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

@Mayank_d & @Sherwin_Samuel

It is a standard practice for firms whose revenues are dependent on IP. They amortize the cost over 5 years. Many pharma companies and other businesses that invest heavily in customer acquisition also capitalize this kind of spending on their balance sheet. IS IT BAD? - Difficult to say as you will have to analyse the situation depending on whether you have confidence in the mgt/business. Please go through the 3 videos by Aswath Damodaran on youtube where he values META when it was dropping to about $89 a share.

It is very much possible that they are doing so. The promotors have more than 73% ownership if I remember correctly. For the year ended March 2023, the MD and Chairman took home around 16Cr in total (salary, commission and dividends) from the company. This excludes the amount taken home by both their sons, his wives and hid daughter-in-laws. If you factor that in, it would be a huge sum of money that they cashing in. Its always better to have more money. So why not take in another 6 Cr in two years? I don’t know if they did this almost every year before FY19 and if they are still continuing to do so. On the other hand, its a small amount relative to the 2000 Cr of revenues at that time.

On a different note, I think 100% of their revenues come from export. For the skeptic that I am, it could all be a scam and might just be plugging in numbers on a computer screen! hahaha.

3 Likes

Sharda crop poor results. An example of negative operating leverage?

sharda crop q1 fy 24.pdf (300.6 KB)

3 Likes

Sharda came with a horrific set of nos, they took an inventory markdown of 71 cr. and sales returns of 135 cr. As a result, their sales declined by 23% and they reported 89 cr. of losses. Situation looks grim currently, with prices of technicals going down severely (50-80%). This coupled with some weather issues has also dented demand in certain markets (likes of LATAM). Management is expecting this to improve in 6 month time. Concall notes below:

FY24Q1

  • High price inventory: Revalued entire inventory down by 71 cr. to reflect prevailing prices. Current inventory is 953 cr. which is higher because of high amount of sales return from customers (135 cr. of sales return)
  • Many customers have returned high priced inventory due to sharp contraction in prices
  • For Q1, overall volume are (-)11%, price & product mix change (-)18%, currency exchange (+)6.5%
  • Volume breakup: Europe (-)37%, NAFTA (+)49%, LATAM (-)53%, ROW (+)47%
  • 2800 registrations is for 130-150 molecules
  • Excess production in China and weak domestic demand for them has resulted in pressure on prices, current prices are below pre-covid levels
  • Inventory overhang is so huge in China that a number of factories have to be shut and price decline has been the highest in last 20-30 years
  • Non-agchem business has done very well because they don’t maintain inventory for that, all the demand is made to order
  • FY24 guidance: Revenue growth of 10% (from 15% earlier) with 15% EBITDA margin
  • FY24 Capex: 400 cr.

Disclosure: Invested (position size here, sold shares in last-30 days)

15 Likes

Another bad set of nos from Sharda, they continue facing inventory issues and sales returns. Sales declined by 20% and they reported 28 cr. loss this quarter. Some of their formulations saw price drop upto 70%, with their overall portfolio witnessing price drop of 45%. The most interesting and weird part was they had a volume growth of 20% this quarter! Concall notes below

FY24Q2

  • Q2 sales returns: 70 cr.
  • Q2 inventory hit: 13 cr. (84 cr. in H1FY24)
  • Volumes picked up in Q2 (19.7% YOY, 18.8% in agchem and 30.3% in non-agchem) but have been hit due to lower realizations (>40% price drop)
  • Witnessing good demand in Q3, but prices are expected to revive slowly as global capacity and inventory is very high
  • For Q2, overall volume are (+)20%, price & product mix change (-)45%, currency exchange (+)5%
  • Gross margin breakup: EU (34%), NAFTA (5%), LATAM (28%), ROW (45%)
  • H1FY24 Capex: 217 cr. (400-450 cr. in FY24)

Disclosure: Invested (position size here, sold shares in last-30 days)

6 Likes

Q3FY24 Notes:

Q3FY24

  • Europe 37% to 36.4% Gross margins, Volume from 3300 to 2850
  • Latin America 24% to 31% Gross margin, Volume from 422 to 503
  • NAFTA region 27% to 12% GM, Volume down by 35.3%
  • Rest of world 25% Gross margin: remained same, Volume from 1055 to1105 up by 5%
  • Volume 21% down overall
  1. Inventory losses due to products returned by customers (due to price fall)
  2. Huge Inventory piled up in China, availability is abundant, prices have fallen too much
  3. Not affected by Red Sea issue
  4. Registration costs went up significantly and became difficult too
  5. The same level of ROCEs and asset turn will continue
  6. Within the next year prices may become normal or increase but headwinds are there in the near term, gradual recovery would be there
5 Likes

Bad nos continue from the export side of agchem due to very high inventory, falling AI prices and lower demand. Sharda reported 38% decline in revenues and was able make 11% EBITDA margin, which is quite good compared to its peers like UPL (1% margin), NACL (1% margin), Meghmani (losses), Astec (losses), etc. Concall notes below.

FY24Q3

  • Q3 inventory hit: 7 cr. (91 cr. in 9MFY24)
  • Q3 overall growth breakup: (-)38%; volume (-)20.8%, price & product mix: (-)19.4%, currency exchange +2.3%
  • For Q3, agchem volume reduced by (-21%) and non-agchem volume reduced by (-16%)
  • Q4 Gross margin breakup: EU (36.4%), NAFTA (12%), LATAM (31%), ROW (25%)
  • Q3 Volume: EU (-13%), LATAM (19.3), NAFTA (-35.3%), ROW: 5%
  • NAFTA has hurt them the most, both in terms of volumes and realizations
  • Debtors have reduced from 1830 cr. in Q4FY23 to 890 cr. in Q3FY24 (same as Q2FY24)
  • Q3 net cash: 370 cr
  • Droughts in Europe and storms in USA have affected demand, expect gradual recovery
  • Expecting 4th quarter to be better but demand is bad currently
  • Engage 300+ consultants outside India (18.5% increase YOY), professional charges have increased by 48.4%
  • Inventory levels are very high, some Chinese companies have reduced production and those with multiple plants have closed some plants. Customers are not overstocking because inventory is in abundance
  • Most of non-agchem business is replacement business from resellers
  • 9MFY24 capex: 276 cr. (expect 350-400 cr.)

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

7 Likes

with slowdown in China they will dump across the board. next one year will be challenging for chemical stocks in general.

Some recovery from Sharda cropchem, margins were much better and they are seeing good volume recovery. FY25 likely to be a decent growth year with mostly volume driving growth and hopefully in FY26/27 things improve more significantly. Concall notes below.

FY24Q4

  • FY24 inventory hit: 91 cr. (no additional provisions in Q4)

  • No sales return seen so far in FY25, seeing recovery happening and hoping for price increase as well. Hope channel and producer level inventory to come back to normal by September 2024

  • Expect 12-15% revenue growth and 15-18% EBITDA margins in FY25

  • Q4 growth breakup: (-11.5)%; volume 25% (28% in agchem + 42% in non-agchem), price & product mix: (-)40%, currency exchange +3.2%

  • Q4 agchem volume (28% growth): EU 24.4%, LATAM (-)23%, NAFTA 52.5%, ROW: 12%

  • Q4 gross margin breakup: EU (36%), NAFTA (31%), LATAM (36%), ROW (36%)

  • FY24 growth breakup: (-)22%; volume 4%, price & product mix: (-)29%, currency exchange +4%

  • Registrations/pipeline as on March 2024: EU: 1617/680, LATAM: 456/204, NAFTA: 300/125, ROW: 246/90

  • FY24 intangible write-off: 35 cr.

  • Freight rates have increased again but customers have absorbed it, higher freight rates have impacted non-agchem segment

  • Receivable days will reduce in FY25

  • FY24 capex: 420 cr. (expect 400-450 cr. capex in FY25)

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

6 Likes