Comparison of Top 5 Agro-Chemical Companies

thumbnail
Reading Time: 8 minutes


Quantitative Analysis of Agro-Chemical sector

Introduction

In this blog, we will do a quantitative analysis of Agro-chemical sector. Recently, Agro – chemical sector has gained a lot of traction because of Government’s thrust on “Atmanirbhar Bharat” leading to reduction in GST rates, tax incentives for setting up new units and R&D.

Please note that we have done this analysis with the only purpose of screening good companies. Analysis done is completely on quantitative basis. No suggestions are being made to directly go and invest in the top scoring companies of this analysis. We suggest that one should perform a qualitative analysis of top scoring companies in this analysis and take investment decision based on risk profile.

Stock O Meter
Stock O Meter – A Complete Equity Research Tool by Invest Yadnya

Agro- Chemical Sector Quantitative Analysis

Companies selected for analysis

We have selected the following five FMCG companies for our quantitative analysis.

Agrochemicals companies Market capitalisation
Top 5 Agro-chemical Companies in India
Procedure of Analysis and its Interpretation
  • These 5 companies are analysed on following parameters and ranked and scored accordingly. For example, if a company has higher PE ratio, it has a lower rank , hence has scored lesser points. Similarly, if a company has higher RoE, it has higher rank and has scored higher points.
  • Here , 1 means that the company has scored lowest points and 5 means the company has scored highest points.
  • At the end, we have added all the points together and companies are ranked accordingly.
1. PE
Agro-chemical companies PE
Top 5 Agro- chemical companies PE
  • PE is basically how much an investor pays for each rupee of profit earned.
  • Bayer CropScience has very high PE and hence has lowest rank. On the other hand, UPL is trading at lowest PE and hence has first rank.
2. RoCE
Agro-chemical companies RoCE
Top 5 Agro- chemical companies RoCE
  • Return on Capital Employed (RoCE )is one of the return ratios commonly used in fundamental analysis. RoCE is Earnings before Interest and Taxes (EBIT)/ Total Capital Employed (Debt+Equity)
  • It gives us a perspective of how the company is earning profits by allocating its overall capital. So higher the RoCE ,the better.
  • Agro – chemical sector is a capital intensive sector and hence companies have moderate debt on their books.
  • Here, UPL has the lowest RoCE of ~10.9% which justifies its lower valuation to certain extent.
  • Similarly, Sumitomo Chemical India has highest RoCE and hence has first rank.
Also Read on FinMedium:  Seven expensive mistakes to avoid while participating in the capital markets
3. RoE
Agro-chemical companies RoE
Top 5 Agro- chemical companies RoE
  • Another return ratio that is used widely in fundamental analysis is Return on Equity (RoE) which is Net Income/ Total Shareholder’s equity (Equity share capital + Reserves/Surplus).
  • Coromandel International has highest RoE , while UPL has lowest RoE.
4. Debt to Equity (D/E)
Agro-chemical companies D/E
Top 5 Agro- chemical companies DE
  • Here, Sumitomo Chemical India has lowest D/E of ~0 whereas UPL has highest D/E of 1.8x
  • Hence, UPL is ranked lowest and Sumitomo Chemical India is ranked at first.
5. Interest Coverage Ratio
Agro-chemical companies Interest Coverage Ratio
Top 5 Agro- chemical companies Interest Coverage Ratio
  • Interest coverage ratio is Earnings before Interest and Taxes (EBIT)/ Interest expense.
  • This ratio gives the ability of the company to pay interest from its operating profit.
  • Overall the sector has good interest coverage ratio. Usually interest coverage ratio above 2.5 x is healthy.
  • As Sumitomo Chemical India has lowest D/E, its Interest coverage ratio is also on a higher side.
  • On the other hand, since UPL has highest debt, its interest coverage ratio is lowest.
6. Pledged Promoter Shares (%)
Agro-chemical companies Pledged Shares
Top 5 Agro- chemical companies pledged Promoter Shares (%)
  • Pledged Promoter shares are usually not so healthy sign of corporate governance. Hence, ideally there should not be any pledged promoter shares.
  • Apart from UPL and Coromandel International, other companies do not have any pledged promoter shares. Hence they have highest points.
  • Coromandel International has very low promoter pledging and hence it is ranked at 4 th position.
  • UPL has highest number of pledged shares and hence it is at last position.
7. Institutional Holding (Foreign and Domestic Institutional Investors)
Agro-chemical companies Institutional holding
Top 5 Agro- chemical companies Institutional Holding (%)
  • Institutional Investor’s shareholding in a company is also one of the important parameter while analyzing a company.
  • Here, UPL has highest Institutional holding mainly as it is a part of NIFTY 50 Index. Thus, it has a huge portion of passive fund flow through index funds.
  • After UPL, PI Industries has highest Institutional holding of ~31%. PI Industries is a very good agro-chemical company and hence, it has higher Institutional holding.
  • Sumitomo Chemical India has the lowest Institutional holding and hence it is at lowest rank.
Also Read on FinMedium:  Saral Jeevan Bima Term Life Insurance - Features, Eligibility, and Benefits
8. Operating Profit Margins (%)
Agro-chemical companies Operating Profit Margins
Top 5 Agro- chemical companies Institutional Holding (%)
  • PI Industries has highest operating profit margins (%) and hence it has first rank.
  • Although UPL has lower return ratios and higher debt profile, its operating profit margins are healthy.
  • Bayer CropScience has lowest operating profit margins and hence it has lowest rank.
9. 5-Year and 3-Year growth
Agro-chemical companies growth rates
Top 5 Agro- chemical companies 5-Year and 3-Year growth
  • UPL has highest 5-Year and 3-Year sales growth. It also has healthy net profit growth over 3-year and 5-year period, mainly on the back of healthy operating profit margins.
  • Coromandel International has highest Net Profit growth over the given period.
  • These companies are ranked and scored accordingly.
10. TTM Sales and Profit growth
Agro-chemical companies TTM growth rates
Top 5 Agro- chemical companies TTM Sales and Profit growth (%)
  • It is important to take a look at TTM growth as Government has increased its thrust on domestic production of agro-chemicals by introducing new policies and tax incentives in the last one year.
  • This has positively impacted the sector and has resulted in higher growth.
  • As seen, UPL has stellar sales and profit growth in the last one year. Hence it has first rank and maximum points.
  • Similarly, Coromandel International has highest net profit growth and hence ranks first.
11. EV/EBITDA
Agro-chemical companies EV/EBITDA
Top 5 Agro- chemical companies EV/EBITDA
  • EV/EBITDA is another valuation metric to value companies, based on the operating profit generated as compared to their Enterprise Value.
  • Enterprise value is basically the value of total company. Here, market value of debt is also considered in addition to the market valuation of equity.
  • Thus, Enterprise Value basically gives the valuation of total assets of the company in market. Hence, lower the EV/EBITDA, better its valuation.
  • Analogous to PE valuations, UPL has lowest EV/EBITDA and Bayer CropScience has highest EV/EBITDA.
  • These companies are ranked and given points accordingly.
12. Inventory Turnover Ratio
Agro-chemical companies Inventory Turnover Ratio
Top 5 Agro- chemical companies Inventory Turnover Ratio
  • Inventory Turnover Ratio is Cost of Goods Sold/ Average Inventory. Average Inventory is (Starting Inventory + Ending Inventory)/2.
  • It gives us an idea about how the company is stocking up its inventory as well as how many times the company has sold its inventory in a given period.
  • Here,Coromandel International has highest inventory turnover ratio and hence has first rank.
  • UPL has lowest inventory turnover ratio and hence has last rank.
Also Read on FinMedium:  Index Fund Advantages and Disadvantages
13. Debtor Days
Agro-chemical companies Debtor Days
Top 5 Agro- chemical companies debtor days
  • Debtor days is basically how quickly the debtors/customers are paying back company. It is (Average Accounts Receivables/Credit Sales)*365.
  • The lower the debtor days, it is better as it means that company is receiving its accounts receivables early, which aides its liquidity position.
  • Coromandel International has lowest debtor days and Sumitomo Chemical India has highest debtor days.
  • Hence these companies are ranked accordingly and given points.
14. Cash Conversion Cycle
Agro-chemical companies Cash Conversion Cycle
Top 5 Agro- chemical companies debtor days
  • Cash conversion cycle tells us the number of days a company usually takes to convert its investment in inventories and accounts receivables to turn into cashflows.
  • The formula of cash conversion cycle is Inventory Days + Debtor Days – Payable Days. The lower this cycle , the better as it signifies that the company does not have significant working capital requirement.
  • Here, as we can see Coromandel International has lowest cash conversion cycle of ~ 70 days and hence has highest rank.
  • Other companies higher cash conversion cycle, Sumitomo Chemical India being the highest which is evident from their higher debtor days. Hence it is ranked at last position.
Final Points
Agro-chemical companies quantitative analysis
Top 5 agro-chemical companies ranks according to quantitative analysis

As seen, Coromandel International tops the list on the back of its healthy cash conversion cycle, net profit growth and moderate valuations.



Source link

Every Wednesday and Saturday, we send Info-Graphic and FinMedium Weekly Digest newsletters to our 25000+ Subscribers.

Join Them Now!

Please Share :)
Invest Yadnya
Yadnya Investment Academy focuses on Investor Education, Personal Finance, Money Ideas, Mutual Funds, Stock Market, Investing, and Savings.
Back To Top