PL Stock Report: Sharda Cropchem (SHCR IN) - Q2FY24 Result Update – Subdued results; near term outlook bleak.!! - Accumulate
Prabhudas Lilladher Pvt Ltd
Sharda Cropchem (SHCR IN) - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd.
Rating: ACCUMULATE | CMP: Rs421 | TP: Rs470
Q2FY24 Result Update – Subdued results; near term outlook bleak.!!
Quick Pointers:
§ Volume/Price growth of +20%/-45% YoY; FX up 5.0% YoY in 2QFY24.
§ Spent Rs2.2bn capex in 1HFY24; full year capex is likely to be around Rs4bn.
We trim our FY24/25/FY26E estimates by 11%/12%/12% and revise TP to Rs470 (earlier Rs540) based on 12XFY26 EPS, citing near-term pressures on both revenue & margin led by adverse weather condition in key geographies plus high inventory concerns at manufacturer & distributor levels. Sharda Cropchem (SHCR) reported subdued results with revenue decline of 20% YoY to Rs5.8bn (PLe Rs7.9bn), led by volume/price growth of +20%/-45%YoY partially aided by positive FX variance of 5.0% YoY. Gross margins contracted 230bps YoY to 25.1% largely led by a) high cost inventory provisions of Rs130mn; b) higher sales return of Rs700mn; and c) acute pressure on price realizations (declined to the tune of 35-40%) particularly in the NAFTA region. Lower GM coupled with higher opex up 570bps YoY has resulted in EBITDA contraction at Rs349mn as against Rs1.4bn in 2QFY23 (incl. IU&AD write-off of Rs28mn in 2QFY24 v/s Rs15mn in 2QFY23). Maintain ‘ACCUMULATE’ rating.
§ Global Agrochemical industry continues to be under immense pressure: SCHR posted revenue decline of 20% YoY to Rs5.8bn (PLe Rs7.9bn) led by subdued performance across all business segments. Agrochemicals/Non-agrochemicals revenue declined 24%/4% YoY to Rs4.4bn/Rs1.4bn. Subdued performance in agrochemicals segment was largely on the back of lower price realizations across Europe, NAFTA and LATAM markets due to higher channel inventory particularly from China. On the non-agrochemicals segment Europe and LATAM resulted in revenue decline of 28%/20% YoY, while NAFTA and ROW reported growth of 4%/10% YoY.
§ High cost inventory & high sales return led to gross margin contraction: Gross margins contracted by 230bps YoY to 25.1% largely led by immense pressure on price realizations (particularly in the NAFTA region) coupled with provisioning of high cost inventory (Rs130mn impact) and higher sales return of Rs700Mn in 2QFY24. Lower gross profit coupled with higher other expenses (up 570bps YoY, incl. IU&AD write-off of Rs28mn in 2QFY24 vs Rs15mn in 2QFY23) resulted in EBITDA contraction at Rs349mn as against Rs1.4bn in 2QFY23. PAT loss stood at Rs276mn.
§ Capex: SCHR had spent Rs2.2bn capex, largely towards product registrations across geographies. Management highlighted that till Sep’23 around 2,885 registrations have been procured and additionally filed 1,130 applications globally pending at different stages. For full year, management guided capex of ~Rs4.0bn.