Rakesh Jhunjhunwala, the Badshah of Dalal Street, had predicted decades ago that in an agrarian economy like ours, agro stocks would do extremely well. That is why, very early in his illustrious investing career, he bought a massive truckload of Rallis Ltd, the blue chip crop protection chemicals company. The Badshah has held on tightly to the stock and reaped huge multi-bagger gains from it.
Common Stocks and Uncommon Profits by Philip Fisher
We have also seen how other agro related stocks like Kaveri Seeds, PI Industries and Dhanuka Agritech, UPL etc have also become magnificent multi-bagger stocks.
Sharda Cropchem is the new kid on the block. It seeks to raise Rs. 352 crore from an IPO of 2.3 crore shares at a price between Rs. 145 to 156. The company is promoted by Sharda R Bubna, Ramprakash V Bubna and HEP Mauritius. HEP Mauritius is exiting the company and will get the entire proceeds of the IPO.
To understand whether we can trust Sharda Cropchem with our hard-earned money, we have to turn to the clear-cut analysis by Astha Jain of Hem Securities and Daljeet Kohli of IndiaNivesh.
Astha Jain, with her usual brevity of expression, has come straight to the point. She says:
“The company with its asset light business model, core competency in seeking registrations, global distribution network & diversified portfolio is looking attractive investment opportunity. Hence, looking after all above, we recommend “SUBSCRIBE” the issue.”
Daljeet Kohli, with his skill and experience, is able to smell a winning stock from a mile. He has also given the green signal to Sharda Cropchem with the following analysis:
“Registration- Key Asset
Acquiring product registration is expensive, time consuming and is judiciary stringent process. In order to acquire registrations, companies undergo various field trials, pay fees to consultants, conduct laboratory trials to ensure compliance with regulatory requirements, safety standards and effectiveness of formulation on crops.
…..
Strong Balance Sheet
The company has a strong net cash positive balance sheet with healthy return ratios. In FY14, the company maintained net cash & cash equivalents of Rs.1,509 mn (ex.Debt of Rs.399 mn). The key reason for the higher return and huge cash generation was unique business model. The company has an asset-light business model where it focuses on identifying generic molecules, preparing dossiers, seeking registrations, and marketing and distributing formulations through third-party distributors or its own sales force. This does not require upfront expenditure of setting up manufacturing plant.
SCL EBITDA margins are ahead of its global peers due to its strategy to outsource manufacturing to the third-party in low cost destinations like India and China
…..
Diversified Global Presence…
The company’s presence in Europe, NAFTA, Latin America and Rest of World through third party distributors and own sales force, puts SCL in a better position on supply chain front. The company has ~440 third party distributors and ~100 own sales force in 60 countries.”
Of course, Sharda Cropchem is not without with its risk factors, which both Astha Jain and Daljeet Kohli have meticulously pointed out. It is exposed to the same risk factors that other agro stocks like Kaveri Seeds, PI Industries, Dhanuka Agritech are exposed to. These risks have not prevented these stocks from delivering incredible gains to their investors. We shouldn’t be surprised is Sharda Cropchem walks the same path and enriches investors.
Friends, Go through the below article from SP Tulsian.
He asks to avoid the IPO.
https://www.sptulsian.com/article/81372
Sharda Crop does not have any manufacturing facilities of its own and sources products from third party vendors or manufacturers. In addition to this, it does not have any definitive long term contracts with vendors, and operates on a case-to-case basis. A peek at the balance sheet (consolidated) reveals that fixed assets of Rs. 198 crore, comprised of intangibles of Rs. 196 crore! i.e. company does not have a single plant or machinery or building of its own. Complete reliance on third party manufacturers does not bode well, besides being extremely challenging with respect to control and operations, given the vast geographic span. No other agro chemical company outsources 100% of its manufacturing function.
This story is similar to the new kids on the block including the likes of Flipkart, snapdeal, etc who do not have any thing to prove or show on their balance sheet. All these companies are bleeding, yet global PE funds are queuing up the grab a slice of their holding.
In fact all the ecommerce companies are bleeding while still commanding very high valuation. Not only that, most of these companies are actually agregators (very similar to the business model of Sharda Crop Chem as mentioned above) and do have hold any tangible assets on their balance sheets.
I am told that Facebook bought ‘Whatapp’ for more than $17 billion which did not have more than 50 employees and assets of less than $20 million at the time of purchase.
Only time will tell whether such concerns are genuine or an unwarranted worry about the changing landscape of doing business in the ever changing global economy space.
Most “experts” are recommending this IPO (Sharda Cropchem). Except for this article on THBL which lists serious management concerns that everyone else seems to be ignoring. Are we already in bubble mode of the stock market where fundamentals are being ignored?
http://www.thehindubusinessline.com/markets/stock-markets/sharda-cropchem-ipo-beset-with-problems-keep-away/article6380349.ece
Take a look at this article by Rohit Singh,http://www.investobharat.com/sharda-chropchem-an-intrinsic-analysis/
I have never come across an analysis that’s so bang on and beautifully presents the fundamentals of the company.
As per above article, “The company is promoted by Sharda R Bubna, Ramprakash V Bubna and HEP Mauritius. HEP Mauritius is exiting the company and will get the entire proceeds of the IPO.”
So what does the company get for itself? If one of the promoters want to cash out their 100% stake, the IPO is geared towards maximizing their return, but not for public (our) interest in a piece of a great business. I will wait for a 50% correction and 2 quarters of earnings to decide on this Stock.