Sharda Cropchem Limited (Sharda) is tapping the capital carpets with its offer for sale of 22.55 cr shares in a price band of Rs 145-156. The issue has opened on Friday the 5th September and closes on Tuesday the 9th September. The company had allotted 33.83 lac shares to 18 anchor investors comprising of 10 entities and allotted 10% of the issue to each at the upper band of Rs 156. The quality of the anchor book is good and lends credence to the issuer.

The company is in the business of being a crop protection chemical company engaged in the marketing and distribution of a wide range of formulations and generic active ingredients globally. Sharda is also involved in order based procurement and supply of Belts, general chemicals, dyes and dye intermediates. Over the years, they have, primarily, grown organically and our core strength lies in identifying generic molecules, preparing dossiers, seeking registrations, marketing and distributing formulations or generic active ingredients in fungicide, herbicide and insecticide segments. The company has recently entered into the biocide segment and has acquired several registrations from the existing registration holders, primarily, in Europe. As of August 5, 2014, they have over 180 Good Laboratory Practices (“GLP”) certified dossiers and as of July 15, 2014, Sharda owns over 1,040 registrations for formulations and over 155 registrations for generic active ingredients across Europe, NAFTA, Latin America and Rest of the World. The library of dossiers gives Sharda a competitive edge and facilitates in seeking registrations in different countries in a time efficient manner. This also fosters our ability to operate in and distribute diversified range of formulations and generic active ingredients globally including highly regulated markets, which would not be permitted without such registrations. As of August 5, 2014, they have filed over 500 applications for seeking registrations globally which are pending at different stages.

Objects of the issue

The issue is an offer for sale where the PE investor HEP Mauritius Limited is exiting the company by selling his 1,43,20,495 equity shares and 82,34,629 shares are being offered by the promoters so that the post issue public holding would be 25%. No portion of the issue proceeds would be received by the company. The indirect benefit of this offer for sale however would be listing gains for all stakeholders.

Financials

The companies top line has grown from Rs4493 million in year ended March 2010 to Rs 6201 million and then to Rs 7926 million and finally to Rs 8147 million. The net profit as restated after adjusting for minority interest has grown from Rs 414 million in March 2019 to Rs 687 million, to Rs 843 million and finally to Rs 1069 million in the year ended March 2014. There is a seasonality factor in the business and there is variation in the quarterly numbers as per various geographies that the company operates in. Typically for the company the fourth quarter of the financial year is the best with the first quarter being comparatively weak.

The company has reported an EPS of Rs 11.85 for the year ended March 2014. As there is no fresh issue of equity the fully diluted Equity and the current equity would remain the same.

Comparison

The company has chosen to compare itself with three industry players namely PI Industries, Rallis India and UPL. The three are manufacturers while Sharda is a pure outsourcing model and has no manufacturing facilities of its own. On the margins Sharda compares very well with all its peers and it maybe said that their margins are the highest whether it be on the EBITDA front or Net Margins. However the return on net worth is marginally lower than that of Rallis India and PI Industries. Similarly the PE of the group the highest is PI Industries which based on the fully diluted consolidated earnings for March 2014 is 32.84 times based on the closing price of Rs 451 as on 5th September. Similarly PE of Rallis based on Rs 239 market price the PE is 30.60 while UPL based on closing price of Rs 378 is 17.5 times.

Key Drivers

The company has its business in multiple geographies and has filed over 500 applications for seeking registration besides having a library of 180 GLP’s and 1040 registrations for formulations and 155 registrations for generic active ingredients. The business model being asset light where the company gets all its products manufactured at third party locations ensures healthy margins and reduces working capital requirements.

Going forward the key driver would be these new filings and registrations which would give the company opportunity to expand its top-line and automatically its net margins.

Valuations

Considering this is a new company and investors must get an opportunity to make money or there should be something on the table, the PE at which the shares are being offered is a very attractive 12.24 times at the lower band and 13.17 times at the upper band. Compared to the peers who are quoting at substantial premiums to this company there is scope for price appreciation post the listing.

Conclusion

After a long time there is an issue from a company which is an offer for sale and reasonably priced. Normally the greed of promoters and merchant bankers ensure that the issue gets overpriced and post listing becomes another disaster. Call it the magnanimity of the promoter or any other name it appears here is an issue which offers appreciation in the short and medium term. Readers must subscribe to the issue for the minimum lot of 90 shares by paying Rs 14,040. The retail portion of 78,94,294 shares needs 87,714 applications for allotment to be done by lottery. The company will receive many more applications than that. I recommend the issue to readers.

SEBI Disclaimer: – I intend to subscribe to the above issue