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Sunday, July 12, 2009

Punjab Chemicals & Crop Protection Ltd:-Future growth outlook and prospects

Scripscan:Punjab Chemicals & Crop Protection Ltd

Story:Punjab Chemicals and Crop Protection (PCCPL) is an integrated player in agrochemicals industry with a product range of agrochemical technicals (bulk), agrochemical formulations (insecticides, fungicides, herbicides, etc), biological agro-products (inoculants), industrial chemicals and bulk pharmaceuticals. The company began its operations by manufacturing oxalic acid and oxalates and, today, it is the world’s largest producer of oxalic acid. In the industrial chemicals segment, it manufactures phosphorus-based chemicals. In pharma bulk business, the company is already negotiating long-term contracts with large pharma players to supply bulk actives.In the export market for bulk agrochemicals, agrochemical formulations are the key growth segments.To capture this, PCCPL, like its cousin United Phosphorus, plans to grow through the inorganic route. It is planning to increase its portfolio of registered products in the high-margin foreign markets by acquiring foreign companies. This will also present an opportunity to shift manufacturing to India that brings in a cost advantage. It is equally aggressive in the domestic market. Over the past couple of years, it has acquired control over one agro-formulation company each in Maharashtra and Gujarat and one each in Argentina and the Netherlands. The Argentina-based company, Sintesis Quimica, manufactures a range of products including fungicides, biological agro-products (inoculants), herbicides, insecticides, soil disinfectants, sprout suppressants, etc. It also boasts a very good client network of global agro-formulation companies like Nufarm, Syngenta, etc. Agrichem is a Netherland-based agrochemical formulations company with a distribution network over entire Europe. Agrichem has a good portfolio of registered crop protection products. Registration in Europe is a detailed, lengthy and time-consuming process giving a registered product-holder the advantages of quick entry.In 2008, PCCPL acquired a 70% stake in Vadodara-based agro-formulations company, Parul Chemicals at an enterprise value of Rs nine crore. Parul has a strong network of distributors and dealers in Gujarat and Rajasthan.The company entered the pharma (bulk drug) business in 2003 after acquisition of Alpha Drug India Limited which is now merged with the company. The bulk drug business brings in about 20% of revenues and slim profits. In FY08, industrial chemicals and agrochemicals segments contributed Rs390.09 crore of revenues for a profit before interest and taxes (PBIT) of Rs65.78 crore. The bulk drug and intermediates segments contributed Rs44.02 crore for a PBIT of just Rs2.58 crore. In the agrochemicals segment, exports are more rewarding; hence, the strategy of entering the market through the inorganic route will continue. The problems of this business are: one, government policies on the production and marketing of chemicals and agro-chemicals; and two, increased cost of borrowing and credit period due to seasonality of agricultural products. Growth has been robust for PCCPL but the operating profit is weak. Valuation is reasonable. A decent buy at dips.

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