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Sharda Cropchem IPO Note

September 5, 2014, Friday, 05:50 GMT | 01:50 EST | 10:20 IST | 12:50 SGT
Contributed by Nirmal Bang

Sharda Cropchem Ltd (SCL) 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. Its core strength lies in identifying generic molecules, preparing dossiers (documents), seeking registrations, and Marketing and distributing formulations or generic active ingredients in fungicide, herbicide and insecticide segments. As of August 5, 2014, SCL has over 180 good laboratory practices ("GLP") certified dossiers and as of July 15, 2014 it owns over 1,040 registrations for formulations and over 155 registrations for generic active ingredients across Europe, North American Free Trade Agreement (NAFTA) nations, Latin America and the Rest of the World. As of August 5, 2014, SCL has filed over 500 applications for registrations globally which are pending at different stages.

Objects of the Issue

Sharda Cropchem is a cash rich company (Rs 190 cr in FY14). It is coming out with IPO to provide an exit option to its PE investors, HEP Mauritius, who invested Rs 100 cr in March'14 for 15.87% stake. Also, to comply with SEBI guidelines of 75%, promoter is also offering shares in the IPO. Hence, there is no new issue of shares and equity would remain same post issue.

Valuation and Recommendation

Between FY10-14 SCL's revenues grew at CAGR of 22% while EBIDTA grew at a CAGR of 23.9% and PAT by 38.6%. We expect it to maintain 2025% growth going forward.

On the valuation front, at the given price band of Rs 145-Rs 156, SCL is commanding at PE of 12.2x - 13.2x its FY14 EPS of Rs 11.8/sh and EV/EBIDTA of 8.6-7.9x. Considering the healthy balance sheet, strong double digit growth and cushion in valuations we recommend subscribing the issue for both short term and long term gains.