Dolly Khanna portfolio: 600% growth since April 2020! This can stock Dolly Khanna

Shares of Sharda Cropchem are hovering near their record highs, following the agrochemical company’s strong set of quarterly results, thanks to a good mix of products and price realization that offset the volume decline in the March quarter.

Analysts say there are problems with the availability of raw materials from China, but the agency is navigating the crisis more effectively than the smaller regional players in Europe and Latin America, driving market share gains and maintaining margins.

Analysts said quarterly margins declined mainly due to higher freight costs as they offered a favorable outlook on stocks with price targets in the range of Rs 750-916, suggesting a 6-29 per cent potential upside over the counter.

Sharda Cropchem deals in two categories – agrochemical and non-agrochemical. It received 87 percent of its Q4 revenue from the Department of Agricultural Chemicals, which mainly includes herbicides and fungicides, followed by pesticides.

The agrochemical segment reported a 24 percent increase in revenue for the March quarter, sales of herbicides rose 39 percent, fungicides rose 21 percent but pesticides fell 20 percent.

About half of Europe is responsible for agrochemical income, followed by the NAFTA region (another 40 percent).

Overall, the company reported a 32 per cent annual growth in profits of Rs 177 crore in the March quarter from Rs 134 crore in the same quarter last year. Revenue increased by the same percentage to Rs 1,434 crore to Rs 1,088 crore YoY. Ebitda margin fell to 22.1 percent from 22.6 percent.

Veteran investor Dolly Khanna held 1.4 percent stake in the company as of March 31. In Wednesday’s trade, the scrip was trading flat at Rs 714 per piece and has increased by 608 per cent since April 3, 2020, to Rs 104 per piece.

“We are positive about the favorable agro-commodity cycle (yield is a growing part of the strong agri-cycle). We think

FY23 will report a 15-20 percent volume increase. With a cap of Rs 413 crore (mainly registration) on FY23, we expect free cash flow to remain healthy with debt-free balance sheets and expansion to RoCE, “the stock said while advising on a target of Rs 916 crore.

The stock traded at 14 times FY23 and 12 times FY24 earnings, said Anand Rathi, who valued the stock at 16 times FY24 earnings and proposed a revised target of Rs 835 on the stock.

“We expect high growth momentum, a strong balance sheet, free cash-flow and strong return ratio on FY22-24,” it says.

Prices of Sharda Cropchem products rose by 42 per cent year-on-year in all regions, helping Sharda to record a 32 per cent annual increase in revenue growth despite a 11 per cent decline.

“Volumes declined mainly due to shipping and logistics problems, except for the high base. More stocks than peers helped Sharda gain market share in FY22. Profits increased by 32 per cent on better margins and lower tax costs,” said Anand Rathi.

Citing positive growth momentum across the region, management expects revenue growth of 15-20% YoY for FY23, maintaining margins at current levels in the hope of better geographic mix and higher contributions from recent new registrations.

“By factoring in good FY22 performance and positive demand momentum, we have increased our EPS estimates for FY23 by 8% and FY24 by 3%. Maintain ‘BUY’ with revised target of Rs. 630 to Rs. Allocating the average multiple. We believe that the risk reward will be favorable for the stock, “Prabhudas Lilladhar said in a note.

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