Sharda Cropchem. A multibagger in making.

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pyaretaj
Posts: 2
Joined: Fri May 19, 2017 4:25 pm

Sharda Cropchem. A multibagger in making.

Post by pyaretaj »

Sharda Cropchem is making new highs & is heading to become the next multibagger from agri sector. It has a decent balance sheet & overall growth trajectory is looking immensely positive in the long term. Target of 800 will be seen soon.
pyaretaj
Posts: 2
Joined: Fri May 19, 2017 4:25 pm

Re: Sharda Cropchem. A multibagger in making.

Post by pyaretaj »

With good monsoon after 2 years, Fertilizers and agrochemicals seems to be the flavor of the season, so we decided to cover a company that is bit unique in the space and been enjoying a phenomenal growth for last few years and still available at a reasonable valuation, that’s Sharda CropChem Ltd.

ABOUT THE COMPANY

A crop protection chemical company, Sharda CropChem Limited is one of the fastest growing global agrochemical companies in the world. The company commands a leadership position in the generic crop protection chemicals industry. The major markets where the company operates are across Europe, NAFTA and Latin America. The product offerings of the company include fungicides, herbicides and insecticides.

As of 30th June 2016, the company owned over 1,600 registrations for formulations and over 200 registrations for active ingredients (AIs). The company has also filed around 830 applications for registrations globally which are pending at different stages. Such a strong asset is certainly commendable by any standard and can create great entry barrier.

Besides the agrochemicals industry, the company has also forayed into the non-agrochemical business. It comprises primarily of procurement and supply of products like the conveyor belts and general chemicals, dyes and dye intermediaries. An interesting thing to note here is that these procurements are order based as the company does not believe in stocking goods, maintain an asset light business model. However, this segment comprises less than 1% of the total business of the company.

The company is presided over by Mr. R. V. Bubna, an IIT Bombay alumnus who brings with him over 45 years of experience in the chemical industry.

The unique thing about the company is that it is more of a marketing company with outsourced manufacturing. Company focuses on R&D and molecule registration and marketing it across the globe. This goes a long way in improving their operational efficiency and cash generation capacity.

KEY INVESTMENT POSITIVES

Strong Fundamentals

The company is virtually debt free and has grown their sales and profit at 22% and 33% CAGR respectively for last 5 years. Sharda Corp.Chem enjoys great return ratios with 3 years avg ROCE touching as high as 48%. With no debt on books company is enjoying great leverage ratios as well. With new registrations coming in and ever expanding distribution network both the return ratios and growth looks sustainable in near future.

Asset Light Business Model

The company operates with an asset light business model. It focuses on identification of generic molecules, preparing dossiers and seeking registrations. Thereafter distributions and marketing

of the formulations is done through third party distributors which acts as a supplement to its own sales force. A comparatively very less amount of capital is blocked in the fixed assets as compared to the current assets and investments. This fact alone makes Sharda a lean mean cash machine.

Presence of Economic Moat

The company enjoys a reasonable degree of economic moat due to the presence of high entry barriers in the agrochemicals industry of Europe and USA. The company also boasts of a strong geographic presence in more than 78 countries with an established global marketing and distribution network of third party distributors and direct sales force; which may act as a sustainable competitive advantage going forward.

Strong Sourcing Capabilities

The company also has superior sourcing capabilities with an established access to cost competitive manufactures in both India and China. This coupled with good capital allocation further ensures optimum utilization of assets and cost effectiveness going forward.

Management Track Record

The company was founded by Mr. R. V. Bubna who happens to be a chemical engineer from IIT Bombay. His experience of over 40 years is reflected in the good growth that the company has witnessed in the past. Moreover, promoter holding of around 75% is again a source of comfort for retail investors.

Good to get Better with Recent Initiatives:
•SCCL looks to leverage its vast market experience and execution capabilities in the coming year while adopting the factory to farmer approach and being the one stop solution provider
•SCCL intends to adopt a two pronged strategy to further expand the geographical reach by further penetrating the existing market and entering into newer markets
•SCCL also focusing on inorganic growth by exploring the possibilities of partnering with other companies beyond the existing jurisdictions
•SCCL plans to continue the identification of generic molecules and investments in obtaining the registrations to further strengthen the entry barriers for newer firms
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