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

Topline grew by 32%, however gross margins were severely impacted due to Euro weakening vs USD. Management is confident of recouping margins and is guiding for 15-20% sales growth & 18-20% EBITDA margins in FY23. Concall notes below.

FY23Q1 concall

• Expect sales growth of 15-20% with 18-20% EBITDA margins in FY23, expect significant margin revival going forward
• Gross margin impacted due to Euro weakening against dollar, PAT was impacted by higher depreciation and forex losses. Confused as what to do as Euro weakening was very unexpected. Don’t want to move all the Chinese supply contracts to Euro as Euro can also strengthen and company doesn’t want to lose that benefit if it happens
• Hoping to end FY23 with gross margins similar to FY22
• This Euro weakening against dollars benefit Indian suppliers tremendously, especially those who have lower import dependence i.e. their cost base is in INR and not USD
• Gross margin breakup for agchem: EU (31% vs 42% last year), NAFTA (24% vs 25% last year), LATAM (17%, same as last year), ROW (23% vs 31% last year)
• Agchem volumes: 4mn vs 3.5mn in EU, 2mn vs 2.4mn in NAFTA, 1.1mn vs 1.5mn in LATAM, 300’000 vs 340’000 in ROW
• Demand for agchem division is good in Europe, there has been pressure on demand in NAFTA due to weather. Not seeing much pricing pressure
• Contribution for Western Europe is higher than Eastern Europe for agchem
• Capex: 102 cr. (special focus is on expanding biocide registrations). This is expected to be in the same range or increase slightly
• Sales growth components for entire sales: Volume (-) 2.5%, Price (+) 38% and (-) 3.3% through forex loss. Is most of price increase due to non-agro division? Yes
• What is contributing to such high growth in non-agro business? Marketing strategy is helping where Sharda is supplying tailor made products to customers, also quality of products is much better. Additionally, Chinese suppliers had higher bandwidth to fulfill these orders. Margins have improved from 14% to 22% due to passing on of higher freight rates

Disclosure: Invested (position size here, sold few shares in last-30 days to bring position size closer to model portfolio)