Published on 11/06/2019 10:16:29 AM | Source: Emkay Global Financial Services Ltd

Hold Sharda Cropchem Ltd For Target Rs.354 - Emkay Global

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Muted performance in high-growth region; maintain Hold

* Sharda Cropchem reported flat growth in topline yoy, as a 15% increase in pricing benefit and 4.2% benefit from currencies were offset by a 21% decline in volume. Revenue growth in Europe (4.7%) and NAFTA (15.6%) was offset by LATAM (-46.8%) and RoW (-51.4%).

* Gross margin declined 335bps yoy to 31.1% due to higher raw material prices, as supply shortage in China after a chemical park explosion spiked prices. EBITDA margin contracted 516bps to 20.6%. Reported EBITDA fell 20.2% yoy to Rs1.5bn

* For FY20, management has given guidance similar to that of FY19, with gross margin in the range of 31-34%, down from 35-37% earlier. Margins could get impacted by high raw material prices as imports from China are still rising due to production halts.

* We expect strong margins and steady growth in Europe and NAFTA region with better product mix, while LATAM should remain muted due to challenging economic conditions. We maintain our Hold rating with a TP of Rs354 (14x FY21E EPS).


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