INVESTMENT PICK ( HOLDING PERIOD – THREE MONTH PLUS )

• NAGARJUNA AGRICHEM

• Present Price – Rs.172, Projected Price – Rs.260

Nagarjuna Agrichem Ltd. ( NAL) is a niche agrochemical company established in 1994 with an initial investment of US $ 7 Mn to produce Monocrotophos Technical and since then has been adding new products every year. It is currently among top 5 Indian agrochemical companies in the domestic agrochemical industry. It operates one of the most modern and comprehensive agrochemical manufacturing plants, situated amidst 95 acres of lush greenery, in Srikakulam district of Andhra Pradesh. The process development Skills of NAL are comparable to the Best Indian Companies. The management believes that the R & D / Process Development Department of NAL is the second largest of any Indian Agrochemical Company in terms of size and scope of operation. It has an adequate capacities, state-of-the-art infrastructure, skilled experienced manpower and technical absorption capabilities. In fact, Custom Synthesis and manufacturing are one of NAL's inherent capabilities. The production lines are designed for a quick change over. It also has a Toll Manufacturing Division, which caters to the requirements of reputed overseas customers. NAL has one of the largest dealer network spread across India, with marketing and sales offices in addition to an extensive Warehousing & Logistics Infrastructure to handle operations in 20 Indian states. NAL has tie-ups with large Indian Agrochemical Majors and MNC’s for the domestic and export markets. MCP is an organophosphorous pesticide. NAL supplies major portion of MCP to Nagarjuna Fertilizers, a group company, and the remaining is used in formulations. MCP has eco-friendly characteristics and is a fast acting pesticide useful against a wide range of pests. NAL's growing global presence is reflected in its exports. Today Nagarjuna is among the few companies in India exporting pesticide technicals and formulations to as many as 15 countries including Argentina, Australia, Greece, Italy, Japan, Oman, Portugal, Saudi Arabia, South Africa, Spain, Sri Lanka, Taiwan, Vietnam and Yemen. Exports constitute 50 per cent of the revenue. NAL is expanding its manufacturing capacities. It has invested Rs 52 crore towards expansion in FY08 & FY09. It is planning to de-bottleneck and augment capacity at its existing facility by September 2009. The company is setting up a Greenfield manufacturing facility with an outlay of about Rs 150 crore in the special economic zone at Achutapuram, about 40 km from Visakhapatnam, within the Petroleum, Chemicals and Petrochemical Investment Region. NACL will raise the funds mostly through debt from banks and financial institutions. The plant is expected to be commissioned in 18 months from the commencement of the project. Andhra Pradesh Industrial Infrastructure Corp has allotted 85 acres in a Visakhapatnam Special Economic Zone to the company. Low cost production of the Indian agrochemical manufacturers places them to wrest CRAMS business from the Bglobal agrochemical majors. The extremely low per hectare domestic consumption and thrust on increasing output per hectare promise healthy domestic growth going forward. The per capita consumption of crop protection products in India is one of the lowest at 0.5% per kg/hectare compared to 17 kg of Taiwan, 14 kg of China, 12 kg of Japan and 7 kg of U.S. The company has an Equity Capital of Rs.14.90 cr and a Strong Book Value of Rs.101.40. Sales for FY09 was Rs.605 cr and a Net Profit of Rs.49.26 cr. It had an EPS of Rs.33 for FY09. We expect the company to report sales of Rs.725 cr for FY10 and a Net Profit of Rs.65 cr plus giving it an EPS of Rs.43.60. The current price of Rs.172 discounts this by just 3.94 times making it an attractive investment opportunity. BUYING IS ADVISED FOR MEDIUM TERM.