Insecticides India reported strong revenue growth of 19.7% YoY in Q1FY23, led by strong growth across geographies and market share gains (our view). EBITDA margin was down 91bps YoY, despite gross margin expansion. Company was granted a new patent in July’22 (after two in Apr’22). These products will likely lead to higher margins in the medium to long term.

Insecticides has incorporated a subsidiary to foray into organic farming products. We remain positive on Insecticides India due to: (i) its focus on distribution expansion; (ii) removal of generic products from the product portfolio and launch of differentiated products; and (iii) backward integration of technicals. We estimate an earnings CAGR of 16.5% over FY22-FY24E and RoE to move to 13.7% in FY24E.

Q1FY23 result: Insecticides India’s revenue, EBITDA and adjusted PAT registered growth of 19.7%, 10.1% and 9.5% YoY respectively. While gross margin improved 77bps YoY, EBITDA margin contracted 91bps YoY due to higher others expenses as % of sales. PAT margin was down 64bps YoY.    

Grant of patents: Insecticides India was granted a patent in July’22: Novel Fungicidal Carbamate Compounds, for a period of 20 years. Company’s R&D centre at Chopanki was felicitated with “Good Laboratory Practice” certification by Govt. of India. We believe the company’s investment in R&D will allow it to launch new formulations at regular intervals. We believe it to result in healthy profitable growth for the company in the medium to long term and allow it to gain market share too.

Entry into organic products: Insecticides India has incorporated IIL Biologicals, wholly owned subsidiary. The company will manufacture and market organic and biological fertilizers, bio-pesticides and bio-control agents, under this subsidiary. Organic products will drive revenues and margin expansion.