Sharda Cropchem, a crop protection chemical company entered the primary market with its initial public offering (IPO) with Rs 352-crore public offer, essentially to adhere to SEBI public shareholdings norm of creating a 25 percent public float, says RV Bubna, CMD, Sharda Cropchem.
Bubna feels it is not wise for their business to invest in plant and machinery and therefore, the company invests in agro chemical registrations. They have recently entered into the biocide segment and acquired several registrations from the existing registration holders, in Europe and China. Currently, they have 1,200 registrations globally and further registrations are anticipated to grow at 15-20 percent, he says in an interview with CNBC-TV18’s Latha Venkatesh and Ekta Batra.
Cash-rich Sharda has an asset-light business model with zero debt, he says adding that they have Rs 190 crore cash in hand as of March 2014. In addition, Bubna expects margins to be above 40 percent hereon.
Below is the edited transcript of the interview:
Q: What is the reason for this IPO as the company has cash surplus of Rs 200 crore and none of the money raised to going as investment into the company?
A: We had invited a private equity investor into our company in 2008 and after six-and-a-half years, that fund is coming to close, so we have to give them an exit. The purpose of this IPO is mainly to provide our private equity investor an exit and because of SEBI’s requirement - minimum 25 percent shares have to be issued to public. So, balance shares are being offered by the promoters in this IPO.
Q: One of the things that have stood out is that the company has not reported any losses for the last 27 years. In FY14 also, the company did a profit of around Rs 107 and analysts expect that the company could grow anywhere between 20-25 percent going ahead. Is it achievable?
A: It is not difficult.
Q: Can you help us explain the business model of the company as it seems to be very different from other listed agrochemical companies in India?
A: We are dealing in agrochemicals and agrochemicals have an impact on soil, underground water, environment, health of the people. So, every government wants to regulate and allow only the quality products to enter into their country and this process is controlled by way of registrations in every country and these registrations are very important process. It also acts as an entry barrier for non-serious companies to introduce their product into all the countries. We invest our efforts and capital in obtaining these registrations. The registrations are highly capital-intensive investments and they also require a lot of time and patience.
Q: You don’t have any tangible assets like land, building and machinery?
A: In our field, there is enough capacity in terms of plant and machinery globally and mainly in China. Therefore, we feel that it is not wise to invest in plant and machinery, which is an easier way of investment and very easy to duplicate. We prefer to invest into intellectual property like registrations, which is more rewarding than an investment in the plant.
Q: Any threat of competition either local or global for the company?
A: The registration process is very time consuming and highly investment oriented, so these two factors discourage other people to come into this field and we do not see much of a competition coming into our business.
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