Isagro has a manufacturing facility next to PI’s Panoli facility in Gujarat. The company is engaged both in contract manufacturing as well as distribution of agrochemicals in India.
Analysts at Motilal Oswal Financial Services believe the acquisition bodes well for PI, not only from the point of view of synergies but also from the valuation standpoint. The company paid 15x 2018-19’s net profit for the acquisition.
Given lower utilisation of Isagro’s capacity, margins for the acquired entity should go up, while also helping PI derisk the supply chain for a few products.
Margins for the acquired entity are thus, expected to improve from 11-12 per cent to PI’s level of 20 per cent over the next three-four years. While the company will take some debt for the same, analysts are not too worried, given the negligible debt of PI and net debt-to-equity ratio of 0.04.
Margins at the company level are expected to expand on the back of stabilisation in raw material prices as well as local procurement negating price volatility.
Most brokerages are positive on the company, given the growth visibility led by order book of $1.5 billion, higher enquiries, its research and development pipeline, and execution capabilities.
Due to multiple triggers, analysts at Edelweiss Securities expect the stock to trade at the higher end of the historical valuation band of 24-30x price-to-earnings ratio. Investors
can look at the stock on dips.