05/10/2016 Sharda Cropchem Limited: Business Moat strong entry barrier Detailed Report

4 OCT OBER 2016

INIT IAT ING COVARAGE I SECT OR: AGRO CHEMICALS

Sharda Cropchem Limited

B SE SENSEX
28,334
S&P CNX
8,769
CMP: INR390 TP: INR500 (+28%) Buy
(INR CRORES) Sharda Cropchem LTD ('SCC') is a generics agrochemical company,
Y/E MARCH FY16 FY17E FY18E follows a differentiated asset-light business model focusing on product
Net sales 1,219 1,449 1,711
registrations and outsourced manufacturing. It operates in formulations
EBITDA 267 343 391
and active ingredients solely based on generic (off?patent) molecules.
PAT 176 213 239
This differentiates it from an innovator company which expends capital,
BV/Share (Rs.) 89.9 109.5 131.4
time and resources primarily towards R&D.
Business Moat strong entry barrier: The business in which 'SCC'
AEPS (Rs.) 18.7 23.6 26.5
is requires huge capital deployment and long gestation period to get
AEPS growth (%) 24% 26% 12%
the registrations and dossiers done. Time delay and funds tied for a
P/E (x) 20.8 16.5 14.7
long period makes this an unattractive opportunity for new generic
P/BV (x) 4.3 3.6 3.0
agrochemical players. The capital investment required for registrations
EV/EBITDA (x) 12.6 9.7 8.3
is usually Euro 3-5 million while the time required to receive one
Div yld (%) 0.8% 0.9% 1.0%
approval ranges from 3-5 years depending on the type of registration
ROE (%) 24% 24% 22%
and the region in which it is applied for.
RoCE (%) 31% 33% 31%
Multiple levers to propel growth : SCC has clocked 29% revenue
CAGR over FY11-16 and we estimate it to achieve revenue CAGR
of 18% over FY16-18. We believe the following potent triggers will
KEY FINANCIALS
Shares Outstanding (cr) 9.0
continue its high growth trajectory:
Market Cap. (INR cr) 3510 i) Rising wallet share in existing products: SCC has a minuscule
Market Cap. (US$ m) 526 market share in individual products category. The company has been
Past 3 yrs Sales Growth (%) 16% aggressively filing registrations across geographies. In its top 10
Past 3 yrs NP Growth (%) 26%
products, SCC's market share is in the 0.5-7.0% range. According to
the company, these products have market potential of INR350bn
STOCK DATA (~10% of global agrochemical market).
52-W High/Low Range (INR) 417/203 ii) Geographic expansion: The Company has an established track
Major Shareholders (as of June 2016) of securing registrations in the 'toughest' markets such as Europe.
Promoter 75
The company has secured around 903 registrations in Europe out of
Institutions 20
Public & Others 5
1830 total registration so far across geographies.
Average Daily Turnover(6 months) iii) New product launches: Currently, SCC has a portfolio of 68
Volume 16944 products, of which 38 are present in all geographies while balance 30
Value (Rs cr) 0.57
products penetration to all geographies is expected going forward.
1/6/12 Month Rel. Performance (%) 7/50/29
1/6/12 Month Abs. Performance (%) 6/62/37
Further, it has a launch pipeline of 12-14 new products over the next
3?4 years. Based on management estimates, these products have
opportunity size of >USD1bn globally.
Valuations & View: Given SCC's unique, asset-light business model,
management's focus on increasing the number of registrations, we
believe management's guidance of 18% revenue growth over FY16-
18 with stable margins, is achievable. The company currently trades
at 14.7xFY18 EPS with healthy return ratios (RoE>20%; RoCE>30%).
We value the company with a PEG ratio of 1 implying 19xFY18 EPS
for a per share target price of INR 500 (upside 28%).
Dharmesh Kant (Dharmesh.Kant@motilaloswal.com); Tel: +91 22 30102470
Investors are advised to refer through important disclosures made at the last page of the Research Report.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

http://www.motilaloswal.com/site/rreports/HTML/636112557639640506/index.htm 1/4
05/10/2016 Sharda Cropchem Limited: Business Moat strong entry barrier Detailed Report

Sharda Cropchem Limited

CONCERNS
Weather: The crop protection industry has to contend with the vagaries of nature. Adverse weather can
trigger pest infestations as well as affect demand for crop-protection products, thereby negatively affecting
the company's sales.
Adverse currency movement: SCC deals in multiple currencies across geographies. Ergo, any sharp
movement could impact the company's earnings adversely. Further, its relatively long receivables cycle enhances
the currency volatility risk. Moreover, SCC's purchases are in USD while sales are in EUR/USD. Though, it
provides natural hedge to a significant extent, we see currency risk in terms of EUR-USD movement.

BACKGROUND
SCC generates about 85% of its topline from selling generic agrochemical products balance 15% from the
trading of conveyor belts and other non agrochemicals. It follows a differentiated asset-light business model
focusing on product registrations and outsourced manufacturing. It operates in formulations and active ingredients
solely based on generic (off-patent) molecules. This differentiates it from an innovator company which expends
capital, time and resources primarily towards R&D.
During the identification process, SCC weighs several factors including competition, margins, entry barriers,
market size, ability to leverage it across jurisdictions globally, marketing and the time involved to seek registrations.
It then procures formulations and generic active ingredients in the finished form from third party manufacturers
for onward sale. The company has formidable sourcing capabilities in China anchored by decade old quality
suppliers. It has ~50-60 consultants along with 18-20 employees across various geographies for product
registrations.
No. of registrations:
Geography Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17
Europe 545 623 683 725 763 850 903
NAFTA 68 74 77 79 84 92 101
RoW 408 325 333 337 336 341 339
LATAM 313 387 395 402 443 482 487
Tota l 1334 1409 1488 1543 1626 1765 1830

Registration Pipeline:
Geography Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17
Europe 309 342 335 353 431 436 460
NAFTA 92 92 104 111 116 132 127
RoW 64 131 123 133 50 41 56
LATAM 136 164 164 176 189 209 188
Tota l 601 729 726 773 786 818 831

4 October 2016 2

http://www.motilaloswal.com/site/rreports/HTML/636112557639640506/index.htm 2/4
05/10/2016 Sharda Cropchem Limited: Business Moat strong entry barrier Detailed Report

Sharda Cropchem Limited

IVRCL: Financials and Valuation

Sharda Cropchem Limited Financials & Valuation

INCOME STATEMENT (INRCR) RATIOS

Y/E MARCH FY14 FY15 FY16 FY17E FY18E Y/E MARCH FY14 FY15 FY16 FY17E FY18E

Net sales 790 1,061 1,219 1,449 1,711 Adjusted EPS (INR) 10.8 15.1 18.7 23.6 26.5
Growth 2% 34% 15% 19% 18% Growth (%) 15% 40% 24% 26% 12%
Other Income 1 1 2 0 0
Cash EPS 15.5 16.3 23.3 28.3 32.3
Total Income 791 1,063 1,221 1,449 1,711
Book Value 61.6 72.5 89.9 109.5 131.4
Staff Costs 18 24 27 32 36
Raw material 514 710 792 930 1,113 DPS 2.0 2.5 3.0 3.5 4.0
Other Expenses 104 137 134 145 171 Payout (Incl. Div. Tax) 19% 17% 16% 15% 15%
Total Expenditure 636 872 954 1,107 1,320
P/E 36.1 25.7 20.8 16.5 14.7
EBITDA 155 191 267 343 391
% of net Sales 19.6% 18.0% 21.9% 23.6% 22.8% Cash P/E 25.1 23.9 16.7 13.7 12.1

Forex gain + Non. Op. inc. 32 9 28 18 18 Price/Book Value 6.3 5.4 4.3 3.6 3.0
Depreciation/Amortization 29 23 35 42 52 EV/EBITDA 21.9 17.8 12.6 9.7 8.3
Finance Charges 1 1 1 0 0
EV/Sales 4.2 3.2 2.8 2.3 1.9
PBT 157 176 259 318 357
- TAX 44 52 83 105 118 Div. Yld 0.5% 0.6% 0.8% 0.9% 1.0%

PAT 111 124 176 213 239 RoE 22% 20% 24% 24% 22%
APAT 97 136 169 213 239 RoCE 23% 26% 31% 33% 31%
Growth 32% 40% 24% 26% 12%
Debt/Equity (x) 0.1 0.1 0.0 - -
PAT MARGIN 14% 12% 14% 15% 14%

BALANCE SHEET (INRCR) CASH FLOW (INRCR)

Y/E MARCH FY14 FY15 FY16 FY17E FY18E Y/E MARCH FY14 FY15 FY16E FY17E FY18E

Equity Share Capital 90 90 90 90 90 PBT before EO items 155 176 259 318 357

Reserves 466 564 721 898 1,095 Add : Depreciation 29 23 35 42 52

S hareholders' Funds 556 655 811 988 1,185 Interest 1 1 1 0 0

Debt 40 38 2 0 0 (Inc)/Dec in WC 12 (28) (17) (73) (64)

Tax outgo (40) (61) (69) (105) (118)
Net deferred tax 10 22 39 39 39
S OURCES OF FUNDS 606 714 852 1,026 1,224 CF from Operations 157 91 181 182 227

Gross Block 250 297 373 473 573 (Inc)/Dec in Fixed assets (85) (80) (129) (100) (100)

Less: Depreciation 187 209 244 287 339 Others (65) 58 33 0 0

Net Block 63 88 128 186 234 CF from Investing act. (150) (22) (96) (100) (100)
CWIP 133 149 210 210 210 Inc/(Dec) in debt (10) (2) (36) (2) 0
Investments 34 46 41 41 41
Dividend paid (10) (21) (53) (36) (42)
Current Assets 680 763 937 1,129 1,382
Less: Interest paid (1) (1) (1) 0 0
Inventories 81 140 160 190 224
Sundry Debtors 400 454 620 737 871 Others 0 2 10 0 0

Cash and Bank Balances 22 70 65 109 194 CF from Financing act. (22) (22) (79) (38) (42)
Loans and Advances 169 86 82 82 82 Inc/(Dec) in cash (14) 48 5 44 86
Other Current Assets 9 12 11 11 11 Add: Beginning balance 36 22 70 65 109
Current Liabilities & Prov. 308 332 468 542 646
Closing Balance 22 70 65 109 194
Net Current Assets 372 431 469 587 736
Other Assets 3 1 4 3 4
APPLICATION OF FUNDS 606 714 852 1,026 1,224

4 October 2016 3

http://www.motilaloswal.com/site/rreports/HTML/636112557639640506/index.htm 3/4
05/10/2016 Sharda Cropchem Limited: Business Moat strong entry barrier Detailed Report

Disclaimer: This document has been prepared by Motilal Oswal Securities Limited (hereinaf ter ref erred to as Most) to prov ide inf ormation about the company (ies)
and/sector(s), if any , cov ered in the report and may be distributed by it and/or its af f iliated company (ies). This report is f or personal inf ormation of the selected
recipient/s and does not construe to be any inv estment, legal or taxation adv ice to y ou. This research report does not constitute an of f er, inv itation or inducement
to inv est in securities or other inv estments and Motilal Oswal Securities Limited (hereinaf ter ref erred as MOSt) is not soliciting any action based upon it. This report
is not f or public distribution and has been f urnished to y ou solely f or y our general inf ormation and should not be reproduced or redistributed to any other person
in any f orm. This report does not constitute a personal recommendation or take into account the particular inv estment objectiv es, f inancial situations, or needs
of indiv idual clients. Bef ore acting on any adv ice or recommendation in this material, inv estors should consider whether it is suitable f or their particular
circumstances and, if necessary , seek prof essional adv ice. The price and v alue of the inv estments ref erred to in this material and the income f rom them may go
down as well as up, and inv estors may realize losses on any inv estments. Past perf ormance is not a guide f or f uture perf ormance, f uture returns are not
guaranteed and a loss of original capital may occur.
MOSt and its af f iliates are a f ull-serv ice, integrated inv estment banking, inv estment management, brokerage and f inancing group. We and our af f iliates hav e
inv estment banking and other business relationships with a some companies cov ered by our Research Department. Our research prof essionals may prov ide input
into our inv estment banking and other business selection processes. Inv estors should assume that MOSt and/or its af f iliates are seeking or will seek inv estment
banking or other business f rom the company or companies that are the subject of this material and that the research prof essionals who were inv olv ed in preparing
this material may educate inv estors on inv estments in such business . The research prof essionals responsible f or the preparation of this document may interact
with trading desk personnel, sales personnel and other parties f or the purpose of gathering, apply ing and interpreting inf ormation. Our research prof essionals
are paid on twin parameters of perf ormance & prof itability of MOSt.
MOSt generally prohibits its analy sts, persons reporting to analy sts, and members of their households f rom maintaining a f inancial interest in the securities or
deriv ativ es of any companies that the analy sts cov er. Additionally , MOSt generally prohibits its analy sts and persons reporting to analy sts f rom serv ing as an of f icer,
director, or adv isory board member of any companies that the analy sts cov er. Our salespeople, traders, and other prof essionals or af f iliates may prov ide oral or
written market commentary or trading strategies to our clients that ref lect opinions that are contrary to the opinions expressed herein, and our proprietary trading
and inv esting businesses may make inv estment decisions that are inconsistent with the recommendations expressed herein. In rev iewing these materials, y ou
should be aware that any or all of the f oregoing among other things, may giv e rise to real or potential conf licts of interest. MOSt and its af f iliated company (ies),
their directors and employ ees and their relativ es may ; (a) f rom time to time, hav e a long or short position in, act as principal in, and buy or sell the securities or
deriv ativ es thereof of companies mentioned herein. (b) be engaged in any other transaction inv olv ing such securities and earn brokerage or other compensation
or act as a market maker in the f inancial instruments of the company (ies) discussed herein or act as an adv isor or lender/borrower to such company (ies) or may
hav e any other potential conf lict of interests with respect to any recommendation and other related inf ormation and opinions.; howev er the same shall hav e no
bearing whatsoev er on the specif ic recommendations made by the analy st(s), as the recommendations made by the analy st(s) are completely independent of the
v iews of the af f iliates of MOSt ev en though there might exist an inherent conf lict of interest in some of the stocks mentioned in the research report
Reports based on technical and deriv ativ e analy sis center on study ing charts company 's price mov ement, outstanding positions and trading v olume, as opposed
to f ocusing on a company 's f undamentals and, as such, may not match with a report on a company 's f undamental analy sis. In addition MOST has dif f erent
business segments / Div isions with independent research separated by Chinese walls catering to dif f erent set of customers hav ing v arious objectiv es, risk prof iles,
inv estment horizon, etc, and theref ore may at times hav e dif f erent contrary v iews on stocks sectors and markets.
Unauthorized disclosure, use, dissemination or copy ing (either whole or partial) of this inf ormation, is prohibited. The person accessing this inf ormation
specif ically agrees to exempt MOSt or any of its af f iliates or employ ees f rom, any and all responsibility /liability arising f rom such misuse and agrees not to hold MOSt
or any of its af f iliates or employ ees responsible f or any such misuse and f urther agrees to hold MOSt or any of its af f iliates or employ ees f ree and harmless f rom
all losses, costs, damages, expenses that may be suf f ered by the person accessing this inf ormation due to any errors and delay s. The inf ormation contained herein
is based on publicly av ailable data or other sources believ ed to be reliable. Any statements contained in this report attributed to a third party represent MOSt's
interpretation of the data, inf ormation and/or opinions prov ided by that third party either publicly or through a subscription serv ice, and such use and
interpretation hav e not been rev iewed by the third party . This Report is not intended to be a complete statement or summary of the securities, markets or
dev elopments ref erred to in the document. While we would endeav or to update the inf ormation herein on reasonable basis, MOSt and/or its af f iliates are under
no obligation to update the inf ormation. Also there may be regulatory , compliance, or other reasons that may prev ent MOSt and/or its af f iliates f rom doing so.
MOSt or any of its af f iliates or employ ees shall not be in any way responsible and liable f or any loss or damage that may arise to any person f rom any inadv ertent
error in the inf ormation contained in this report. MOSt or any of its af f iliates or employ ees do not prov ide, at any time, any express or implied warranty of any kind,
regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability , f itness f or a particular purpose, and non-
inf ringement. The recipients of this report should rely on their own inv estigations.
This report is intended f or distribution to institutional inv estors. Recipients who are not institutional inv estors should seek adv ice of their independent f inancial
adv isor prior to taking any inv estment decision based on this report or f or any necessary explanation of its contents.
Most and it's associates may hav e managed or co-managed public of f ering of securities, may hav e receiv ed compensation f or inv estment banking or merchant
banking or brokerage serv ices, may hav e receiv ed any compensation f or products or serv ices other than inv estment banking or merchant banking or brokerage
serv ices f rom the subject company in the past 12 months.
Most and it's associates hav e not receiv ed any compensation or other benef its f rom the subject company or third party in connection with the research report.
Subject Company may hav e been a client of Most or its associates during twelv e months preceding the date of distribution of the research report
MOSt and/or its af f iliates and/or employ ees may hav e interests/positions, f inancial or otherwise of ov er 1 % at the end of the month immediately preceding the
date of publication of the research in the securities mentioned in this report. To enhance transparency , MOSt has incorporated a Disclosure of Interest Statement
in this document. This should, howev er, not be treated as endorsement of the v iews expressed in the report.
Motilal Oswal Securities Limited is under the process of seeking registration under SEBI (Research Analy st) Regulations, 2014.
There are no material disciplinary action that been taken by any regulatory authority impacting equity research analy sis activ ities
Analy st Certif ication
The v iews expressed in this research report accurately ref lect the personal v iews of the analy st(s) about the subject securities or issues, and no part of the
compensation of the research analy st(s) was, is, or will be directly or indirectly related to the specif ic recommendations and v iews expressed by research analy st(s)
in this report. The research analy sts, strategists, or research associates principally responsible f or preparation of MOSt research receiv e compensation based upon
v arious f actors, including quality of research, inv estor client f eedback, stock picking, competitiv e f actors and f irm rev enues

Disclosure of Interest Statement Sharda Cropchem Limited

1.Analyst ownership of the stocks mentioned above No
2.Served as an officer, director or employee No
Regional Disclosures (outside India)
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such
distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSt & its group companies to registration or
licensing requirements within such jurisdictions.

Motilal Oswal Securities Ltd

Motilal Oswal Tower, Level 6, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: (91-22) 30894200 Fax: (91-22) 22885038. E-mail: info@motilaloswal.com

http://www.motilaloswal.com/site/rreports/HTML/636112557639640506/index.htm 4/4