Buy Sharda Cropchem; target of Rs 570: Prabhudas Lilladher

Prabhudas Lilladher's research report on Sharda Cropchem

Sharda Cropchem (SHCR) reported strong operational performance in 3QFY22, primarily led by healthy revenue growth across regions. Key highlights are: (1) Volume/Price/FX growth of 51%/26.5%/1% YoY respectively; (2) Gross margin declined 60bps YoY to 33.9% led by higher freight cost; (3) Better operating leverage coupled with superior geographical and product mix has resulted into EBITDA margins expansion of 250bps YoY to 22% (incl. IU&AD write-offs of Rs70mn in 3QFY22); and (4) Working capital days up by 1-day YoY to 72. Citing a positive growth momentum across regions, management remains confident of achieving 20% YoY revenue growth for next few years, while maintaining margins at current levels aided by better geographical mix and higher contribution from recently received new registrations. We believe SHCR’s performance has suffered in the past on account of multiple factors like (1) inferior geographical mix; (2) sharp uptick in RM cost and inability to pass on inflated cost and (3) higher capitalization cost. However, these cloud of concerns are largely overdone. That said, factoring in better 9MFY22 performance we increase our EPS estimates for FY22/23/24E by 22%/25%/29% respectively.

Outlook

Maintain ‘BUY’ with a revised TP of Rs570 (earlier INR450 based on 13x FY24E EPS) based on 13xFY24E EPS. We believe that risk reward remains favorable for the stock.