benefits can kick in
mn expected from 2nd year of Cost Head Share in total synergy benefits Areas where synergy benefits can kick in
integration (a) Technical grade inputs where UPL can do
insourcing with minimum capacity additions
Raw (b) Intermediates/technical to get much better
Material 35-40% terms in prices and payment terms due to
Costs economy of scale
(c) Rationalization of mfg. units in few
geographies
(a) CEO, CHRO, etc.
(b) Scope of reducing regional heads of
various geographies and consequent
SG&A reduction of related travel expenses
35-40% (c) Moving Legal, Finance & Accounts
expenses
functions to India
(d) Shutting down common location offices.
Arysta has Headquarters in US and Japan,
both of them are expected to close down.
(a) Removal of duplication R&D facilities
S&D and
R&D 20-30% (b) Per capital productivity for sales
expenses personnel is expected to improve with wider
product portfolio
Source: PL, Company
With complementarity across all aspects in business, the opportunity and scope of
optimizing the business potential is tremendous which will make UPL leader in
different crops across various geographies that it operates in.
January 8, 2019 82
UPL
Expect UPL to clock EPS of Rs 73.1 UPL + Arysta: Earnings are expected to more than double by FY21E
& Rs 93.9 in FY19E & FY20E
respectively Rs Mn FY19E FY20E FY21E YoY%
Revenue 1,90,448 3,71,149 4,07,243 9.7%
UPL Group Cons Sales 1,90,448 2,06,897 2,24,558 8.5%
Arysta Sales - 1,60,652 1,68,685 5.0%
Revenue Synergy - 3,600 14,000 288.9%
Cost of sales 88,558 1,74,906 1,85,716 6.2%
Employee Cost 18,473 35,259 39,095 10.9%
Other Expenses 44,374 84,436 91,630 8.5%
Total Expenses 1,51,406 2,94,602 3,16,441 7.4%
EBITDA 39,042 76,547 90,802 18.6%
Margin 20.5% 20.6% 22.3%
Depreciation 7,408 8,418 9,038 7.4%
EBIT 31,634 68,129 81,763 20.0%
Interest Cost 9,393 18,120 16,650 -8.1%
Other Income 3,726 3,316 3,482 5.0%
PBT 25,967 53,325 68,595 28.6%
Tax Expenses 3,376 6,932 9,260 33.6%
PAT 22,591 46,393 59,335 27.9%
Share of loss from JV & associates (500) (400) (300) -25.0%
Minority Interest 100 8,931 11,422 27.9%
APAT 21,991 37,062 47,613 28.5%
EPS 43.4 73.1 93.9 28.5%
Source: Company, PL
Sensitivity Analysis; Bull case target price at Rs1237 based on FY21, Bear case at 777 protects downside
Bear Case Base Case Bull Case
Rs Mn
FY20E FY21E FY20E FY21E FY20E FY21E
UPL Group Cons Sales 2,06,897 2,24,558 2,06,897 2,24,558 2,06,897 2,24,558
Arysta Revenue (Rs Mn) 1,48,752 1,53,215 1,60,652 1,68,685 1,60,652 1,68,685
Revenue Synergies (Rs Mn) - 7,000 3,600 14,000 10,800 24,500
Total Revenue 3,55,649 3,84,772 3,71,149 4,07,243 3,78,349 4,17,743
UPL Group Cons EBITDA 42,828 46,708 42,828 46,708 42,828 48,280
Arysta EBITDA (Rs Mn) 28,263 29,570 31,327 33,737 32,130 34,580
Synergies impact on EBITDA - 3,500 4,320 11,200 6,120 12,600
Impact of disruptions due to
-2,975 -1,532 -1,928 -843 - -
acquisition on Arysta EBITDA
Blended Consolidated EBITDA 68,115 78,246 76,547 90,802 81,078 95,460
Debt/EBITDA 4.2 3.5 3.7 3.0 3.5 2.8
Current EV/EBITDA multiple 9.4 8.0 8.3 6.9 7.9 6.5
Target EV/EBITDA multiple 9.0 8.0 9.0 8.0 10.0 9.0
Target Price 721 777 870 975 1,111 1,237
Source: PL, Company
January 8, 2019 83
UPL
Peer Comparison
How UPL stacks up against Innovators and global generic companies

US$ Mn Revenue EBITDA APAT
Company CY18E CY19E CY20E CY18E CY19E CY20E CY18E CY19E CY20E
Bayer 44937 53237 55226 10805 14179 15374 6087 7505 86623
Dow Dupont 86854 90075 94395 18525 20180 22496 9585 10362 11908
BASF 71622 74123 76645 10940 11551 12393 5925 5903 6509
FMC 4668 4662 4825 1294 1293 1361 804 818 905
Nufarm 2549 2668 2772 355 392 413 108 143 157
UPL (Rs Mn) 1,90,448 3,71,149 4,07,243 39,042 76,547 90,802 21,991 37,062 47,613
CAGR (FY19E-21E) P/E EV/EBITDA
Company Revenue EBITDA PAT CY18E CY19E CY20E CY18E CY19E CY20E
Bayer 10.9% 19.3% 277.2% 10.2 10.5 8.6 8.3 10.0 7.6
DowDupont 4.3% 10.2% 11.5% 12.9 11.6 9.8 8.2 7.5 6.8
BASF 3.4% 6.4% 4.8% 10.5 10.4 9.5 7.8 7.4 6.9
FMC 1.7% 2.6% 6.1% 12.4 12.0 10.6 9.7 9.7 9.2
Nufarm 4.3% 7.9% 20.6% 14.6 11.7 10.6 7.7 7.0 6.6
UPL 46.2% 52.5% 47.1% 17.6 10.4 8.1 16.6 8.3 6.8
Source: Company, PL
UPLL acquired Arysta at reasonable valuations…

Valuation
Company Acquired/Merged Deal Size Price /
Price / Sales PE
EBITDA
Monsanto US$ 66 bn 4.4 12.4 20.9
Syngenta US$ 43 bn 3.2 15.5 26.4
Dow US$ 67 bn 1.4 8.1 11.5
Dupont US$ 50 bn 2.0 12.3 22.7
Potash Corp US$ 11 bn 2.5 8.5 38.5
Agrium US$ 10 bn 0.8 6.0 16.5
Arysta by Platform Specialty US$ 3.5 bn 2.3 - -
Arysta by UPLL US$ 4.2 bn 2.1 9.9 -
Source: Company, PL
…but leverage to shoot up post acquisition
UPLL plans to fund its acquisition with a mix of debt and equity. The company would
acquire Arysta through its wholly owned international subsidiary UPLL Corp. UPLL
plans to raise US$ 1.2 bn in equity through issue of shares of UPLL Corp to ADIA
and TPG. ADIA and TPG will hold a total of 22% stake in UPLL Corp. Another US$
3.0 will be raised in debt. The cost of incremental debt is 4-4.5% as per the
management. The company also claims to be covered on interest cost.
Debt/EBITDA is expected to increase to 3.7 from current levels of 2.3.
January 8, 2019 84
UPL
Global proxy to increase in usage of generic molecules

amidst rising pest infestations
UPLL being a pure generic company with presence throughout the world is a proxy
play on the increasing usage of generic agrochemicals globally. The gradual shift
to generic crop protection chemicals and products going off-patent are likely to open
up more opportunities for UPLL. The share of generic molecules in the global
agrochemical market is set to increase (currently @ 66%) as molecules worth US$
3 bn are likely to go off-patent between 2017-2020. Products worth US$ 3.7 bn
have already gone off -patent between CY15 and CY17. Apart from pure generics
(66% of global agrochemical market), proprietary off-patent market (16%) is
immediately addressable. UPLL, with its strong registration & product development
capabilities focused on speed to market and extremely competitive manufacturing
capabilities, is well placed to capture significant share of the upcoming opportunity.
AIs going off-patent between 2017-2022

Agrochemicals worth US$ 6.3 bn in Active Ingredient Inventor Company Category
the midst of going off-patent till 2020. Aminopyralid Dow Agrosciences Herbicide
26 molecules to go off-patent Amisulbrom Nissan chemical industries Fungicide
between 2017-2022
Chlorantriniliprole DuPont Insecticide
Cyrposulfamide Bayer Safener
Fenpyrazamine Sumitomo chemical Fungicide
Flubendiamide Nihon Nohyaku Insecticide
Flucetosulfuron LG Chem investment Herbicide
Fluopicolide Bayer Fungicide
Isotianil Bayer Fungicide
Mandipropamid Syngenta Fungicide
Metamifop Dongbu Hannong chemicals Herbicide
Metofluthrin Sumitomo chemical Insecticide
Metrafenone BASF Fungicide
Orthosulfamuron Isagro Herbicide
Penflufen Bayer Fungicide
Pinoxaden Syngenta Herbicide
Pyrasulfotole Bayer Herbicide
Pyrifluquinazon Nihon Nohyaku Insecticide
Pyrimsulfan Ihara Chemical Industry Herbicide
Pyroxasulfone Kumiai Chemical Industry Herbicide
Pyroxsulam Dow AgroSciences Herbicide
Saflufenacil BASF Herbicide
Tembotrione Bayer CropScience Herbicide
Thiencarbazone Bayer CropScience Herbicide
Topramezone BASF Herbicide
Valifenalate Isagro Fungicide
Source: Agropages, PL
Global warming will lead to increase in demand for agrochemicals
Mere 2% increase in global average Currently ~13% of the crop is lost world over owing to pest attacks. Crop losses for
temperature is expected to result in
critical food grains will increase substantially as the climate warms as rising
213 mn tons of crop loss for just
wheat, maize and rice temperature increases the metabolic rate and population growth of insect pests.
Mere 2% increase in global average temperature is expected to result in 213 mn
tons of crop loss for just wheat, maize and rice. Losses are expected to increase
10-25% for each degree of increase in temperature.
January 8, 2019 85
UPL
US$ 34 bn worth of opportunity for UPL and other agrochemical majors in key crops globally
Opportunity size
Crop Weed Pest Fungus
(US$ Mn)
Sucking Pest, Black & Stink Bug,
Rice 5200 Pre & Post Emergence Sheath blight, Leaf Spot and Blast
Leaf Folder, Stem Borer
Pre-sowing, Pre & Post
Wheat 8700 Sucking Pest, Lepidopteran Pest Rust, Septoria Leaf Spot
Emergence, Chemical Fallow
Chemical Fallow, Pre & Post
Corn 5800 Emergence, Post Emergence GT Sucking Pest, Lepidopteran, Thrips
Corn
Pre Emergence, Post Emergence Aphid, Thrips, Whitterfly,
Cotton 1600 Grey Mildew, Alternaria
GT Cotton Lepidoptera
Pre Emergence, Post Emergence Lepidoptera, Coleopteran, Sucking
Soyabean 8200 Rust, Leaf Spot
GT Soyabean, Chemical Fallow Pest
Potato 1500 Pre & Post Emergence Lepidoptera, Sucking Pest Black Scurf, Late blight, Early blight
Sugarcane 1300 Pre & Post Emergence Soil Pest, Sucking Pest -
Angular Leaf Spot, Downy Mildew,
Vine 1600 Pre & Post Emergence Lepidoptera, Sucking Pest, Mites
Anthracnose
Source: Company, PL
Size is not hindering growth for UPL
Pre-Arysta Lifescience acquisition, UPL was the 7th largest agrochemical company
globally. Size has not hindered growth for the company given its continuous
endeavor to expand distribution reach, increase product portfolio by providing more
solutions to farmers and enhance competitiveness via continuous backward
integration. With these growth drivers UPL has been able to capitalize on the
opportunity of filling the gaps in marketplace by providing superior price value
proposition to the farmers. UPL has deepened its presence in Asia, Africa, Turkey
and China where it did not have extensive presence. UPL has been consistently
outperforming industry growth across geographies. Going forward, post the
acquisition of Arysta, while growth is expected to taper down to high single digits
due to its massive size, we expect UPL’s outperformance to continue given its large
product pipeline and enormous scope to expand for the generic players.
UPL has major brands across all product segments

UPL has been on a launch spree with Specialty
Fumigants post-
341 product launch in the last 4 years Segments Seeds Herbicides Insecticides Fungicides
& storage harvest
resulting in 4x increasing in product
Innovation Turnover Rate Propanil,
Sorghum, Acephate, Aluminum
Metribuzin,
Corn, Imidacloprid, Mancozeb, Phosphide Natural
Key Glufosinate,
Canola, Bifenazate, Copper, (ALP), coatings
Products Pendimethalin,
Sunflower, Flonicamid, Sulphur Magnesium CIPC
S-Metolachlor,
Vegetables Bifenthrin Phosphide
Asulam
Manzate,
Stam, Devrinol
Vondozeb,
Tricor,
Lancer Gold, Microthial,
Fascinate,
Advanta, Ulala, Unizeb
Lifeline,
Alta, Phoskill, Gold,
Key Satellite, Weevilcide,
Pacific, Batus Gold, Glory, Oorja
Brands Lagaam, Quickphos
Golden, Banter, BB20,
Saathi,
Nutrisun Sperto, TBCS40,
Moccasin,
Perito Saaf, Elixir,
Eros Gold,
Triziman,
Asulox
Tridium
Source: Company, PL
January 8, 2019 86
UPL
UPL posted double digit volume growth over the last 4 years
FY15 FY16 FY17 FY18
20% 17% 18%

14%
15%
10%
10%
5% 2% 1% 2%
0%
-1% -2%
-5% -3%
-4%
-10% -8%
Volume growth Price Increase Exchange Impact
Source: Company, PL
While the Ag-chem industry has UPL Outperformed Industry Growth across regions (Revenue
grown at a CAGR of 1% between CAGR FY12-17)
FY12-17, UPLL has grown at 17%
CAGR Industry UPL
25
22
20
19
17
15 15
14
9
10
9
5
5 2
1
0
-1
0
India Europe North America Latin America RoW Overall
-5
Source: Company, PL
Integrated operations ensure minimal impact of raw

material scarcity on UPL
Large manufacturing facilities for UPL’s integrated operations and its ability to create capacities at lower than
Mancozeb, Aluminium Phosphide,
prevailing costs has made it one of the most cost efficient player globally, thereby
Pendimethalin and Acephate
translating into economies of scale reducing the payback period.
and competitive costs
 It has large manufacturing facilities for Mancozeb, Aluminium Phosphide,
Pendimethalin and Acephate translating into economies of scale and
competitive costs.
 UPL’s rich understanding of standardised plant designs, procuring best-in-

class equipment, strategic supplier partnerships, off-site construction
(fabricated remotely and assembled at plant locations) and 3D walk-throughs
of designs has enabled it to create various plants at half the time taken by other
companies.
 The Company has invested in state of the art manufacturing technologies to

automate processes and robotised packaging lines to enhance quality.
January 8, 2019 87
UPL
 The company also has flexible capacity making it possible to alter the product
mix on demand.
 Further strengthening integration, UPL commissioned 11 new plants in the last

3 years.
 The company continues to invest lion’s share of capex in new products and
new capacities to address future opportunities, become self-reliant and emerge
as a backward integration pioneer.
High Capex intensity to increase self sufficiency
Capex As a % of GB & CWIP
20,000 16.1% 18.0%

18,000 13.7% 16.0%
16,000 12.6% 14.0%
14,000 12.0%
12,000
7.7% 10.0%
10,000
5.5% 8.0%
8,000
6,000 6.0%
16,494
17,220
4.0%
6,629
6,000
9,970
4,000
2,000 2.0%
- 0.0%
Source: Company, PL
January 8, 2019 88
UPL
Outlook & Valuation
UPLL has evolved from a crop protection chemical company with narrow application
relevance into a behemoth providing complete crop protection solutions. The
company is expected to capitalize upon the opportunity of filling the demand-supply
gap for generic agrochemicals which created as a result of consolidation of several
large global innovators and environmental concerns affecting supplies from China.
W.r.t to Arysta acquisition while the complementarity in crop portfolio, market
presence and infrastructure makes it a good fit for UPLL, acquisition of this scale is
unparalleled for UPL hence it would require extraordinary effort by the management
to make sure that the transition is smooth and financial leverage is under control.
Post-acquisition of Arysta, we expect UPLL’s growth to reduce to high single digits
due to larger base. The stock could be in narrow valuation band over the next 12
months as more clarity emerges regarding the integration and synergy benefits of
Arysta as UPL takes operational control of the company (post which we expect a
re-rating of the stock). We initiate coverage on the stock with a BUY rating for a
target price of Rs 975 valuing the company at 8.0x FY21E EV/EBITDA (incl Arysta).
UPL (excl Arysta) PAT is expected to UPL consol sales to grow at a CAGR of 9.2% between FY18-21E
clock CAGR of 15.9% between FY18-
21E (Rs mn) FY18 FY19E FY20E FY21E
India 31,890 36,591 40,627 44,283
LAtAM 56,920 61,844 67,410 74,151
Europe 23,050 25,254 27,274 29,456
Rest of World 31,090 33,877 36,926 39,142
North America 30,830 33,493 36,172 39,066
UPL consolidated revenue 1,73,780 1,91,059 2,08,409 2,26,098
Raw Material Cost 81,120 88,747 96,598 1,05,136
Employee Cost 17,130 18,533 20,007 22,158
Other Expenses 40,370 44,326 47,934 51,437
Total Expenditure 1,38,620 1,51,605 1,64,539 1,78,731
EBITDA 35,160 39,454 43,870 47,368
PAT 19,480 23,890 26,913 30,312
EPS (Rs) 38.2 47.1 53.1 59.8
Source: Company, PL
LatAM 3 year revenue CAGR at 15.7% UPL outperforming industry growth
FY16 FY17 FY18 Industry Growth

UPL Growth
North America 10% 16% 7% UPL's Constant Exchange Rate growth
Rest of World 2% 61% 7% 20.0%
Europe 6% 7% 10.0%
0.0%
LAtAM 25% 27% 5%
-10.0%
India 3% 23% 3%
-20.0%
0% 20% 40% 60% 80% 100% FY16 FY17 FY18
January 8, 2019 89
UPL
Working Capital; Down 7 days in FY18, up in 1HFY19 due to

seasonal factors (Q2FY18- 103 days)
Inventory Days Receivables days Payable days Net working Capital
137
160
138
125
125
128
124
124
122
140
118
116
112
108
120
97
94
91
91
90
90
86
84
100
80
60
40
20
0
FY15 FY16 FY17 FY18 1HFY19
Source: Company, PL
RoCE and RoE is on improving trajectory over the last 2 years
RoCE RoE
50.0% 44.3%
45.0% 41.8%
40.0%
35.0% 39.0% 28.1% 26.6%
30.0% 33.7%
25.0% 20.1%
20.0% 24.2% 24.0%
15.0% 19.1%
10.0%
5.0%
0.0%
Source: Company, PL
Gross Debt/EBITDA is likely to peak out in the first full year of

consolidation (i.e. FY20E)
Gross Debt incl Arysta (Rs Bn) EBITDA incl Arysta (Rs Bn)
Gross Debt/EBITDA Gross Debt/EBITDA (with Arysta)
350.0 9.0
7.6
300.0 8.0
7.0
250.0
6.0
200.0 5.0
3.7
150.0 3.0 4.0
2.2 2.1 1.9 3.0
100.0 1.9
1.4 1.5 1.1 2.0
50.0 1.0
- -
Source: Company, PL
January 8, 2019 90
UPL
About the company

UPLL has successfully transformed itself from a domestic phosphorus based
industrial chemicals company to an end to end global crop solutions provider. It is
present in 130 countries with direct presence in +40 nations with own distribution
and sales force. With 5884 product registrations and 33 manufacturing facilities,
UPL is the 2nd largest post-patent agrochemicals company (pre-Arysta acquisition).
UPL’s revenue profile is well UPLL transformed from Phosphorus player to solutions provider
diversified between Herbicides,
Fungicides and Insecticides Herbicides Insecticides Fungicides Others incl Seeds
18% 20% 21% 19% 20%

27%
48%
5% 25%
33% 28% 29% 26%
44%
28% 24% 23% 25%
28%
52%
24% 27% 27% 29% 29%

21%
Source: Company, PL
Consistent increase in share of branded product sales…

Share of revenue from branded
products has increased by 1100 bps Non Branded Branded
to 87% over the last 7 years
FY18 13% 87%
FY17 13% 87%
FY16 15% 85%
FY15 20% 80%
FY14 21% 79%
FY13 21% 79%
FY12 23% 77%
FY11 24% 76%
Source: Company, PL
Branded products revenue share …branded products dominate portfolio across geographies
stands between 90-95% in Europe,
NAFTA and LatAM Branded Generic
6% 10% 5%
22% 25%
94% 90% 95%

78% 75%
North America Europe Latin America India RoW
Source: Company, PL
January 8, 2019 91
UPL
Innovation turnover rate is up ~5x in 5 years

Launch of 341 products in the last 4
years swelled Innovation Turnover 19%
20%
Rate
18%
15%
16% 14%
14%
12%
10%
8%
5%
6%
4% 3%
2%
0%
Source: Company, PL
LatAM continues to dominate the Revenue well diversified across regions

product portfolio
India LAtAM Europe Rest of World North America
19% 19% 17% 18%
15% 14% 17% 18%
17% 15% 13% 13%
28% 32% 32% 33%
22% 20% 20% 18%
FY15 FY16 FY17 FY18
Source: Company, PL
Registrations have almost doubled in the last 7 years

Registration count currently stands at
~6200 Product Registrations YoY% (RHS)
7000 25%
6181
5934
6000
4976 20%
5000 4692
4272 19.3%
3902 15%
4000 3541
3151
3000 12.4% 10%
2000 10.2% 9.5% 9.8%
5%
1000 6.1%
4.2%
0 0%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: Company, PL
January 8, 2019 92
UPL
Financials
Net Revenues 1,73,780 1,91,059 2,08,409 2,26,098 Non-Current Assets
YoY gr. (%) 6.5 9.9 9.1 8.5
Cost of Goods Sold 81,120 88,747 96,598 1,05,136 Gross Block 1,14,490 1,30,390 1,45,390 1,53,890
Gross Profit 92,660 1,02,312 1,11,812 1,20,962 Tangibles 56,850 64,745 72,193 76,414
Margin (%) 53.3 53.6 53.7 53.5 Intangibles 57,640 65,645 73,197 77,476
Employee Cost 17,130 18,533 20,007 22,158
Tangibles 28,110 31,205 37,491 37,491
EBITDA 35,160 39,454 43,870 47,368 Intangibles 39,720 44,094 52,976 52,976
YoY gr. (%) 17.8 12.2 11.2 8.0
Tangibles 28,740 33,540 34,702 38,923
Depreciation and Amortization 6,750 7,469 8,273 8,978 Intangibles 17,920 21,551 20,221 24,500
EBIT 28,410 31,985 35,597 38,389 Capital Work In Progress 10,900 10,000 5,000 2,500
Margin (%) 16.3 16.7 17.1 17.0 Goodwill - - - -
Non-Current Investments 12,130 12,849 13,084 13,322
Net Interest 7,830 7,603 7,548 6,443 Net Deferred tax assets 4,410 4,410 4,410 4,410
Other Income 4,140 3,767 3,654 3,910 Other Non-Current Assets 5,130 6,192 6,956 7,810

Margin (%) 13.8 14.7 15.2 15.9 Investments - - - -
Inventories 45,380 46,063 48,534 52,653
Total Tax 2,750 3,659 4,280 5,020 Trade receivables 60,560 64,384 66,234 71,236
Profit after tax 21,230 24,490 27,423 30,837 Total Assets 2,30,430 2,57,776 2,57,324 2,74,888
Minority interest 80 100 110 125
Share Profit from Associate (930) (500) (400) (400) Equity
Equity Share Capital 1,020 1,020 1,020 1,020
Adjusted PAT 19,480 23,890 26,913 30,312 Other Equity 90,670 1,01,335 1,07,886 1,32,369
YoY gr. (%) 7.7 22.6 12.7 12.6 Total Networth 91,690 1,02,355 1,08,906 1,33,389
Margin (%) 11.2 12.5 12.9 13.4
Extra Ord. Income / (Exp) (740) - - - Non-Current Liabilities
Long Term borrowings 58,730 68,730 58,730 48,730
Margin (%) 11.6 12.5 12.9 13.4
Current Liabilities
Other Comprehensive Income - - - - ST Debt / Current of LT Debt 6,340 6,340 5,340 4,340
EPS (Rs) 38.2 46.8 52.8 59.4 Total Equity & Liabilities 2,30,430 2,57,776 2,57,324 2,74,888
January 8, 2019 93
UPL

PBT 24,610 28,150 31,703 35,857 Per Share(Rs)
Add. Depreciation 6,750 7,469 8,273 8,978 EPS 38.2 46.8 52.8 59.4
Add. Interest 7,830 7,603 7,548 6,443 CEPS 51.4 61.5 69.0 77.0
Less Financial Other Income 4,140 3,767 3,654 3,910 BVPS 179.8 200.7 213.5 261.5
Add. Other (5,110) (1,311) (3,221) (3,468) FCF 27.9 26.2 52.3 46.7
Net Changes-WC (3,230) (6,250) 922 (7,958) Return Ratio(%)
Direct tax (2,490) (7,319) (8,560) (10,040) RoCE 19.3 19.1 20.3 21.4
Interest / Dividend Income - - - - Balance Sheet
Others (2,650) 664 551 807 Net Debt : Equity (x) 0.4 0.4 0.2 0.1
Net Cash from Invt. activities (20,920) (14,336) (9,449) (5,193) Net Working Capital (Days) 103 95 91 95
Debt changes 2,860 10,000 (11,000) (11,000) PER 20.0 16.3 14.5 12.9
Dividend paid (3,690) (4,894) (5,851) (6,537) P/B 4.2 3.8 3.6 2.9
Interest paid (7,170) (7,603) (7,548) (6,443) P/CEPS 14.8 12.4 11.1 9.9
Others 351 (5,701) 1,132 (882) EV/EBITDA 12.1 10.9 9.5 8.5
Net cash from Fin. activities (7,649) (8,198) (23,267) (24,861) EV/Sales 2.4 2.3 2.0 1.8
Net change in cash (209) 5,808 3,950 (243) Dividend Yield (%) 1.0 1.3 1.4 1.6
Free Cash Flow 14,230 13,341 26,666 23,812 Source: Company Data, PL Research

Net Revenue 56,910 41,340 42,570 46,094
Revenues
YoY gr. (%) 6.5 11.0 12.9 9.9
India 31,890 36,591 40,627 44,283
LAtAM 56,920 61,844 67,410 74,151
Gross Profit 27,890 22,950 23,810 25,029
Europe 23,050 25,254 27,274 29,456
Margin (%) 49.0 55.5 55.9 54.3
Rest of World 31,090 33,877 36,926 39,142
EBITDA 12,180 8,470 8,390 8,965
North America 30,830 33,493 36,172 39,066
YoY gr. (%) 46.9 (30.5) - -
Margin (%) 21.4 20.5 19.7 19.5
Depreciation / Depletion 1,840 1,750 1,810 1,876
EBIT 10,340 6,720 6,580 7,089
Margin (%) 18.2 16.3 15.5 15.4
Net Interest 1,840 1,800 2,020 2,223
Other Income 1,180 1,230 320 1,285
Profit before Tax 9,390 5,660 4,000 5,659
Margin (%) 16.5 13.7 9.4 12.3
Total Tax 1,660 520 1,160 481
Profit after Tax 7,730 5,140 2,840 5,178
Minority interest (10) (20) (60) (40)
Adjusted PAT 8,030 5,650 3,780 5,711
YoY gr. (%) (3.7) 9.3 (4.5) (8.9)
Margin (%) 14.1 13.7 8.9 12.4
Reported PAT 8,030 5,650 3,780 5,711
YoY gr. (%) (3.7) 9.3 (4.5) (8.9)
Margin (%) 14.1 13.7 8.9 12.4
Total Comprehensive Income 8,030 5,650 3,780 5,711
Avg. Shares O/s (m) 510 510 510 510
EPS (Rs) 15.7 11.1 7.4 11.2
January 8, 2019 94
Rallis India (RALI IN)
January 8, 2019 International business and price hikes driving

growth
Company Report
 Change in Estimates |  Target |  Reco Rallis’s strategy of de-risking its pesticide business had resulted in
stagnating portfolio in the domestic business leading to loss of market share.
Change in Estimates
Its subsequent efforts on improving the operational performance despite
Current Previous
FY20E FY21E FY20E FY21E macro headwinds both in the domestic and international market was driven
Rating BUY BUY
Target Price 242 242 by price hikes, higher demand from LatAM & European countries and traction
Sales (Rs. m) 22,467 24,713 22,467 24,713
towards herbicides portfolio. Growth in international business is likely to
% Chng. - -
EBITDA (Rs. m) 3,588 4,023 3,588 4,023 continue with commercialisation of new registrations. On the domestic side
% Chng. - -
EPS (Rs.) 11.6 13.5 11.6 13.5 we expect margin pressure to persist due to the impact of rupee depreciation,
% Chng. - -
heightened competition and soft agro-commodity prices. Maintain BUY with
TP of Rs 242.
Key Financials
FY18 FY19E FY20E FY21E
Sales (Rs. m) 17,909 20,212 22,467 24,713 Uncertainty persists on the raw material availability and price: Rising raw
EBITDA (Rs. m) 2,645 2,970 3,588 4,023
Margin (%) 14.8 14.7 16.0 16.3 material price and lower availability is matter of concern for the CRAMS business
PAT (Rs. m) 1,676 1,827 2,261 2,616 but company’s own manufacturing capabilities are coming to the rescue. RALI is
EPS (Rs.) 8.6 9.4 11.6 13.5
Gr. (%) (10.2) 9.0 23.8 15.7 also considering backward integration for certain products, debottlenecking of
DPS (Rs.) 3.7 3.0 3.5 3.5
capacity and addition of new lines for few AIs. Currently the company imports ~Rs
Yield (%) 2.2 1.8 2.1 2.1
RoE (%) 14.6 14.6 16.3 16.9 3.0-3.5 bn worth of materials (~28% of total requirement) from China.
RoCE (%) 18.5 19.5 21.7 22.2
EV/Sales (x) 1.8 1.5 1.4 1.2
EV/EBITDA (x) 12.1 10.5 8.5 7.2 Industry nearing the peak of cost optimisation: According to the management,
PE (x) 19.7 18.1 14.6 12.7
P/BV (x) 2.8 2.5 2.3 2.0 the cost optimisation efforts that started with rising raw material prices are now
nearing the peak. Further pressure on the cost front has to be absorbed by the
Key Data RALL.BO | RALI IN industry.

52-W High / Low Rs.282 / Rs.160
Sensex / Nifty 35,850 / 10,772
Market Cap Rs.33bn/ $ 474m Other expenses shot up due in Q2 due to higher freight cost and forex loss:
Other expenses grew 23.5% YoY due to rising freight cost and significant forex loss.
Freight cost increased due to higher fuel cost. Even utility costs have increased due
Shareholding Pattern (%) to hike in gas price.
Promoter’s 50.50
Foreign 4.05
Domestic Institution 18.13 Outlook & Valuation: The management efforts to turnaround the company’s
Promoter Pledge (Rs bn) - prospect has started to bear fruit with improvement in financial performance in
1H’19 but its inability to fully pass on the raw material cost inflation is putting
Stock Performance (%) pressure on margins. Going forward, the rerating of the stock would hinge upon the
1M 6M 12M
Absolute (0.4) (7.4) (38.0)
actual growth in the CRAMS business and recurrence of healthy performance as
Relative (0.9) (7.9) (41.0) RALI’s stagnating portfolio and lack of differentiated products are exposing it to the
risk of loss of market share. Maintain BUY with TP of Rs 242.
Prashant Biyani
January 8, 2019 95
Rallis India
Financials
YoY gr. (%) 7.7 12.9 11.2 10.0
Employee Cost 1,649 1,804 1,966 2,149
Tangibles 1,111 1,521 1,970 2,442
YoY gr. (%) 0.3 12.3 20.8 12.1
Tangibles 3,696 3,936 4,266 4,165
Margin (%) 12.2 12.2 13.5 14.0 Goodwill 1,958 1,958 1,958 1,958
Other Income 132 140 174 261 Other Non-Current Assets 1,049 1,153 1,375 1,565

Margin (%) 12.7 12.8 14.2 14.9 Investments 918 1,718 2,418 3,818
Inventories 5,722 5,814 5,847 6,432
Total Tax 600 748 926 1,071 Trade receivables 3,997 4,125 4,585 5,044
Minority interest (6) 5 6 6
Margin (%) 9.4 9.0 10.1 10.6
Long Term borrowings 199 149 104 59
YoY gr. (%) (43.7) 9.0 23.8 15.7 Other non current liabilities - - - -
Margin (%) 9.4 9.0 10.1 10.6
Current Liabilities
Other Comprehensive Income - - - - ST Debt / Current of LT Debt 2 2 2 2
January 8, 2019 96
Rallis India

PBT 2,270 2,580 3,193 3,694 Per Share(Rs)
Add. Other (8) (55) (46) (41) FCF (0.8) 6.8 8.1 10.8
Direct tax (675) (748) (926) (1,071) RoCE 18.5 19.5 21.7 22.2
Net cash from Op. activities 414 2,039 2,417 2,555 ROIC 15.2 16.3 19.2 21.4
Others 1,392 (800) (700) (1,400) Net Debt : Equity (x) (0.1) (0.1) (0.2) (0.2)
Net Cash from Invt. activities 884 (1,419) (1,498) (1,798) Net Working Capital (Days) 90 84 79 79
Debt changes (19) (50) (45) (45) PER 19.7 18.1 14.6 12.7
Dividend paid (877) (647) (744) (744) P/B 2.8 2.5 2.3 2.0
Others (96) (5) (6) (6) EV/EBITDA 12.1 10.5 8.5 7.2
Net cash from Fin. activities (1,036) (732) (816) (810) EV/Sales 1.8 1.5 1.4 1.2
Net change in cash 262 (111) 103 (53) Dividend Yield (%) 2.2 1.8 2.1 2.1
Free Cash Flow (163) 1,315 1,567 2,105 Source: Company Data, PL Research

Net Revenue 3,711 5,731 6,538 4,201
Revenues
YoY gr. (%) 6.4 29.7 11.2 7.7
Standalone 14,985 17,082 18,961 20,858
Metahelix & Others 2,925 3,130 3,505 3,856
Gross Profit 1,692 2,269 2,741 1,804
EBITDA
Margin (%) 45.6 39.6 41.9 42.9
Standalone 2,262 2,545 3,091 3,462
EBITDA 336 832 1,234 371
Metahelix & Others 382 425 497 560
YoY gr. (%) (11.0) 147.3 - -
Margin (%) 9.1 14.5 18.9 8.8
EBIT 236 716 1,114 249
Margin (%) 6.4 12.5 17.0 5.9
Profit before Tax 252 757 1,194 282
Margin (%) 6.8 13.2 18.3 6.7
Total Tax 56 210 343 31
Minority interest (2) (2) (1) (1)
Adjusted PAT 198 548 852 251
YoY gr. (%) (36.4) 20.8 10.1 0.1
Margin (%) 5.3 9.6 13.0 6.0
Reported PAT 198 548 852 251
YoY gr. (%) (36.4) 20.8 10.1 0.1
Margin (%) 5.3 9.6 13.0 6.0
Avg. Shares O/s (m) 195 195 195 195
EPS (Rs) 1.0 2.8 4.4 1.3
January 8, 2019 97
Agro Chemicals
Notes
January 8, 2019 98
Agro Chemicals
PL’s Recommendation Nomenclature (Absolute Performance)
Buy : > 15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly
January 8, 2019 99
Agro Chemicals
ANALYST CERTIFICATION
(Indian Clients)
We/I Mr. Prashant Biyani- CA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately
reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s)
or view(s) in this report.
(US Clients)
The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately
reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific
recommendation or views expressed in this research report.
DISCLAIMER
Indian Clients
Prabhudas Lilladher Pvt. Ltd, Mumbai, India (hereinafter referred to as “PL”) is engaged in the business of Stock Broking, Portfolio Manager, Depository Participant and distribution for
third party financial products. PL is a subsidiary of Prabhudas Lilladher Advisory Services Pvt Ltd. which has its various subsidiaries engaged in business of commodity broking,
investment banking, financial services (margin funding) and distribution of third party financial/other products, details in respect of which are available at www.plindia.com.
This document has been prepared by the Research Division of PL and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported
or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security.
The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness
of the same. Neither PL nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made
available or expressed herein or for any omission therein.
Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or
otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor.
Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions
of securities of companies referred to in this report and they may have used the research material prior to publication.
PL may from time to time solicit or perform investment banking or other services for any company mentioned in this document.
PL is in the process of applying for certificate of registration as Research Analyst under Securities and Exchange Board of India (Research Analysts) Regulations, 2014
PL submits that no material disciplinary action has been taken on us by any Regulatory Authority impacting Equity Research Analysis activities.
PL or its research analysts or its associates or his relatives do not have any financial interest in the subject company.
PL or its research analysts or its associates or his relatives do not have actual/beneficial ownership of one per cent or more securities of the subject company at the end of the month
immediately preceding the date of publication of the research report.
PL or its research analysts or its associates or his relatives do not have any material conflict of interest at the time of publication of the research report.
PL or its associates might have received compensation from the subject company in the past twelve months.
PL or its associates might have managed or co-managed public offering of securities for the subject company in the past twelve months or mandated by the subject company for any
other assignment in the past twelve months.
PL or its associates might have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
PL or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject
company in the past twelve months
PL or its associates might have received any compensation or other benefits from the subject company or third party in connection with the research report.
PL encourages independence in research report preparation and strives to minimize conflict in preparation of research report. PL or its analysts did not receive any compensation or
other benefits from the subject Company or third party in connection with the preparation of the research report. PL or its Research Analysts do not have any material conflict of interest
at the time of publication of this report.
It is confirmed that Mr. Prashant Biyani- CA Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve
months
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
The Research analysts for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its
or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.
The research analysts for this report has not served as an officer, director or employee of the subject company PL or its research analysts have not engaged in market making activity
for the subject company
Our sales people, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary
to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed
herein. In reviewing these materials, you should be aware that any or all o the foregoing, among other things, may give rise to real or potential conflicts of interest.
PL and its associates, their directors and employees may (a) from time to time, have a long or short position in, and buy or sell the securities of the subject company or (b) be engaged
in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company or act as an
advisor or lender/borrower to the subject company or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.
US Clients
This research report is a product of Prabhudas Lilladher Pvt. Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s)
preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are
not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or
regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.
This report is intended for distribution by Prabhudas Lilladher Pvt. Ltd. only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act,
1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major
Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted
onward to any U.S. person, which is not the Major Institutional Investor.
In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major
Institutional Investors, Prabhudas Lilladher Pvt. Ltd. has entered into an agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo").
Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer.
Prabhudas Lilladher Pvt. Ltd.

3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India | Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
www.plindia.com | Bloomberg Research Page: PRLD <GO>
AMNISH
Digitally signed by AMNISH AGGARWAL
January 8, 2019 DN: c=IN, o=Prabhudas Lilladher Private Limited, ou=organisation,

cn=AMNISH AGGARWAL,
serialNumber=7a6f13691881d5a8af6353865a61b48b7040e72f4a1bf5 100
AGGARWAL
3182e368b3ca14a5e4, postalCode=400015,
2.5.4.20=c9b37ca6a8c78a11d6c42a4b6014e984fdf135dc1449611df0d
c682d08443fc6, st=Maharashtra
Date: 2019.01.08 17:19:02 +05'30'

Agro Chemicals - Sector Report - PL India

Diunggah oleh

Informasi Dokumen

Hak Cipta

Bagikan dokumen Ini

Bagikan atau Tanam Dokumen

Opsi Berbagi

Apakah menurut Anda dokumen ini bermanfaat?

Apakah konten ini tidak pantas?

Hak Cipta:

Agro Chemicals - Sector Report - PL India

Diunggah oleh

Hak Cipta:

Rising from the ashes!!!

Rising from the ashes!!!

Developing India as an alternative procurement base: India is likely to emerge

RoE (%) P/E (x) Price/Book Value (x) EV/EBITDA (x)

Domestic demand drivers

 Rise in Labour cost

 Scope of increasing yields

 Reduction in crop losses

 Limited opportunity to expand arable land in India

 Increasing share of specialty molecules

Export growth drivers

 Competitive manufacturing cost

 Capitalizing on the CRAMS business opportunity

 Developing India as an alternative source (from China) for supply of raw

 Opportunity arising out of US$ 3 bn worth of molecules going off-patent by

Factors driving growth in domestic market

Agriculture wages up 7.3% CAGR over past 3 years

Wheat Rice Maize Soyabean

Source: OECD, PL Source: OECD, PL

World Highest State High est in Indi a

Agrochemical application can increase profits by up to 27%

Profit from Usual Practise Profit from proper application of agri-inputs

Source: Bayer Cropscience, PL

Crop damage from pests without use of pesticide

Serious apprehensions on the new pesticides management bill: Based on our

Factors driving growth in exports

Brazil, USA and Others (RoW) are driving exports growth

FY14 (US $ Bn) FY18 (US $ Bn) CAGR

1400 13% 14%

Opportunity arising out of US$ 3 bn worth of molecules going off-patent by

Agrochemicals worth US$ 6.3 bn to go off-patent till 2020

AIs going off-patent between 2017-2022

Scarcity of supplies from China opens a huge sourcing opportunity: Another

In 2017-H1 2018, large number of agrochemical enterprises in China suspended

Gross margins came under pressure starting Q2FY17 (+/-: Increase/Decrease)

Calibrated capacity expansion: India can emerge as a global procurement base

India's capability to manufacture multiple chemistries

Start of the next upcycle

Timing and spatial distribution of monsoon has been better

The quantum of rainfall (@ 7% below normal), timing (June/July/August at -10%/-

Large Excess (+60% or More)

…higher reservoir water levels in 4 out of 5 regions (end Monsoon)

Source: Central Water Commission, PL

Current water levels a worry in west

This Year Last Year Avg. of Last 10 Year

… But Rabi sowing is lower than last year

We expect pick-up in demand (liquidation) for agrochemicals due to

Pest Infestation will continue to increase owing to global warming

Pest infestation has increased ~7x since 1940

Increasing number of weeds is becoming resistant

No of weeds (2010) No of weeds (2016) Change

180 177% 200%

Record Crop Production ≠ High Farm Income

In 22 years, farmers’ nominal income has increased by +9.2x

Source: NITI Aayog, FICCI, PL

In times of crisis, both Central and State governments are providing

Loan Waivers announced by various States

Central government initiatives: Doubling farmers’ income, securing them, making

 Adequate availability of agri- inputs

 Deregulation of marketing of fruits & vegetables

 Increasing area under irrigation in mission mode

 Integrated nutrient management

 Issue of soil health cards

 Crop insurance scheme

 Electronic national agriculture market (E-NAM)

Source: Ministry of Agriculture, PL