This Dolly Khanna stock is down 24% in 4 days but analysts see up to 80% upside

Sharda Cropchem, an otherwise outperformer with a solid 50 per cent return year-to-date (YTD), has seen a massive fall in its shares following the company's 41 per cent year-on-year (YoY) slide in June quarter profits.

Currency depreciation and one-off forex losses hurt profitability, but a few brokerages are optimistic about the company's prospects. They see a 39-80 per cent potential upside on the counter.

The scrip on Wednesday traded at Rs 533.65, up 0.88 per cent, but only after falling 24 per cent in the previous four sessions. Brokerage Prabhudas Lilladher said healthy revenue growth was offset by adverse margins.

Seasoned investor Dolly Khanna owned 1,081,526 shares or 1.2 per cent stake in this company as of June 30, which was less than 1,243,710 shares or 1.38 per cent in the March quarter. There was no history of Khanna holding the stock in the past, as per Trendlyne.

The company has reported a 40.5 per cent YoY drop in consolidated net profit at Rs 22.64 crore on a 32.4 per cent rise in net sales at Rs 824.53 crore. Ebitda margin declined to 13.5 per cent against 17.1 per cent YoY.

Edelweiss said Sharda Cropchem's results came below its estimate as adverse Euro-dollar movement affected its gross margins by nearly 400 bps YoY while the one-off impact from forex losses (Rs 43.2 crore) hit the company’s bottomline. The non-agrochemicals business has shown strong growth, it said.

The management said it is confident of achieving an 18-20 per cent growth in FY23E as it takes corrective measures to arrest the impact of currency volatility. Besides, it expects Ebitda margins in the range of 18-20 per cent with newer product registrations and scale-up of existing molecules.

"We continue to believe that SCC will witness market share gain and margin improvement in subsequent quarters. We retain ‘BUY’ with a revised target of Rs 958 from Rs 916 earlier, as we roll forward to Q2FY24E," Edelweiss said. This price target suggests an 80 per cent upside over the prevailing price.

Factoring in the higher forex loss, Antique Stock Broking has cut its FY23 EPS estimate by 7 per cent and FY24 by 4 per cent. It, however, maintained its 'buy' rating with a revised target of Rs 760 against Rs 780 earlier.

Among regions, Europe delivered a 24 per cent increase in agrochemical revenues with volume growth of 17 per cent YoY. Europe, accounting for 51 per cent of revenues to overall top-line, remains a key growth driver, said Edelweiss.

The management is looking to take corrective action to address margin pressures in the current quarter, including increasing hedging and share of buying of raw materials in Euro.

"We expect margins to likely improve in subsequent quarters," Edelweiss said.

Prabhudas Lilladher said adverse currency movement is likely to exert pressure on the company's margins in the near term. Factoring in adverse pressure on margins it has trimmed its EPS estimates for FY23 by 8 per cent and FY24 by 2 per cent. It has maintained a ‘BUY’ with a revised target of Rs 740 from Rs 750 earlier based on 15 times FY24 EPS.

As per Trendlyne, the stock has an average price target of Rs 835 that suggests a potential 56 per cent upside on the counter.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)