Company Background: Astec is a producer of agrochemicals and pharmaceutical intermediates. The company is mainly into contract manufacturing and has some very good clients across the globe. Astec is a leader in Triazole fungicides and nearly 40% of its sales come from the export markets. The Company has 214 product registrations across 32 countries including 139 product registrations in India. Its unit has a dealership network of close to 750-800 dealers across 6 states in India.
Astec has a strong pipeline of products under development. Company's contract manufacturing business is making good progress and two contracts are already established and third one has started commercial production. These relationships with major multinationals are leading to many growth opportunities. On the competition side China getting whittled down as their costs are going upwards due to stricter environmental compliance requirements and the Yuan appreciating in recent times.
Triggers for the stock:
1.Sector interest: Many agro chemical companies are being seen by investors with immense interest
2.High margin products introduced this year: As per Astec management, the company has introduced some of the high margin products and the operating margins are expected to improve from current 13% in FY14 to 23%-25% in FY15.
3.Products pipeline: The company has a pipeline of products under development and intends to launch 2 -3 new products annually with 5-6 new products slated for commercialization over the next 2 years. Some of these products are under exclusive arrangement with specific customers (contract manufacturing)
4.Growth: The Company is expecting to grow by 20-25% over next few years.
5.Capacities established; operating leverage will come if growth comes: The Company has established enough capacities and any sales growth will lead to a big operating leverage leading to very high profit growth.