BUY – Sharda Cropchem Ltd (CMP = Rs. 550)

BUY – Sharda Cropchem Ltd (CMP = Rs. 550)

1.     Brief Overview of Sharda Cropchem Ltd (“SCL”)

It is a crop protection chemical company that strives to seek product registrations (whilst developing product dossiers) in different countries. It has a presence across the globe in the USA, Europe, and Latin America.

2.     SCL in pole position in each of Porter’s 5 factors

2.1.  SCL has multiple manufacturers, thus aiding the Company in getting good products at a competitive price

2.2.  Fragmentation of buyers in the market reduces the influence of any single buyer having an influence on a given product or price

2.3.  SCL has strong barriers which operate as a hurdle for new players to enter the market.

2.4.  SCL has no threat of substitutes.

2.5.  Agrochemical space is well fragmented comprising of large and small players.

3.     Financials

3.1.  SCL’s revenue has grown by 77% YoY in Q321

3.2.  Top-line up by 35%

3.3.  In Q3FY22, the agrochemical segment stood at 120% in Europe (YoY); 80% in NAFTA; and rose by 27% in LATAM

3.4.  PAT up by 110%

3.5.  Maintained a 5-year CAGR of 14%

4.     SCL is well poised to grow

4.1.  It has obtained 2540 registrations as of March 31, 2021

4.2.  SCL has filed for 1120 registrations globally

4.3.  It has increased its salesforce in order to minimize dependency on Third Party distributors

4.4.  Its agrochemical value chain boasts of 500 third-party distributors with over 400 salesforce with a clientele in over 80 countries

4.5.  SCL is significantly scaling its biological products, which is one of the fastest-growing segments in the agricultural input market. The agricultural biologicals market is expected to grow at 11% between 2021 to 2025 to reach approximately a market size of 1,40,00,000 crore eventually.

4.6.  SCL is in a strong liquidity position with liquid marketable securities of 340 crores. The company usually maintains at least 150 crores of liquid surpluses.

5.     BUY SCL at Rs. 550 with a Target Price of Rs. 700

5.1.  Stock is trading at 15x as compared to an industry PE of 34x

5.2.  ROCE is 20% over the past 5 years

5.3.  ROE is 15% over the past 5 years

5.4.  Has a healthy dividend payout of 20%

5.5.  Debt to Equity Ratio of 0.04 times

The author recommends buying this stock at Rs. 550 and exit at Rs. 700. Due to strong liquidity, strong barriers to entry, and its IP portfolio expansion along with healthy financials, it is poised to grow in the near future.

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