Investment Argument
Astec Life sciences is engaged in
manufacturing and sale ofintermediates, active ingredients and formulations in the off patent [generics] category, with main focus on agrochemical [85%] and rest from Pharma segment. It ishaving full backward integration for its key products,which helps in maintaining better control over costs. It has a strong and experienced management team.
Company is working on contract manufacturing basis and is in negotiations with a couple of large players for long term contracts for its products. It is expected to clinch sizeable deals – which can lead to significant upside in revenue generation from FY 11 onwards.
Increasing registration activities indicates that the company likely to get increasing business from global players,particularly in regulated markets, which will boost margins. Currently Astec has pipeline of 70 registrations in 30 countries. With its strong R&D, it is targeting more & more registrations across the world.
Astec has good clientele network domestically and internationally with world’s top 20 agrochemicals companies which gives them the opportunity to expand theirproduct portfolio based on their demands. [Domestic clients include Syngenta India, Indofil chemicals, Atul Ltd, Krishi rasayan exports and international clientele includes Irvita Plant Protection, Nufarm UK ltd, AnNong Co., handelsgesellschaft, Detlef Von Appen etc.]
The company is doing extremely well and has reportedaround Rs 8 EPS in FY 10, while estimates for FY 11 EPS are much better around Rs 12. Looking to this, this quality stock, available at below 5X of FY11 earnings appears good for investment. BUY with target of Rs 80 in 3-4 months.
[Company came out with IPO in Nov.’09 at Rs 82/‐, so one is buying stock at below IPO price and thus will get better returns inshorter period compared to original allottees.]
Background
Astec Lifesciences is engaged in manufacturing and sale of intermediates, active ingredients and formulations in the off patent[Generics] category, with a focus on agrochemicals. Company is workingon contract manufacturing basis and is in negotiations with a couple of MNC’sfor long term contracts for the products and expects sizeable revenues and profits from FY’11 onwards.
Their manufacturing capacities are at ‐ Dombivali and Mahad. They have a current capacity of 2800tonnes and plans to increase it to 3950tonnes. Under agrochemicals segment, Astec manufactures active ingredients, intermediates and formulations viz. ‐ Triazole fungicides [which include Hexaconazole, Tebuconazole and Propiconazole] which isone of the major products, contributing about 60% of agrichem revenues. Under pharma segment Astec manufactures intermediates which are supplied to API manufacturers.
Out of the total sales, Agro chemicals contribute 85% and pharma segment contributes 15%. Currently the exports of the company are 30% of the total sales. It has hugedomestic and international clientele with long term contracts.Domestic clients include Syngenta India, Indofil hemicals, Atul Ltd, Krishi rasayan exports and international clientele includes Irvita Plant Protection, Nufarm UK ltd, An Nong Co., handelsgesellschaft, Detlef Von Appen etc.
Company is working on contract manufacturing basis and is in negotiations with a couple of large players for long term contracts for its products. It is expected to clinch sizeable deals – which can lead to significant upside in revenue generation from FY 11 onwards.
With 29 years of experience, management has played a key role in the growth of the company. Mr. Ashok Hiremath the CMD has been associated with Hikel promoted by his brother which is the first company to receive first project on contract manufacturing.
Risks and concerns
Fluctuations in currency & input costs may affect the financial performance of the company.
Edited by mukulgarga - 23/Aug/2010 at 3:13pm
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