Sharda Cropchem - Asset Light Model, Product Registration-Led Growth Augurs Well: HDFC Securities
Further, comfort levels remain high about a sustainable revenue steam, driven by a strong pipeline of registrations across regions
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HDFC Securities Retail Research
Sharda Cropchem Ltd. has presence in both agrochemicals and non-agrochemicals business segments. Company pursues a differentiated asset light business model whereby it completely outsources manufacturing of agrochem to China and focuses on product registrations. The company is constantly focusing on identifying new products and registration opportunities.
Valuation and Recommendation:
Management has given a guidance of 15-18% growth for sales along with strong margin improvement for FY24. We estimate 13% compound annual growth rate in sales over FY23-25E led by new products launches and steady business from existing products. Gross margin and Ebitda margin witnessed sharp correction for FY23. We expect 17% rise in Ebitda and profit after tax over the next two years.
We believe that margin would improve gradually as raw material prices have tapered down with raw material availability issues subsiding, leading to China capacities gradually moving to normal operating levels. Even freight costs have also seen significant decline in the last three quarters.
Given healthy growth outlook, strong pipeline of formulations and active-ingredient registrations, better revenue mix across regions, strong balance sheet and return ratios, we remain positive on the company.
Further, comfort levels remain high about a sustainable revenue steam, driven by a strong pipeline of registrations across regions. Management has guided for an Ebitda margin in the range of 17-18% in the medium term.
Sharda Cropchem continues to have a strong registration pipeline (1,143 products as on March 2023 at various stages of registration across different geographies). Europe and North American Free Trade Agreement regions will continue to be the growth drivers.
Registration costs in Europe continue to rise, which would increase capex spends for the company. We believe that a strong pipeline of registrations would drive volume and sales growth.
Company’s asset light model, cash rich balance sheet and focus on registrations in stricter geographies augur well for incremental volume growth.
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