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Stock To Buy: Agrochemicals Stock That Can Gain 30% On Higher Prices & Expansion
Brokerage firm Anand Rathi Research recommends investors buy the stocks of Sharda Cropchem for good returns. The company is expanding its range of products in each region for future growth. The brokerage firm is expecting high growth momentum, a strong balance sheet, free cash flows, and strong return ratios over FY22-24. More stocks available than peers have helped Sharda Cropchem to gain its market share in FY22.
Target Price
The Current Market Price (CMP) of Sharda Cropchem is Rs. 642. Anand Rathi has estimated a Target Price for the stock at Rs. 837. The stock is expected to offer a 30.37% upside, in 1 year.
| Stock Outlook | |
|---|---|
| Current Market Price (CMP) | Rs. 642 |
| Target Price | Rs. 837 |
| 1 year return | 30.37% |
Showing a well-driven performance status, the company experienced a realization-driven growth in Q4. Higher prices (up 42% y/y) across regions have helped the company to record 32% y/y, 63% q/q, and revenue growth to Rs. 14.3bn despite volumes dropping 11% y/y.
Comments by Anand Rathi and company performance
Giving a buy status, Anand Rathi said about the stock, "On 24% volume and 25% pricing growth, Sharda's revenue/PAT grew 49%/52% in FY22. Management talked of 15-20% revenue growth in FY23 with a 20-22% EBITDA margin supported by strong Agri demand globally. We are positive about Sharda's future performance, considering its focus on registrations, a rising share of high-margin products, and deeper penetration in markets. Further, internally-funded Capex and FCF would strengthen its balance sheet. We expect its revenue/profit to clock 15%/16% CAGRs over FY22-24."
However, volumes fell mainly due to shipping and logistic issues, apart from the higher base. The EBITDA margin rose 100bps y/y, though q/q was down 116bps, to 20.9%, supported by operating efficiencies and economies of scale, partially hurt by higher freight costs. Profit grew 32% y/y, 73% q/q, to Rs. 1,770m on the better margins and lower tax expenses.
About the company
Sharda Cropchem is a fast-growing global agrochemicals company with a leadership position in the generic crop protection chemicals industry. The product portfolio in the non-agrochemical business comprises Belts, general chemicals, dyes, and dye intermediates. The company's Capex in FY22 stood at Rs. 3.8bn and management maintained its guidance of Rs. 3.8bn-Rs. 4bn Capex in FY24, and said short-term issues regarding supplies and logistics would have no major impact on Q1 FY23 performance. The management says it is seeing positive traction in old and new products. The management guided revenue growth of 15-20% with ~30-32% gross margins and ~20-22% EBITDA margins in FY23.
However, stating the risks the brokerage firm has mentioned forex movements, dependence on China for raw material, and delay in registrations. "If the lockdown in China persists, it would impact supplies for the short term."
Disclaimer
The above stock was picked from the brokerage report of Anand Rathi. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.
