Buy Sharda Cropchem; target of Rs 415: Dolat Capital

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Dolat Capital's research report on Sharda Cropchem

Sharda Cropchem’s 1QFY20 performance was below our expectations, Sales de-grew by 7.5% YoY to ` 4.23bn (D.est: ` 5.25bn). EBITDA/PAT de-growth was even sharper by 13.3/33.5% YoY to ` 616/228mn respectively. Gross margin contraction of 337 bps YoY and 331 bps QoQ was a function of consistently rising raw material prices and a sharp gross margin decline in Europe of 560bps YoY (to 36.5% in 1QFY20). The stress on gross margins is largely attributed to innovators not taking price hikes eventually deterring Sharda’s ability to take pricing action.

Outlook

We continue to value Sharda cropchem at 15.0x FY21E EPS of ` 27.7, due to a correction in the stock price by 16.4% we foresee an upside of 43.0% with a target price of ` 415. We thus have to change our rating to Buy.

For all recommendations report, click here

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