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Sharda Cropchem to list at 40%+ premium: Experts

Sunil Shankar Matkar
Moneycontrol.com

Mumbai-based Sharda Cropchem will list its equity shares on Tuesday. The issue price is fixed at higher end of price band of Rs 145-156 apiece and the issue was oversubscribed 60 times supported by all type of investors.

Sharda is a crop protection chemical company engaged in the marketing and distribution of a wide range of formulations and generic active ingredients globally. It is also involved in order based procurement and supply of belts, general chemicals, dyes and dye intermediates.

Given such overwhelming response to the issue, no exact comparable peers and strong momentum in the equity market, experts expect more than Rs 200 as a listing price for the stock.

“We expect the stock to list at around Rs 220-230, implying 41-47 percent upside over issue price of Rs 156 a share,” said Prashanth Tapse of Mehta Equities.

Manish Bhatt of Prabhudas Lilladher too agreed with Tapse, saying the equilibrium price (opening price) for the stock should be Rs 225-230.

The issue, which has a size of Rs 250 crore and more, has a 20 percent circuit (upper/lower) limit. Sharda’s IPO size was Rs 352 crore, so the 20 percent upper circuit would be Rs 270.

Among three experts, Astha Jain of Hem Securities expects the minimum listing price that is Rs 187-202, implying 20-30 percent premium over issue price.

Strategy on listing day

Tapse as well as Jain both advise investors to buy the stock at around Rs 170 level but Bhatt does not expect the stock to fall below Rs 200. His advise for the buying price would be Rs 200-215.

Jain says investors can book profits if it crosses Rs 200 level but if one wants to hold it for long term, then there is no harm in holding. She expects 50-60 percent returns in 6-12 months.

Tapse advises retail investors to exit at Rs 220-230 levels while Bhatt looks more optimistic. His advise for booking profits would be at Rs 270-280 levels. But if anyone is a long term investors, then he/she should keep it in portfolio, Bhatt adds.

The 2.3 crore equity shares’ public issue was opened for subscription during September 5-9. The company did not get money raised through this issue as purpose of the public issue was to carry out sale of 2,25,55,124 equity shares by selling shareholders (HEP Mauritius, Ramprakash V Bubna and Sharda R Bubna) and achieve the benefits of listing equity shares on exchanges – BSE and NSE.

Bubna family, the promoter and promoter group, reduced their stake in the company from 84.13 percent to 75 percent and non-institutional investor HEP Mauritius offloaded its entire stake of 15.87 percent.

Crop protection chemical company Sharda has an asset-light business model whereby it focuses on identifying generic molecules, preparing dossiers, seeking registrations, marketing and distributing formulations or generic active ingredients in fungicide, herbicide and insecticide segments through third-party distributors or its own sales force.

The company as of FY14 holds around 1200 registrations of which the European Union constitutes around 45 percent (534 registrations), Latin America around 26 percent (312 registrations), NAFTA around 6 percent while the rest of world (RoW) comprises the remaining around 23 percent.

With an objective to increase its presence in the agrochemical value chain, the company has set up its own sales force in various countries in Europe as well as in Mexico, Colombia, South Africa and India. As of date it has over 440 third-party distributors and over 100 personnel in its own sales force.

The company has recently entered into the biocide segment and has acquired several registrations from the existing registration holders, primarily, in Europe.

The availability of multiple manufacturers and formulators in the agrochemical industry helps the company in not being dependent on a single or limited number of manufacturers or formulators.

Agrochemical business operations of the company are spread in over 60 countries across Europe, NAFTA, Latin America and Rest of the World.

SCL has a strong balance sheet with healthy return ratios. It has maintained a focus on capital efficiency and maintained a conservative debt policy. It has a short term borrowings of Rs 40 crore as against cash and cash equivalent of Rs 215 crore as of FY14. It also has good reserves of Rs 465.52 crore in FY14.

The company has demonstrated a consistent track record of profitability over the last three years. It had reported a 25 percent compounded annual growth in the net income over FY2012-14. It has strong return on capital employed (RoCE) of 25 percent and return on equity (RoE) of close to 20 percent.

In FY14, the company clocked a consolidated topline of Rs 782 crore (up 0.54 percent over FY13) with around 82.5 percent being contributed by the agrochemical business (Rs 645 crore), Rs 15.8 percent being contributed by the conveyor belt business (Rs 123 crore) and around 1.7 percent being contributed by other business (dyes). Net profit of the company in FY14 grew by 26.8 percent year-on-year to Rs 106.9 crore compared to previous financial year supported by other income and lower depreciation.

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