Accumulate Sharda Cropchem; target of Rs 540: Prabhudas Lilladher

Prabhudas Lilladher recommended accumulate rating on Sharda Cropchem with a target price of Rs 540 in its research report dated July 24, 2023.

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July 26, 2023 / 11:17 IST

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Prabhudas Lilladher's research report on Sharda Cropchem

We trim our FY24/25E estimates by 27%/16% and downgrade the rating to ‘Accumulate’ (Earlier Buy) citing near term pressure on both revenues and margins, led by adverse weather conditions in key geographies and high inventory concerns both at manufacturer and distributor levels which in turn exerts pressure on revenue growth and margins. Sharda Cropchem (SHCR) reported subdued set of results with revenue decline of 23% YoY to Rs6.3bn (PLe Rs8.0bn), led by volume/price de-growth of 11%/18%YoY partially aided by positive FX variance of 6.5% YoY. Gross margins (GM) contracted 1670bps YoY to 8.7% (lowest in the last 10 years), largely led by a) high cost inventory provisions of Rs710mn; b) higher sales return of Rs1.35bn; and c) acute pressure on price realizations particularly in the NAFTA region. Lower GM coupled with higher opex up 530bps YoY has resulted into an EBITDA loss of Rs688mn (incl. IU&AD write-off of Rs27mn in 1QFY24 V/s Rs29mn in 1QFY23). Citing cautious near term growth outlook, management has revised downward their FY24E revenue growth guidance to 8-10% (earlier ~15%) thereby putting pressure on margins (EBITDA margins guided earlier at 18-20% for FY24E).

Outlook

Accordingly, we downgrade our rating to ‘ACCUMULATE’ from Buy earlier with revised TP of Rs540 (earlier Rs640) based on 14XFY25 EPS.

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