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Saturday, December 27, 2008

Excel Crop Care - Investment research report with target

LKP Shares (brokerage house) has recommended a buy rating on Excel Crop Care with a target price in its investment research report.

Excel Crop Care Ltd -ECCL is a joint venture between the Mumbai based Shroff Group and Nufarm of Australia and is engaged in the business of agrochemicals comprising of insecticides, weedicides, fungicides, fumigants and rodenticides. ECCL took over the business of marketing soil Enrichers, Bio-Pesticides and Plant Growth Promoters from Excel Industries. Today ECCL employs 1250 people in total at its three facilities located at Bhavnagar, Gajod and Silvassa and is a fully integrated and leading producer of Glyphosate-broad spectrum weedicide, Endosulfan, Chlorpyriphos, Aluminium Phosphide and Zinc Phosphide.

• ECCL has been growing its revenues consistently year after year and the company made sufficient profits in the first year itself so as to be able to declare a dividend of 30% to its shareholders in that year. ECCL is a consistent dividend payer and has declared dividends every year till date. ECCL's current growth rate can clearly be gauged by the fact that revenues generated in H1FY'09 have far exceeded those generated in the full year in FY'08.

• Topline surged 70% and bottomline by 50% in H1FY'09 on the back of strong seasonal demand inspite of high raw material prices. ECCL either produces some of its raw materials or sources them from its associate companies to ensure quality, continuity of supply and with a view to lower raw material costs. Though H1FY'09 results
are not indicative of the full year performance due to the seasonal nature of the business, the fact that ECCL has been able to bring down the percentage of insectides to total revenues to below 65% and has been able to grow the fast growing weedicide business to 23% of its revenues augurs well for the company. ECCL has successfully developed businesses in new export markets like Asia and Africa and has obtained product registrations in SAARC, South Asian countries and China. Overseas revenues now account for almost 35% of its overall business revenues.

• ECCL has recently expanded capacity for Glyphosate (weedicide) by 3000 tpa in FY08 at its Bhavnagar plant. It is the most preferred weedicide for farmers in India and the demand for this product has far outstripped supply and is expected to continue growing at a brisk pace.

• ECCL has introduced bio-products and water-soluble fertilizers to strengthen and complement its range of agrochemicals in FY'08. These products along with glyphosate are expected to be the growth drivers for the company going forward. Going forward, ECCL plans to add new formulations and combi-formulations of insecticides, fungicides and weed control molecules and micronutrients to its existing basket of products in order to broad base its product profile and leverage the increasing need of farmers to improve crop productivity due to shrinking land area under cultivation and ever increasing demand for food.

• Though ECCL has taken derivative options from banks in Q1FY'09 to hedge its foreign currency exposure and has booked a notional loss of Rs89 mn. (as exceptional item) to provide for MTM losses in Q2FY'09, the actual total monetary impact of the same would be properly quantified only at its maturity in June 2009.

• We believe that the farm loan waiver would raise the farmers' ability to purchase agrochemicals, which coupled with growing food needs and expectations of higher productivity from crops would push the demand for agrochemicals in India. Although the formulation business is competitive due to rising raw material prices and despite the seasonal nature of the business.

• We expect ECCL to grow its revenues and profits at a CAGR of 43% and 26% over FY'07-09 and the stock trading at 3xFY09E earnings with a dividend yield of ~6% is a good bet in the agrochemical space. The value of its property in Mumbai is more than its market capitalisation, We recommend a BUY with a one-year price target of Rs180.
Source: LKP Shares Investment research report

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