Sharda Cropchem Q2 Results Review - Subdued; Near-Term Outlook Bleak: Prabhudas Lilladher

Prabhudas Lilladher Report

We trim our FY24/25/FY26E estimates of Sharda Cropchem Ltd. by 11%/12%/12% and revise target price to Rs 470 (earlier Rs 540) based on 12 times FY26 earnings per share, citing near-term pressures on both revenue and margin led by adverse weather condition in key geographies plus high inventory concerns at manufacturer and distributor levels.

Sharda Cropchem reported subdued results with revenue decline of 20% YoY to Rs 5.8 billion (our estimate: Rs 7.9 bllion), led by volume/price growth of +20%/-45%YoY partially aided by positive forex variance of 5.0% YoY.

Gross margins contracted 230 basis pointss YoY to 25.1% largely led by-

1. high cost inventory provisions of Rs 130 million;

2. higher sales return of Rs 700 million; and

3. acute pressure on price realizations (declined to the tune of 35-40%) particularly in the North American Free Trade Agreement region.

Lower gross margin coupled with higher opex up 570 bps YoY has resulted in Ebitda contraction at Rs 349 million as against Rs 1.4 billion in Q2 FY23 (including IU&AD write-off of Rs 28 million in Q2 FY24 versus Rs 15 million in Q2 FY23). Maintain ‘Accumulate’ rating.

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