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Friday, July 18, 2008

Excel Crop Care Limited (ECCL)-BUY report

Report Date: July 17, 2008
Excel Crop Care Limited (ECCL)
Recommendation: BUY
CMP – Rs. 135/-

Target Price – Rs. 200/-
Mkt. Cap. - Rs. 148.58 crore


Investment Rationale
Ø ECCL has reported excellent result for Q1 FY 2009. Net Sales shot up by 59.8% to Rs. 217.9 crore because of 99.4% spurt in exports of Rs. 68.8 crore. Domestic business registered 42.8% growth in sales of Rs. 167 crore. OPM% improved considerably to 15.1% (11.4%), mainly due to increase in prices of agrochemicals. Consequently, PBT more than doubled to Rs. 28.71 crore and PAT zoomed to Rs. 18.9 crore, growth of 105.9%.

>> Excel Crop Care manufactures the finest quality of internationally accepted agrochemicals, which includes insecticides, herbicides, fungicides, fumigants, and rodenticides. It is amongst the world's leading manufacturers of Endosulfan, Glyphosate, Chlorpyriphos, Aluminium Phosphide and Zinc Phosphide, which are made to the highest purity.

Ø Shortage of area under cultivation, increasing population, higher demand from emerging markets, usage of land to produce biofuels & feeds for animals etc. has led to food shortage. To improve food output, there will be increased focus on improving land productivity. Moreover as food prices continue to remain high, farmers will invest more in fertilisers and agrochemicals. All these spell vast growth potential for Agrochem industry, which is showing signs of buoyancy after several years of sluggishness.

Ø To grab large chunk of this growing market, company has been taking various steps like launching new products & formulations (has introduced formulation for weed control), combination of products, improving processes to enhance yield & quality, reducing costs, etc. It is also finding applications of its products for newer crops thereby widen the coverage of existing products, etc. Company has begun marketing of bio products such as soil enrichers, bio pesticides and plant growth promoters.

Ø Excel has reported good growth in weedicide segment. In this segment, Glyphosate (broad spectrum post emergence weedicide highly effective on several annual and perennial grasses and broad leaf weeds) is in great demand. India and most part of the world have been experiencing acute shortage of this widely used chemical. To meet the increasing demand, company augmented capacity by setting up additional 3,000 tpa plant in Gujarat.

Ø Apart from domestic market, company has been strengthening its presence in overseas markets by promoting existing and new products especially branded products. It continues to make efforts to strengthen its presence in existing export markets and penetrate new markets. Excel has been exporting to SAARC, East Asian countries, Brazil, etc. Besides, plans to foray into countries like Europe, Australia with the help of Nufarm, its strategic partner (who holds 14.69% stake in ECCL). Company forayed in the Chinese market by setting up a representative office there. The size of Chinese market is bigger than that of Indian market.

Valuation
Ø Thus, ECCL is set for substantial improvement in its performance led by increasing demand for agro chemicals. Accordingly, sales are expected to grow @ ~ 20% (+) and with improved profitability bottomline is expected to grow @.CAGR > 35%.

Ø At CMP, the share (Rs. 5/- paid up) is trading at 3.4 times FY 2009 expected EPS of Rs. 40.2 and 2.6 times FY 2010 expected EPS of Rs. 51.8. In view of excellent future prospects, we recommend to “BUY” the share at CMP.

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