Aimco Pesticides Limited (Aimco) is a leading company in the field of Agrochemical manufacturing and formulation and is a major player in Insecticides, Fungicides and Herbicides, in India and now expanding its wings across the world. Aimco is a manufacturer of various technical grade pesticides, some of the key products being 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. Aimco’s products are marketed under the brand name“AIMCO’’. Aimco is one of the leaders in Chlorpyrifos, Triclopyr & its formulations. The company has very good Backward integration and “AIMCO” is a reputed brand in the domestic market. Aimco’s has strong in-house R&D facilities at Lote-Parshuram are recognized by DST (Department of Science and Technology), Govt. of India, since 1996. Aimco is also a Government-recognized export house. Aimco spends close to 1% of its turnover on R&D. The company caters to both domestic and export markets and is continuously introducing new formulation in both these markets.
Background: This Company is more than 40yr old and is promoted by Mr. Pradeep Dave (and Excel Cropcare). He is respected personnel in the industry. He is on the technical committee and governing body of the Institute of Pesticide Formulation Technology, President of the Pesticides Manufacturers & Formulators Association of India and also a Member on the governing body of CHEMTECH foundation. With these credentials it was disappointing to see the company getting into a debt trap and was referred to BIFR a couple of years back. According to the Insecticides Act 1968, the Government regulates manufacture, sale, usage, export and import of pesticides. No pesticide is allowed to be manufactured, exported or imported without registration. For export market registration takes around 3-5 yrs (along with huge amount of money) and for domestic market it takes around 1-3 yrs. Company took debt to finance these product registrations. This along with high employee cost, finance cost along with rising price of raw materials and cost of production were the main reasons for the poor performance and negative networth which ultimately led to BIFR.
Present and Future: Aimco was quick to bounce back – turning networth positive in a very short time and now after reducing its debt dramatically it is extremely focused on registering, orienting more products in its own brand name in exports market. It is developing new markets as well as concentrating more on Improvement of volume of its sales in current market so as to maximize sales. On account of new export registrations in the last few years, the company is expected to continue raking in moolah for the next few years, both on topline and bottom line. The promoters are conspicuous of a bright future as Promoters have been continuously increasing stake through creeping acquisition (52.66% till June Qtr end). Till last quarter 44% of their stake was pledged but starting this quarter there is no pledging of even a single promoter share. By the way one of their co-promoter is another listed giant Excel Cropcare . Excel cropcare had invested in Aimco in 2005 and bought shares at the price of Rs 24.5.
Financials: Sales have increased nearly 10 times from 14.96cr in 2009 to 140.22cr in 2014 and bottom line has turned around. For June 14 quarter sales have grown 38% YoY and profits have grown 800% from mere 0.23cr to 1.51cr. With an extremely comfortable debt to equity ratio along with the current market cap of just Rs 35cr and the market cap to sales ratio of just 0.25 times (compare this to its peers like Insecticides India, Bharat Rasayan etc that are trading at 1 times sales atleast, Rallis India at 3.5 times sales) there is a yawning gap in the valuations. Given the vast valuation gap and strong growth potential the stock could get strong re-rating in the near future.
Technicals: After more than 9.5 yrs of consolidation the stock is set to close above 40rs. This breakout would be a huge factor and the stock can go up multi-fold in next few years.
As with my other recommendations, this one is for people with high risk appetite