1. Sharda Cropchem Ltd (SCL), promoted by Bubna group, is engaged in marketing & distribution of generic agrochemicals
(formulations & active ingredients) with operations in over 60 countries worldwide. The company has an asset light
business model & its core competency lies in identifying opportunities in generic molecules & formulations and seeking
quick registrations in relevant jurisdictions. The company garners 60.9%, 20.5%, 9.2% & 9.4% of its revenue from Europe,
LATAM, NAFTA & RoW (Rest of the World) respectively.
1
Agrochemicals
September 04, 2014 IPO - Note
Sharda Cropchem Ltd.
Recommendation: Subscribe
Investment Rationale
Asset light business model
SCL has an asset light business model primarily because (a) It
deals in generic agrochemicals (b) It outsources the manufacturing
process of formulations to third party formulators. Being a
marketeer & distributor of generic agrochemicals, SCL is not
required to invest its resources in capital intensive areas like
R&D, land & manufacturing facilities.
Core competency in registration
SCL's core competency lies in identifying opportunities in generic
molecules and seeking registrations in the relevant jurisdictions.
Seeking registrations is time consuming & acts as a critical entry
barrier in the highly regulated agrochemical industry. Its
registration for formulations and generic active ingredients have
increased to over 1040 and 155 respectively.
Debt-free & high return ratios
By following an asset light model the company maintained a
healthy balance sheet with D:E ratio of 0.1x in FY14. The company
is net-debt free with net cash position of INR 1510 Mn. SCL also
had healthy return ratios with RoE & RoCE of 20.9% & 21.1%
respectively in FY14.
Well diversified (Geographically) revenue mix
SCL has operations in 60 countries worldwide which helps it in
diversifying country specific risk. The company garners 60.9%,
20.5%, 9.2% & 9.4% of its revenue from Europe, LATAM, NAFTA &
RoW (Rest of the World) respectively. The top-5 molecule
contributes ~36.3% of its revenue.
Risk Factors
Highly regulated Industry: Inability to comply with any regulation
in the highly regulated agrochemical industry may have an adverse
impact on the company's performance.
Currency risk: Since most of the SCL's operations are overseas, it
has to bear risk of dealing in different currencies.
Delay or failure in registration of products: The process of seeking
registrations is complex, expensive and time consuming. Inability
to successfully obtain registrations in a timely manner may
adversely affect its operations and profitability.
Outlook & Valuation
We remain positive on the global agro chemical industry, given
the need to increase food supplies to feed increasing population
at affordable price. We expect global agrochemical industry to
grow at a CAGR of 2.7% between CY13-18E. At the upper price band
of INR 156, the SCL is available at 13.2x FY14 earnings which seem
reasonable given its net debt-free balance sheet, healthy return
ratios and earnings growth. It is also at a discount to comparable
domestic agrochemical companies. Top line & bottom line grew
at a CAGR of 12.9% & 24.7% respectively between FY12-14. We
recommend investors to SUBSCRIBE to the issue.
Issue Snapshot
Issue Open 5-Sep-14
Issue Close 9-Sep-14
Price Band INR 145-156
Issue Size INR 3270 Mn - 3519 Mn
Market Cap INR 13082 Mn - 14074 Mn
Particulars
Issue Size (No. of Shares) 22555124
QIB 11277561
Non-Institutional 3383269
Retail 7894294
Capital Structure
Pre Issue Equity INR 902.21 Mn
Post Issue Equity INR 902.21 Mn
Bid Lot 90
Minimum Bid Amount @ INR 145 INR 13050
Maximum Bid Amount @ INR 156 INR 14040
Maximum Bid Amount Retail INR 200000
Shareholding Pattern (%) Pre Issue (%) Post issue (%)
Promoter & Promoter Groups 84.13 75.00
MF, FII holding & Others 0.00 0.00
Non Institutional 15.87 0.00
Public 0.00 25.00
Total 100.00 100.00
Total Shares 90220495 90220495
Face Value 10
Book Value/Share 61.60
EPS (Cons) 11.85
Objects of the issue
OFS by existing investors & promoters
Prashant Biyani
prashant.biyani@spagroupindia.com
Ph. No. 91 33 4011 4800 (Ext. 833)

2. 2
Agrochemicals
Investment Rationale
Asset light business model
SCL has an asset light business model primarily because (a) It
deals in generic agrochemicals (b) It outsources the manufacturing
process of formulations to third party formulators. Being a
marketeer & distributor of generic agrochemicals, SCL need not
invest its resources in capital intensive areas like R&D, land &
manufacturing facilities. The company procures formulations and
generic active ingredients from third party manufacturers for sale.
It also procures generic active ingredients and outsources the
process of preparation of formulations to third party formulators.
This benefits them in terms of cost competitiveness and to offer
varied range of formulations & generic active ingredients in a
timely manner.
SCL's presence in a typical Agrochemical value chain
No Yes Yes No(Outsource) Yes Yes
Core competency in registration
SCL's core competency lies in identifying opportunities in generic
molecules and corresponding formulations and generic active
ingredients, preparing dossiers and seeking registrations in the
relevant jurisdictions. Preparing dossiers and seeking
registrations is time consuming & acts as a critical entry barrier
in the agrochemical industry as the industry is highly regulated.
Its Good Laboratory Practices (GLP) certified dossiers has
increased to over 180 and registrations for formulations and
generic active ingredients have increased to over 1040 and 155
respectively. Its library of dossiers gives it a competitive edge and
facilitates in seeking registration in different countries in a time
efficient manner. As of August 5, 2014, it has filed over 500
applications for seeking registrations globally which are pending
at different stages.
Debt-free & high return ratios
By following an asset light model the company maintained a
healthy balance sheet with D:E ratio of 0.1x in FY14. The company
has only short term debt amounting to INR 400 Mn against which
it has cash & cash equivalents of INR 1910 Mn, thereby implying
a debt free balance sheet with net cash position of INR 1510 Mn.
SCL also has healthy return ratios with RoE & RoCE of 20.9% &
21.1% respectively in FY14.
Well diversified (Geographically) revenue mix
SCL has operations in 60 countries worldwide which helps it in
diversifying country specific risk. The company garners 60.9%,
20.5%, 9.2% & 9.4% of its revenue from Europe, LATAM, NAFTA &
RoW (Rest of the World) respectively. The top-5 molecule
contributes ~36.3% of its revenue.
Geographical distribution of Revenue
Europe
60.90%
LATAM
20.50%
RoW
9.40%
NAFTA
9.20%
Market size of Crop protection Industry in 2013
Europe
25.10%
LATAM
25.90%
RoW
30.50%
NAFTA
18.50%
Source: RHP, SPA Research
Risk Factors
Highly regulated Industry: The agrochemical industry is highly
regulated industry worldwide & industry players have to comply
with various stringent regulations. Inability to comply with any
regulation may have an adverse impact on the company's
performance.
Currency risk: Since a substantial portion of SCL's revenue and
expenditure is in foreign currencies, they enjoy natural hedge to a
certain extent but the time gap between accounting of sales &
realization of payment poses currency risk which may adversely
affect it.
Delay or failure in registration of products: The process of seeking
registrations is complex, expensive and time consuming. If the
company is unable to successfully obtain registrations in a timely
manner or at all, it may lose the market opportunities which will
adversely affect its operations and profitability.
Basic &
Applied
Research
Identification Registration
Active
Ingredient
Manufacturing
Formulation &
Packaging
Marketing &
Distribution

3. 3
Agrochemicals
Objects of the issue
Since the IPO is Offer for Sale from existing investors & promoters,
hence SCL will not receive any proceeds from the IPO.
Industry Outlook
• The global agrochemical industry market stands at $ 60.7 bn
(Crop protection- $ 54.2 bn & Non-crop- $ 6.5 bn) as at 2013
& is expected to grow at a CAGR of ~2.7% to reach $ 69.1 bn
by 2018. Over the next five years it is expected that fungicides
will continue to lead market growth as it is key to increase
the crop yield & quality improvement that the market is
demanding.
Global Agrochemical Industry Size ($ Mn)
80000
70000
60000
50000
40000
30000
20000
10000
0
CAGR of 2.7%
2008 2009 2010 2011 2012 2013 2018E
Crop Protection Non Crop Total Agrochemical
Source: Philips Mcdougall, RHP, SPA Research
• Growth within the crop protection sector is directly linked to
support for agriculture, crop commodity prices and farm
incomes, however the non-crop sector is influenced more by
the economic position of the major markets, with consumer
purchasing power being a significant factor. Crop protection
industry growth is likely to be led by Asia (FY13-18E CAGR of
3.7%) and Middle East & Africa (MEA) (FY13-18E CAGR of 3.3%)
going forward. Growth within the GM seed market is
predominantly driven by the introduction of new technology
with competition within the sector now intensifying as the
number of available trait offering continues to grow.
Geographically, Asia is expected to lead the growth for GM
seeds with 11.6% CAGR between FY13-18E, followed by MEA at
4.8% over the same period. The value of total crop protection
market is expected at $ 74.3 bn as at 2013.
Global Crop Protection market value (Distributor Level) ($ Mn)
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
CAGR of 2.7%
2008 2009 2010 2011 2012 2013 2018E
Conventional Crop Protection GM Seed Total
Source: Philips Mcdougall, RHP, SPA Research
Peer Comparison
Company
CMP Mcap Revenue 3-Yr EBITDA APAT 3-YrAPAT EBITDA(%) APAT(%) EPS P/E P/B EV/
(INR) (INR Bn) CAGR CAGR FY14 FY13 FY12 FY14 FY13 FY12 (INR) (x) (x) EBITDA(x)
Sharda Cropchem Ltd 156 14 7819 12.90% 1458 1069 24.7% 18.65% 18.00% 19.97% 13.67% 10.90% 11.20% 11.80 13.2 2.5 8.6
UPL Ltd 343 139 107709 18.5% 19187 9966.7 33.2% 17.81% 17.63% 17.51% 9.25% 8.38% 7.32% 21.80 15.7 2.8 8.5
Dhanuka Agritech 443 22 738 18.1% 1216 931.4 27.7% 16.47% 14.06% 15.01% 12.6% 10.82% 10.81% 18.62 23.8 6.7 18.1
PI Ind 448 61 17610 35.8% 2877 1868.4 53.2% 16.34% 14.56% 14.94% 10.61% 7.75% 8.33% 13.50 33.2 8.9 21.6
Source: Capitaline, RHP, SPA Research

4. 4
Agrochemicals
Financials Consolidated
Income statement
(Year-end March) FY11 FY12 FY13 FY14
Revenue 4418 6135 7777 7819
Growth(%) 26 39 27 1
Total Raw Material Costs 3094 4193 5442 5141
Employee Cost 84 109 136 181
Other Operaitng Expense 435 608 799 1039
Total Expenditure 3613 4910 6377 6361
Ebitda 805 1225 1400 1458
Growth (%) 30 52 14 4
Depreciation 371 427 367 289
EBlT 434 798 1033 1169
lnterest 2 1 4 14
Other Income 76 66 149 328
PBT 508 863 1178 1483
Tax 94 178 334 415
PAT 414 685 844 1068
Minority Interest 0 (3) 0 0
Reported PAT 414 688 844 1068
Balance Sheet
(Year-end March) FY11 FY12 FY13 FY14
Equity Capital 180 902 902 902
Reserves & Surplus 3015 3027 3766 4655
Shareholder's Fund 3196 3929 4668 5557
Long Term Borrowing Funds 0 0 0 0
Long Term Provisions 0 0 0 2
Current Liabilities 1699 2408 3295 3582
Short Term Borrowing 24 34 459 399
Trade Payables 1171 1745 1932 2049
Other current liabilities 471 523 798 857
Short term provisions 33 106 106 277
Source of Funds 4895 6337 7963 9141
Net Block (Incl Intangibles) 876 581 642 638
Capital WIP 335 631 884 1335
Total Fixed Assets 1211 1212 1526 1973
Non-current investments 41 40 48 53
Long Term loans & advances 27 80 138 205
Other non-current assets 26 29 74 80
Current Assets 3590 4977 6177 6830
Inventories 579 1020 929 808
Trade Recievables 2484 3266 3788 4002
Cash & Bank Balances 232 297 357 216
Current Investments 255 324 923 1692
Short Term Loans & Advances 35 67 159 87
Other Current Assets 5 3 21 25
Application of Funds 4895 6338 7963 9141
Cash Flow
(Year-end March) FY11 FY12 FY13 FY14
Profit Before Tax 508 863 1178 1483
Add: Depreciation 371 427 367 289
Cash Profit 879 1290 1545 1772
other changes (138) (100) (318) (360)
lncrease/(Decrease) in CL 262 519 327 33
(|ncrease)/Decrease in CA (535) (1167) (717) 210
CF from Operating Activities 468 542 837 1588
Purchase of Fixed Assets (300) (420) (489) (860)
(Inc)/Dec in |nvestments (3) (54) (637) (667)
Others 0 1 1 17
CF from Investing Activities (303) (473) (1125) (1510)
Inc/(Dec) in Loan Funds 2 (3) 426 (100)
Inc/(Dec) in Sh. Cap. & Res. 0 0 0 0
Dividend & DDT paid 0 0 (105) (105)
Others (2) (1) (4) (14)
CF from financing activities 0 (4) 317 (219)
Net cash/cashflow 164 65 29 (141)
Cash and cash Eq. 232 297 357 216
Key Ratios
(Year-end March) FY11 FY12 FY13 FY14
Per Share Data (INR)
Book Value 35.4 43.6 51.8 61.6
Cash per share 2.6 3.3 4 2.4
EPS 4.6 7.6 9.4 11.8
Cash EPS 8.7 12.4 13.4 15
Profitability & Operating Ratios
EBITDA Margin (%) 18.2 20 18 18.6
PAT Margin (%) 9.4 11.2 10.9 13.7
Inventory Turnover (Days) 47.8 60.7 43.6 37.7
Debtor (Days) 205.2 194.3 177.8 186.8
Creditor (Days) 132.1 131.9 123.9 130.9
Return Ratios (%)
RoE 13.8 19.3 19.6 20.9
RoCE 14.4 22.2 22.7 21.1
Valuation Ratios (x) @ INR 156
PE 34 20.5 16.7 13.2
Price to Book Value 4.4 3.6 3 2.5
EV/EBITDA 16.9 11 9.5 8.6
EV/Sales 3.1 2.2 1.7 1.6
Leverage & Solvency Ratios
Debt to equity (x) 0 0 0.1 0.1
Interest Coverage (x) 217 798 258.3 83.5
Debt to EBITDA (x) 0 0 0.3 0.3
Current Ratio 2.1 2.1 1.9 1.9
Source: RHP, SPA Research

5. Sharad Avasthi Dy Head - Equity Research sharad.avasthi@spagroupindia.com Tel.: +91-33-4011 4800 Ext.832
SPA Securities Ltd: Mittal Court, A-Wing, 10th Floor, Nariman Point, Mumbai - 400 021, Tel. No. : +91-022-4289 5600, Fax: +91 (22) 2657 3708/9
For More Information Visit Us At : www.spasecurities.com
5
AgrocBhFeSmI icals
Disclaimer: This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. SPA Securities Limited
(hereinafter referred as SPA) is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should
not be reproduced or redistributed to any other person in any form. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis
for an investment decision. The intent of this document is not in recommendary nature. The views expressed are those of analyst and the Company may or may not subscribe to
all the views expressed therein The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon
such. SPA or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information
contained in this report. Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or
consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. SPA or any of its affiliates or employees do not provide,
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, fitness
for a particular purpose, and non-infringement.
The recipients of this report should rely on their own investigations. SPA and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned
in this report. SPA has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.
Disclosure of Interest Statement
1. Analyst ownership of the stock - No
2. Group/Directors ownership of the stock - No
3. Broking relationship with company covered - No
This information is subject to change without any prior notice. SPA reserves the right to make modifications and alternations to this statement as may be required from time to time.
Nevertheless, SPA is committed to providing independent and transparent recommendations to its clients, and would be happy to provide information in response to specific client queries.
SPA Securities Ltd SEBI Reg. Nos.
NSE Cash INB231178238
NSE Future & Option INF231173238
NSE Currency Derivatives INE231178238
BSE Cash INB011178234
BSE Currency Derivatives INE011178234
MCX-SX Cash INB261178231
MCX-SX Future & Option INF261178231
MCX-SX Currency Derivatives INE261178238
USE Currency Derivatives INE271178234
Mutual Fund ARN 77388
OTCEI INB200891838
PMS INP000003179
CDSL DP IN-DP-CDSL-485-2008
NSDL DP IN-DP-NSDL-316-2009
SPA CAPITAL SERVICES LIMITED
Investment Advisory Services,
AMFI Reg. No. ARN-0007
SPA CAPITAL ADVISORS LIMITED
SEBI registered Category-1
Merchant Bankers
SEBI Regn. No. INM000010825
SPA COMTRADE PRIVATE LIMITED
Member of NCDEX & MCX.
NCDEX TMID-00729,
NCDEX FMC No.NCDEX/TCM/CORP/0714
SPA INSURANCE BROKING SERVICES LTD
Direct Broker for Life and General
Insurance Broking
IRDA Lic. Code No. DB053/03