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Thursday, 21 September 2017

Sharda Crop Chem: Gud Long term Compounder

Sharda Cropchem Ltd, Sector: Agro Chemicals, CMP: 450, P/e - 21.5, P/Bv - 4.43, Dividend Yield - 0.88%



About Company: 

Sharda Cropchem was incorporated as Sharda Worldwide Exports on March 12, 2004, in Mumbai, as a private limited company under the Companies Act, 1956. Initially the company began its operations  through two sole proprietary firms, each set up by Ramprakash V. Bubna and Sharda R. Bubna. After incorporation as Sharda Worldwide Exports in 2004, the generic agrochemical business and non-agrochemical business conducted by both firms were transferred to the company. The company was converted into a public limited company and changed its name to Sharda Cropchem on September 18, 2013.


Sharda Cropchem is a crop protection chemical company engaged in the marketing and distribution of a wide range of formulations and generic active ingredients globally. It is also involved in order based procurement and supply of Belts, general chemicals, dyes and dye intermediates. It procures these non-agrochemical products, primarily, from the manufacturers in China or India and supplies them in over 35 countries across Australia, Asia, Europe, North America and Latin America. The company has recently entered into the biocide segment and has acquired several registrations from the existing registration holders, primarily, in Europe. 


As of August 5, 2014, the company had over 180 Good Laboratory Practices (GLP) certified dossiers and as of July 15, 2014, it owned over 1,040 registrations for formulations and over 155 registrations for generic active ingredients across Europe, NAFTA, Latin America and Rest of the World. 

The company’s library of dossiers gives it a competitive edge and facilitates in seeking registrations in different countries in a time efficient manner. This also fosters its ability to operate in and distribute diversified range of formulations and generic active ingredients globally including highly regulated markets, which would not be permitted without such registrations. As of August 5, 2014, it has filed over 500 applications for seeking registrations globally which are pending at different stages.

Milestones: In November 2011, the company acquired 76% stake in Axis Crop Science, which is a company focused on marketing and distribution of formulations in India

Key Ratios:

Financial: 

Positive: Sales growth YoY 21% , 3 Yrs 28%, 5 Yrs 27% and 10 Yrs 18%
Positive: OPM growth YoY 23% , 3 Yrs 24%, 5 Yrs 27% and 10 Yrs 23%
Positive: PAT growth YoY 10% , 3 Yrs 29%, 5 Yrs 38% and 10 Yrs 20%
Positive: Tax payout ratio is very good at 30%
Positive: Net cash flow is Positive 
Positive: Cumulative 5 yrs CFO is at 109 compared to PAT 129, which shows the companies ability to convert profits to cash

Valuation Analysis:

Positive: P/e ratio is at 22 which is lowest among peers and good compared to industry P/e 28.7
Neutral: P/bv is at 4.4 which is lowest and median among peers, but higher is general concern
Positive: PEG ratio is too good at 0.2
Positive: Earnings Yield (EY) is above 7% which is good among peers
Positive: Price to Sales ratio (P/S ratio) is at 0.40 which shows good sales volume
Positive: Dividend Yield (DY) is at 0.88% which is one of the best among peers
Negative: Market Cap. to sales ratio is at 3.14 which shows the company is mildly overvalued
Neutral: Price to Cash flow ratio is at 24.21 which is moderate but less compared historically

Return Ratios:

Positive: ROE is at 21.5 % and stable YoY
Positive: ROCE is at 31.81 % and stable YoY
Positive: ROA is at 11.1% and stable YoY

Solvency Ratios:

Positive: Debt to Equity - With equity of 890 cr. company is having 0 debt making debt/equity ratio is Zero
Positive: Current ratio is at 1.82 which shows good short term liquidity 
Positive: Interest coverage ratio is above 1000% which is huge due to its zero debt

Key Points:  

     Positive / Opportunities:

  • Company is Asset light business model with zero debt and with very good Fixed assets turnover ratio
  • Companies focus is strongly on identification of generic molecules and registration opportunities, preparing dossiers and seeking registrations for formulations and generic active ingredients.
  • Established network of 724 established third-party distributors to serve 78 countries across Europe, NAFTA, Latin America, and the Rest of the World
  • Sharda Cropchem have 2,174 certified dossiers across Europe, NAFTA, Latin America and the Rest of the World. Of these, 1,901 registrations relate to formulations, and 273 registrations are for generic active ingredients.During the year, company added 409 new registrations. Of these, we added 191 in Europe, 42 in NAFTA, 149 in LATAM and27 in RoW. We have 845 applications in pipeline for registration globally, which are pending at different stages of approval
  • Off Patent Products: Agrochemicals worth USD 2.9 mn are expected to go off patent by 2020. This provides significant opportunities for companies which have expertise in generic segment. (Like Sharda Cropchem)
  • Unlike global giants, Sharda Cropchem follows an asset light business model whereby it keeps its competitiveness in identifying generic molecules,preparing dossiers, seeking registrations, marketing and distributing formulations through third party distributors or our sales force. 
  • Sourcing from multiple manufacturers also helps the Company to get optimal pricing from the market.Strong sourcing capabilities enable us to seek supply of formulations or generic active ingredients at competitive market prices.
  • Strong Global Presence and Diversified Portfolio
  • Company will continue to identify generic molecules going off patent and focus on seeking registrations to increase portfolio of formulations and generic active ingredients across Europe,NAFTA, Latin America and Rest of the World.
  • Company's practice of engaging experienced consultants in different countries across regions to benefit from their knowledge about the registration processes in the local jurisdiction as well as the market conditions will continue. It will continue to pursue opportunities for expanding our portfolio of formulations and generic active ingredients in the future. We intend to leverage existing dossiers and portfolio of formulations and generic active ingredients to develop new composition of formulations.
  • Company also started marketing and distributing biocides in various countries such as Spain, France, Italy, Hungary,Croatia, United Kingdom, Slovakia, Slovenia, Belgium,Bulgaria, Greece, Poland, and Czech Republic. They plan to increase marketing and distribution activities for biocide products in other European countries also. As of 31st March2017, Company own over 218 registrations for biocides. They intend to increase registrations for biocide products going forward. 

Negative / Threat:

  • Exchange rate fluctuations: Being a global player, the source of revenue is in several foreign currencies, primarily, US Dollars, Euros and British Pound. Due to the difference in the time between the sales being recorded and payment being realized, the foreign exchange rate at which the sale is recorded in the books of account may not be the same with the foreign exchange rate at which the cash is realized. This can result in either benefiting or adversely affecting us, depending on the depreciation or appreciation of currency.
  • Extension of Patents: Sharda Cropchem is a global generic agrochemical player and can face high risks from patents laws, which allow the innovator company to extend their patents. This may lead to unnecessary delay in formulations and generic active ingredients and adversely affect business.
  • Changes in government policies: As the Company is agrochemical industry, it will be affected by change in governmental policies related to agriculture. Any adverse changes in such policies relating to agro sector like reduction in government expenditure in agriculture, reduction in incentives and subsidy systems, export policy for crops,price of commodities – will affect the Company’s business. 
    • Also major formulation raw material ans supply is from china, so any policy change or duty changes will effect the company badly
  • Subject to Weather conditions: The smooth functioning of agrochemical business is primarily dependent on adequate and efficient weather conditions.Weather conditions are cyclical in nature and dependent onlots of factors like amount of rainfall; varying soil conditions,climatic conditions, varying seasons and temperature changes. These factors make the overall performance of the agricultural sector unpredictable. Also it is difficult to forecast the exact levels of production of a particular crop relative to past production. 

Conclusion:



Seeing the robust financial performance, Debt free, diversified product portfolio, new formulations YoY, industry outlook, global presence, Cash rish company, SHARDA CROP CHEM is a sure shot compounder for long term


Some Snippets about Company: 
















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