Shares of Sharda Cropchem Ltd have surged over 100% in the last seven weeks on a healthy outlook for the agrochemical industry.
The stock, which has risen 116% since 21 December, has traded higher for eight out of the last nine sessions. So far this year it rose nearly 90%. At 1:44 pm, the scrip was trading at Rs 668.65 on BSE, up 8% from previous close.
Last week, the firm reported robust third quarter revenues up 78% year on year at Rs 880 crore led by strong volume growth (51%) and higher realisation (27%). Agrochemical revenues grew 80% YoY to Rs 720 crore while non-agrochemicals sales rose 71% to Rs 160 crore. Net profit surged 112% to Rs 100 crore.
"The outlook for the global agrochemical industry appears positive, given consolidation, reduced inventories, higher crop prices, and the need for food security. With several products going off patent over the next couple of years and an increasing share of generics, Sharda appears well placed to tap this opportunity, given its scale advantages, healthy geographical mix, and expanding client base and distribution network. Management expects growth momentum to continue in the near term, led by positive demand scenarios across geographies," said Julius Bear Equity Research in a note to investors.
The firm saw healthy demand from North American Free Trade Agreement (NAFTA) and European markets and lower inventory in the system. The company delivered high double-digit growth across geographies; Europe – 123.5%, NAFTA 82.3% and Latin America 27.1% YoY. Growth was aided by higher crop prices in international markets.
Going ahead, Edelweiss Research believes momentum will maintain in the fourth quarter. The brokerage also expects that the firm will benefit from better crop prices as well as price hikes taken during the December quarter. Edelweiss Research has maintained its buy rating on the stock and kept a target price at Rs 615 a share.
On 30 December, Anand Rathi Research initiated a buy rating on the stock. "Powered by its focus on registering formulations and active ingredients across regions, Sharda’s strong growth would continue. A strong pipeline and distribution network would add to growth. Internally funded capex and free cash flow generation would strengthen its balance sheet, resulting in higher return ratios," the brokerage said.
Currently, the stock trades at 10.9x FY23e and 9.2x FY24e earnings. Sharda is trading at the lower end of its historical P/E multiple (average 16x over FY15-21), Anand Rathi said.
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