Aimco Pesticides- Rise of Sleeping Lion Since a Decade

The Company operates in the field of manufacturing of Agrochemical and is a major player in insecticides, fungicides and herbicides, in India & across the world. Aimco is the leader in Chlorpyrifos, Triclopyr & its formulations.  

We picked up a little known name from the agrochemical space. This company has had a tumultuous past and is only just rebounding from a poor patch and should reap bounties, especially if weather gods rain down on us.

Right Business with the Wrong Past

Aimco Pesticides Limited (Aimco) is in the field of agrochemical manufacturing, formulation and marketing and is a major player in insecticides, fungicides and herbicides in India & across the world.

The company, with a history of more than 40 years, is promoted by industry veteran Pradeep Dave (and Excel Crop Care). Excel has recently sold its stake and presently the promoters hold 53 percent of the business.

Aimco is a manufacturer of various technical grade pesticides. Some of its key products include Chlorpyrifos [ Ethyl & Methyl], Temephos, Cypermethrin, Permethrin, Hexaconazole, Glyphosate, Triclopyr & Fluroxypyr and a vast range of pesticide formulations, viz., liquids, wettable powders, dusting powders, suspension concentrates and dry flowables. The products are marketed under the brand name “AIMCO”.

Aimco is one of the leaders in Chlorpyrifos, Triclopyr & its formulations.

Aimco has a robust R&D facility and spends close to 1 percent of its turnover on the same.

Past Woes

Aimco got into a debt trap and was referred to BIFR (The Board for Industrial and Financial Reconstruction). Agrochemicals, traditionally, is a relatively high-entry barrier industry. The government regulates manufacture, sale, usage, export and import of pesticides. Overseas registration is expensive as well as time-consuming. Even registration in domestic market takes a while.

Aimco in the past had resorted to debt to finance product registrations. This coupled with other rising cost heads including raw material prices and production costs resulted in poor financial performance, erosion of networth and consequent reference to BIFR.

Early signs of revival were visible from FY14 and finally in FY17 the company has turned networth positive leaving the dark days behind.

Why look at Aimco Now?

A promising sector: Indian domestic agrochemical sector is set for better days ahead. There are multiple tailwinds. There is a definite need for improving food productivity, increasing investments in the rural sector, governments endeavour to double farm income, pan-India implementation of new crop insurance scheme and de-regulation of APMC (Agricultural Produce Market Committee) in fruits & vegetables.

The gradual move from sustenance to profitable farming will also drive the growth of agrochemicals.

Advantage organised sector: While inherent risks of monsoon and volatile demand exist, the Indian agrochemical market estimated to be USD 4.5 billion (roughly equal between domestic & exports) is expected to grow by over 50 percent or (7-8 percent CAGR) over the next 5 years. The industry is currently 60-70 percent organised and potential change in the legal landscape will further strengthen their share.

Global agrochemical players are increasingly focussing on India for launching novel molecules and also for sourcing active ingredients for global supplies, propelling further export growth.

Steady financials of Aimco: Aimco presently has negligible debt on its books and the financial ratios have also started looking up. Hence, it is now in a position to leverage the emerging opportunities in a profitable manner.

FINANCIALS:

REVENUE: 99.2Cr

PAT: 11.5Cr

EPS: Rs 12.5

MCAP: 155 Cr.

Valuations are Comfortable as Peers are Trading at 20 PE comparatively Aimco trading at around 13 PE.

Capex to drive revenue: After coming out of its financial trouble, the company has embarked upon capacity expansion. The gross block which is around Rs 7 crore in FY17 will stand expanded by Rs 5 crore in the next couple of years, thereby driving topline growth for the company.
Multiple growth drivers in the long-term: The company has plans to diversify into speciality chemicals and through its subsidiary, move into micro-nutrients and bio-nutrients, which are margin-accretive businesses.
Cheapest in the space: While the rather difficult past had largely kept it out of serious investors radar, even after reporting rather encouraging financial performance, the stock is the cheapest in the agrochemicals space.

Recently Promoters are increasing their stake by route of preferential allotment @ Rs 168.This shows Promoters confidence in company.

In current year company aims to grow business by 20-25%

Profits can grow by 40%

Can be bought in the range of Rs 160-180

Target – 225/250/300/350

 

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