Sharda Cropchem - Can it get into indian market in a bigger way?

FY22 was a great year for Sharda, with sales growing by 49% and PAT by 52%. Management is confident of achieving 15-20% sales growth in FY23. My notes from concall is below.

  • Focusing on expanding biocide registrations
  • Recently there has been some impact on their Chinese shipments due to lockdowns where goods are stuck at ports. This hasn’t yet made much business impact as Q1 is a lean season
  • Expecting to grow at 15-20% in FY23 (value wise). Expect to maintain gross margins in similar range (30% types)
  • Have also shipped certain consignments through air to be a reliable supplier
  • FY22 sales growth components: Volume (+) 24%, Price (+) 25% and (+) 1% through forex gain
  • For Q4, volume (-) 11%, price (+) 42%. Currently selling prices are stable
  • Main driver of growth in belt (non-agro) business is because of reliability of supplies and quality of products
  • Margins have been impacted in belt business due to inflation in freight cost which form a significant proportion (15-25% of increase in freight costs had to be absorbed by Sharda). Overall margins in belt business is 17-18%
  • Channel inventory dried up post covid which benefitted Sharda. It’s hard to estimate current state of channel inventory
  • Gross margin breakup: EU (36%), NAFTA (29-30%), LATAM (15%), ROW (22%)
  • FY23 capex should be 380-450 cr. FY22 capex was 413 cr. (some of this is expensed out, that’s why on cashflow statement it appears lower)

Disclosure: Invested (position size here, no transactions in last-30 days)

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Just to add one point
Mr Gupta confirmed that he is observing the “soft corner” for the generics companies(such as Sharda) compared to the innovator due to lower prices and similar quality. Because of the trust that Sharda’s quality has created with customers, there is an increased preference witnessed as against the innovator. This trend can be one of the driver for Sharda to win higher volumes/business

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  • Expecting to grow at 15-20% in FY23 (value wise). Expect to maintain gross margins in similar range (30% types)

I think there is some confusion around this.15-20% is volume growth guidance,pricing no one is sure and with a 42% jump in pricing in Q4 I doubt Bubna ji meant value guidance of only 15-20%.Pricing growth(if any) will be over & above this 15-20% was my understanding.

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15-20% should be the revenue growth as per this interview with CNBC.

1:35 clearly says volume growth.