Sharda Cropchem

RESULT NOTE
Profitability declines
OUTPERFORMER

Q4FY19 result
15 May 2019 • Sharda Cropchem reported muted revenue growth with 0.2% yoy
decline to Rs7.6bn (below our est of Rs8.7bn). Revenue growth in
BSE Sensex: 37115
Q4FY19 was impacted by 21% yoy decline in volumes despite 16.7%
Sector: Agri-inputs realisation growth and 4.2% favourable currency impact.
• Among key geographies, NAFTA and Europe registered 6.8% and
5% yoy growth respectively , while revenues from RoW and Latam
region declined by 46.5% and 35.5% respectively
• Gross margins declined by 335bps yoy to 31% on steep rise in prices
Stock data
of raw material procured from China.
• Despite stable employee costs, higher other expenses (up 24% yoy )
CMP (Rs) 349 led to 505bps yoy decline in EBITDA margins to 20.2% (est : 24.1%)
.EBITDA declined by 20.2% yoy to Rs1.54bn (est: Rs2.09bn)
Mkt Cap (Rs bn/USD m) 31.5 /448
• Despite higher depreciation (up 105% yoy), decline in interest cost
Target Price (Rs) 391 with repayment of working capital loan and higher other income
Change in TP (8.6)
restricted further decline in PAT. Cons PAT declined by 6.8% yoy to
Rs1.05bn (est Rs1.25bn).
Potential from CMP (%) 12.2 Key positives: Improvement in working capital
Earnings change (%) Key negatives: Muted revenue growth, decline in EBITDA Margins
FY20E (9.5)
Impact on financials: Cut FY20E/21E EPS by 9.5%/8.7% respectively
FY21E (8.7)
Valuations & view
Bloomberg code SHCR IN During FY19, Sharda registered healthy topline growth driven by
increasing penetration in NAFTA and Europe ; however profitability was
1-yr high/low (Rs) 454/255
impacted by CWIP write-offs and steep rise in raw material prices.
6-mth avg. daily volumes (m) - Going forward we expect revenue growth momentum to continue with
steady introduction of high margin molecules in Europe and NAFTA
6-mth avg. daily traded value
which will also aid profitability. Sharda’s investment to secure product
(Rsm/USDm) 8.5/0.1 registrations and low market share in the global markets imply
significant growth opportunity. We expect Sharda to post revenue/
Shares outstanding (m) 90.2 earnings CAGR of 14%/20% over FY18-21E. An asset-light business
Free float (%) 25.2
model (RoCE~21%) with focus on building product registration, nil
investment in manufacturing assets makes it one of the best play on
Promoter holding (%) 74.8 global generic agrochemical market. Maintain Outperformer, with
revised target price of Rs391 (14x FY21E earnings).
Price performance – relative & absolute
Sharda Cropchem Sensex
Key financials (quarterly)
150 % var from
(Rs m) Q4FY18 Q3FY19 Q4FY19 % ch qoq % ch yoy
est
100 Net revenue 7,659 4,714 7,644 62.1 (0.2) (12.2)
EBITDA 1,932 473 1,542 226.0 (20.2) (26.4)
50
OPM (%) 25.2 10.0 20.2 10.1 (5.1) (3.9)
Other inc. 19 46 92 100.9 395.6 130.3
0
May-17 Nov-17 May-18 Nov-18 May-19 Interest 46 4 3 (32.9) (94) (11.7)
(%) 3-mth 6-mth 1-yr Dep. & Amort. 185 233 380 63.1 105.1 52.2
PBT 1,719 282 1,251 344.3 (27.2) (33.5)
SHCR IN 8.9 11.0 123.6
Tax 587 79 195 148.1 (66.7) (68.7)
BSE Sensex 3.6 5.3 4.4 Reported PAT 1,132 203 1,056 420.6 (6.8) (15.9)
Source: Company, IDFC Securities Research

Nitin Agarwal Miloni Bagadia

nitin.agarwal@idfc.com miloni.bagadia@idfc.com
91-22-4202 2568 91-22-4202 2663

For Private Circulation only. “Important disclosures appear at the back of this report”
 Sharda Cropchem

Exhibit 1: Quarterly Results

(Rs m) Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Comments
Net Sales 3,255 7,659 4,571 3,097 4,714 7,644 21% yoy decline in volumes

Expenses
Cost of sales 2,316 5,019 3,147 2,138 3,326 5,265 Gross margins decline by 335bps
SG&A expenses 583 708 714 613 915 836 Includes Rs35m forex loss
Total Expenses 2,898 5,727 3,861 2,750 4,242 6,102

EBITDA 356 1,932 711 347 473 1,542

OPM (%) 11.0 25.2 15.5 11.2 10.0 20.2 Lower than estimate
Other Income 27 19 35 182 46 92
Repayment of working capital
Interest 2 46 36 42 4 3
loan
Higher with capitalisation of
Depreciation 183 185 184 197 233 380
registration

PBT 199 1,719 526 291 282 1,251

Tax 100 587 180 129 79 195
Tax Rate (%) 50.2 34.1 34.2 44.4 28.0 15.6
Minority interest - - (3) (0) - (0)
Reported PAT 99 1,132 348 162 203 1,056 Lower than estimate

% chg yoy
Sales 34.0 28.7 34.0 11.4 44.9 (0.2)
EBITDA 10.3 18.9 14.3 (30.7) 32.7 (20.2)
Other Income (70.7) 19.2 (76.6) 1,158 69 396
Interest
Depreciation 48.0 (4.1) 18.6 11.9 27.2 105.1
PBT (32.0) 18.8 (14.5) (14.1) 41.7 (27.2)
PAT (43.6) 14.8 (19.4) (33.5) 104.9 (6.8)
Reported PAT (43.6) 14.8 (19.4) (33.5) 104.9 (6.8)
Source: Company, IDFC Securities Research

Exhibit 2: Agrochem – geographic revenue growth Exhibit 3: working capital days

FY18 FY19 FY18 FY19

10000 180

135
7500

90
5000

45
2500

0
0 Inventory Days Receivables Days Creditors Days
Europe Nafta Latam RoW
Source: Company, IDFC Securities Research Source: Company, IDFC Securities Research

2 | IDFC SECURITIES 15 May 2019

 Sharda Cropchem

Key highlights
• Management guidance: For FY20E, management expects revenue growth of 15-20% while gross
margins are expected to be in the range 31-33%. Registration capex in FY20E is expected to be Rs1.5-
1.8bn.
• Q4FY19 revenue growth was muted, where agrochemicals business reported a decline of 0.9% yoy to
Rs6.9bn, while non-agrochemicals sales increased by 6.4% yoy to Rs743m.
• Revenue growth in Q4FY19 was impacted by 21% yoy decline in volumes, 16.7% realisation growth
and 4.2% favourable currency impact. In FY19 revenue growth was driven by 17% realisation growth,
7.3% favourable currency impact , while volumes declined by 7%.
• During Q4FY19 within the agrochemicals business, NAFTA and Europe witnessed 6.8% and 5% yoy
growth respectively despite unfavourable weather conditions, while revenues from RoW and Latam
region declined by 46.5% and 35.5% respectively Currently, NAFTA is the key revenue contributing
geography, accounting for 54.9% (51.8% in Q4FY19) of agrochemicals revenues.
• Gross margins declined 335bps on increase in prices of technical procured from China . As per the
management, situation in China continues to remain volatile and uncertain. The recent explosion in
china has led to plant shut down thereby causing shortage and steep price rise for some products.
Besides Sharda has been unable to pass on increase in RM costs as MNCs are still not increasing
prices
• As per the management, growth in FY19 will continue to be driven by NAFTA and Europe.
Management expects NAFTA region to witness strong growth on increased demand from MNC’s and
improved product mix , while growth in Latam will remain lacklustre with slowdown in receivables.
Europe is expected to register stable growth with renewal of registration
• Inventory days declined from 87 days in FY18 to 82 days in FY19 and receivables days declined from
167days to 155 days. Creditor days stood at 151 days vs 153 days in FY19. Net working capital days
improved by 15 days.
• Depreciation increased in Q4FY19 with higher capitalisation of registrations. Currently Sharda has
Rs2.4bn in CWIP which will also result in higher depreciation going forward..
• In H2FY18, Sharda had borrowed Rs1.7bn from promoters at 10% cost to meet the working capital
requirement. This working capital loan has now been fully repaid leading to a debt free balance
sheet. Free cashflows as of FY19 stood at Rs3.8bn. Sharda expects to utilise the cash towards its
working capital needs going forward.
• Total number of registrations were 2,297 as of March -19 as compared to 2,157 in March-18. Sharda
has 1028 registrations in pipeline across geographies.

3 | IDFC SECURITIES 15 May 2019

 Sharda Cropchem

Income statement Key ratios

Year to 31 Mar (Rs Year to 31 Mar FY17 FY18 FY19 FY20E FY21E
FY17 FY18 FY19 FY20E FY21E
m) EBITDA margin (%) 22.3 20.7 16.2 19.2 19.4
Net sales 13,992 17,066 20,011 22,773 25,819 EBIT margin (%) 18.3 16.6 11.3 13.8 14.1
% growth 14.5 22.0 17.3 13.8 13.4 PAT margin (%) 13.6 11.2 8.8 9.7 9.8
Operating expenses 10,869 13,527 16,763 18,401 20,810 RoE (%) 21.6 18.2 14.6 15.9 15.7
EBITDA 3,123 3,539 3,249 4,372 5,009 RoCE (%) 26.9 23.4 16.2 21.1 21.4
% change 15.1 13.3 (8.2) 34.6 14.6 Gearing (x) (0.2) 0.0 (0.3) (0.1) (0.1)
Other income 157 81 179 200 200 Net debt/ EBITDA
(0.5) 0.1 (1.0) (0.5) (0.4)
Net interest cost 0 49 84 8 8 (x)
FCF yield (%) 1.1 (6.4) 14.3 (3.7) 0.8
Depreciation 563 699 994 1,232 1,380
Dividend yield (%) 1.3 0.7 0.7 0.7 0.7
Pre-tax profit 2,717 2,872 2,350 3,332 3,821
Deferred tax 0 0 0 0 0
Current tax 814 964 587 1,133 1,299 Valuations
Profit after tax 1,903 1,908 1,763 2,199 2,522 Year to 31 Mar FY17 FY18 FY19 FY20E FY21E
Preference dividend 0 0 0 0 0 Reported EPS (Rs) 21.1 21.1 19.5 24.4 28.0
Minorities 0 0 0 0 0 Adj. EPS (Rs) 21.1 21.1 19.5 24.4 28.0
Adjusted net profit 1,903 1,908 1,763 2,199 2,522 PE (x) 14.5 14.4 15.6 12.5 10.9
Non-recurring items 0 0 0 0 0 Price/ Book (x) 2.9 2.4 2.1 1.9 1.6
Reported net profit 1,903 1,908 1,763 2,199 2,522 EV/ Net sales (x) 1.8 1.6 1.2 1.1 1.0
% change 8.9 0.2 (7.6) 24.7 14.7 EV/ EBITDA (x) 8.3 7.9 7.5 5.8 5.1
EV/ CE (x) 2.5 2.0 1.7 1.6 1.4
Balance sheet
As on 31 Mar (Rs Quarterly revenue performance
FY17 FY18 FY19 FY20E FY21E
m)
Paid-up capital 902 902 902 902 902
Preference capital 0 0 0 0 0
Reserves & surplus 8,696 10,446 11,937 13,956 16,297
Shareholders'
9,598 11,348 12,841 14,858 17,200
equity
Total current
6,066 8,323 8,026 9,047 10,257
liabilities
Total debt 8 1,730 1 0 0
Deferred tax
774 758 910 910 910
liabilities
Other non-current
17 27 201 45 45
liabilities
Total liabilities 6,864 10,838 9,138 10,002 11,212
Total equity &
16,462 22,187 21,979 24,860 28,411
liabilities
Net fixed assets 4,423 5,862 5,916 6,184 7,606
Investments 504 691 588 588 588
Cash 1,080 1,010 1,237 514 557
Other current assets 10,457 14,623 14,239 17,574 19,661
Deferred tax assets 0 0 0 0 0
Other non-current
0 0 0 0 0 Shareholding pattern
assets
Net working capital 5,471 7,310 7,450 9,042 9,960
Total assets 16,463 22,187 21,979 24,860 28,411

Cash flow
Year to 31 Mar (Rs
FY17 FY18 FY19 FY20E FY21E
m)
Pre-tax profit 2,717 2,872 2,350 3,332 3,821
Depreciation 563 699 994 1,232 1,380
Chg in Working
(576) (2,295) 1,986 (2,814) (876)
capital
Total tax paid (814) (964) (587) (1,133) (1,299)
Net Interest 0 49 84 8 8
Others 0 0 0 0 0
Operating cash
1,894 370 5,001 470 3,033
flow
Capital expenditure (1,585) (2,139) (1,047) (1,500) (2,802)
Free cash flow
309 (1,769) 3,954 (1,030) 231
(a+b)
Chg in investments (38) (188) 104 0 0
Debt raised/(repaid) (21) 1,722 (1,729) (1) 0
As of Mar 19
Net interest 0 (49) (84) (8) (8)
Capital
0 0 0 0 0
raised/(repaid)
Dividend (incl. tax) (361) (180) (180) (180) (180)
Other items 248 7 59 0 0
Net chg in cash 431 (70) 226 (722) 43

4 | IDFC SECURITIES 15 May 2019

 Sharda Cropchem

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