Superb set of results from Sharda (sales growth of 78%, PAT growth 112%). Management was very bullish in their commentary. Gross margins have finally turned around from the lows of 30% to the 34-35% trajectory. Management is seeing Chinese raw material prices cooling down and expects current margins to sustain. They are even guiding for volume growth of 20% in FY23. Here are my notes from today’s concall.
- Europe is the most expensive geography to get registrations, prices can go up to 4-6 mn Euro. Time required for procuring the registration can go up to 8-9 years.
- EU approval process: First need to get an EU wide AI approval. After that, formulation approval needs to be procured in countries individually
- Most products are sold through distributors and not directly to farmers
- Current focus is on widening product portfolio rather than geographical expansion
- Recent growth expansion has been due to company strategy + strong market connect. These sales are sustainable and company is expecting volume growth at 20% going forward while maintaining current EBITDA margins
- Have witnessed easing of Chinese raw material prices in FY22. This quarter gross margins recovered to 34%. NAFTA gross margins were 36% (even higher than EU gross margins of 34%)
- MNC strategy is to keep a high listing price and then provide additional discount to dealers. This has probably contributed to 26% pricing growth for Sharda
- In the broader context, they are a very small and diversified player. There is not even 1 molecule in any geography where company has a 10% market share
- Most of the non-agro business is made to order resulting in negligible inventory holding. This is largely a services business. It is mostly conveyor belts. Gross margin in this business line is 30-40%
- Product pricing strategy: around 10% below innovators
Disclosure: Invested (position size here)