Up 600% since April 2020! Can this Dolly Khanna stock give more upside?

Shares of Sharda Cropchem are hovering near their record high level, following the agrochemical company's strong set of quarterly results, thanks to better product mix and price realisation that offset fall in volumes in March quarter.

Analysts said there are issues relating to raw material availability from China, but the company is navigating the crisis more effectively than small regional players in Europe and Latin America which are driving market share gains and protecting margins.

Analysts said margins for the quarter fell mainly due to higher freight costs as they offered a favourable view on the stock with price targets in Rs 750-916 range, suggesting a 6-29 per cent potential upside on the counter.

Sharda Cropchem deals in two segments - agrochemical and non-agrochemical. It derived 87 per cent of its Q4 revenues from agrochemical segment, which mainly includes herbicides and fungicides, followed by insecticides.

The agrochemical segment reported a 24 per cent growth in revenues for the March quarter, with herbicides recording a 39 per cent sales growth, fungicides logging 21 per cent growth but insecticides seeing 20 per cent de-growth.

Europe accounted for nearly half of agrochemical revenues, followed by the NAFTA region (another 40 per cent).

Overall, the company reported a 32 per cent year-on-year rise in profit at Rs 177 crore in March quarter from Rs 134 crore in the same quarter last year. Revenues rose by a similar percentage to Rs 1,434 crore from Rs 1,088 crore YoY. Ebitda margin fell to 22.1 per cent from 22.6 per cent YoY.

Seasoned investor Dolly Khanna held 1.4 per cent stake in this company as of March 31. The scrip was trading flat at Rs 714 a piece in Wednesday's trade and is up 608 per cent since April 3, 2020, low of Rs 104 a piece.

"We remain positive on favourable agri-commodity cycle (robust agri-cycle yields growing share). We reckon Sharda Cropchem would report 15–20 per cent volume growth in FY23. With capex (mainly registrations) of Rs 413 crore in FY23, we expect free cash flow to remain healthy along with debt-free balance sheet and expansion in RoCE," said Edelweiss while suggesting a target of Rs 916 on the stock.

The stock trades at 14 times FY23 and 12 times FY24 earnings, said Anand Rathi, which values the stock at 16 times FY24 earnings and suggested a revised target of Rs 835 on the stock.

"We expect high growth momentum, a strong balance sheet, free cash-flows and strong return ratios over FY22-24," it said.

Prices of Sharda Cropchem products were up 42 per cent YoY across regions that helped Sharda to record a 32 per cent YoY rise in revenue growth despite an 11 per cent drop in volumes.

"Volumes fell mainly due to shipping and logistic issues, apart from the higher base. More stocks available than peers helped Sharda to gain market share in FY22. Profit grew 32 per cent YoY on better margins and lower tax expenses," Anand Rathi said.

Citing positive growth momentum across regions, the management is expecting a 15-20 per cent YoY revenue growth for FY23, while maintaining margins at current levels on hopes of better geographical mix and higher contribution from recently received new registrations.

"Factoring in better FY22 performance and positive demand momentum we increase our EPS estimates for FY23 by 8 per cent and FY24 by 3 per cent. Maintain ‘BUY’ with a revised target of Rs 750 from Rs 630 eariler based on 15 times FY24 EPS (assigning 5- year average multiple). We believe that risk reward remains favorable for the stock," Prabhudas Lilladher said in a note.