Sharda Cropchem's Q4FY18 results (Outperformer) - Profitability improves
Q4FY18 results
- Sharda Cropchem’s Q4FY18 revenues increased significantly by 29%yoy to Rs7.7bn (our est. Rs6.8bn) led by 18% volume growth, while realisation growth and exchange rate impact was 6.2% and 5% respectively
- Geographical growth split: Europe: (+23.4%), NAFTA (+37%), Latam( +19.2%), RoW(+33%)
- Gross margins declined 123bps to 34.7% due to increase in raw material prices due to plant shut down in China. EBITDA increased by 21.5% yoy to Rs1.98bn (est.Rs1.6bn), while EBITDA margins declined by 163bps to 23.7%.
- Lower other income and higher tax rate (34.1% vs 31.8% in Q4FY17) restricted PAT growth. Net profit for the quarter stood at Rs1.1bn (est.Rs959m), up 14.8% yoy.
Key positives: Growth in Europe and NAFTA
Key negatives: Increase in working capital
Impact on financials: FY19/FY20E EPS increase by 9.1%/11.6% respectively
Valuations & view
Sharda reported strong revenue growth in FY18 led by growth in NAFTA and Europe regions, however steep increase in prices of raw material weighed negatively on gross margins. In FY19E, we expect the revenue growth momentum to continue with increased focus on developed markets such as NAFTA and introduction of high margin molecules in Europe, while margins to improve with better product mix. In the long term, Sharda’s investment to secure product registrations and low market share in the global markets imply significant growth opportunity. We expect Sharda to post revenue/ earnings CAGR of 14.4%/17% over FY18-20E. An asset-light business model (RoCE~23-24%) with focus on building product registration, nil investment in manufacturing assets and debt free balance sheet makes it one of the best play on global generic agrochemical market. Maintain Outperformer, with TP price of Rs525 (18x FY20E earnings).
Sharda Cropchem Ltd. Sharda Cropchem Limited is an agrochemicals company. The Company is engaged in the marketing and distribution of a range of formulations and generic active ingredients around the global. The Company's segments include Agrochemicals, Belts and Others. Its Agrochemicals segment consists of insecticides, herbicides, fungicides and biocides. Its Belts segment consists of conveyor belts, V Belts and timing belts. Its Others segment consists of dyes and dye intermediates, and general chemicals. The Company is engaged in order-based procurement and supply of non-agrochemical products, such as belts, general chemicals, and dyes and dye intermediates. The non-agrochemical product portfolio caters to customers, primarily, distributors, across Australia, Asia, Africa, Europe, North America and Latin America. It also serves the biocide segments as disinfectants. It V Belts and timing belts cater to water treatment, food and food ingredients, and other industrial applications.
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