Ambit Sharda Cropchem (NOT RATED) ERrgrp Effectively Capturing The Global Wave

Sharda Cropchem
NOT RATED
VISIT NOTE
SHCR IN EQUITY
January 16, 2015
Effectively capturing the global wave

Sharda Cropchem is an emerging play on the growing shift towards
generic agrochemicals worldwide. The company has leveraged its lowcost sourcing base in China to build a fast-growing franchise in large
agrochemical markets such as Europe, NAFTA and LatAm. Its strong
base of registrations under difficult regulatory regimes such as
Europe/US is its key advantage. Thus, it has delivered 22%/38%
revenue/PAT CAGR over the last four years along with RoCEs of >20%
and pre-tax CFO-to-EBITDA of 90%. Given a low market share base,
strong cost controls and growing generics share, Shardas management
could achieve its stated revenue growth target of >20% at ~20% EBITDA
margins. The stock is trading at 13x FY16E consensus EPS, a 30%
discount to its peers with similar RoCE/RoEs.
Agri Inputs
Recommendation
Mcap (bn):
3M ADV (mn):
CMP:
`23/US$0.4
`162/US$2.6
`257
Catalysts
Registration gains for large value

molecules such as Azoxystrobin and
Cyproconazole in Europe
Sales growth delivery of above 20%

in 2HFY15
Competitive position: MODERATE Changes to this position: UNCHANGED
Good capital allocation and cost control

The management has refrained from any acquisitions and has organically built
the business in tough regulatory environments. Effective management led to
22%/39% CAGR in revenues/PAT alongside RoCE expansion to ~20% over the
last four years. Most of the capex was made in acquiring registrations and was
managed through internal accruals. The management is using future cash flows
to acquire carefully identified new molecule/expansionary registrations.
Performance
Sharda
Sensex
Source: Bloomberg, Ambit Capital research
Healthy return ratios driven by profitability and low asset base

Despite focusing on part of the value chain, Sharda is able to generate healthy
EBITDA margins of ~18%. Strong controls (especially overheads) have led to
superior margins and return ratios vs global generic peers. Effective
management of sales team remuneration (higher proportion of variable) and
local hiring result in a relatively lower cost. For stronger operational control,
promoters travel extensively to overseas geographies. It generates asset turns
upwards of 5x which is a key driver for higher RoCEs.
Currency volatility, regulatory uncertainties key risks
On limited consensus earnings estimates, Sharda trades at 13.5x FY16 EPS, a
30% discount vs other agrochemical players with similar RoEs/RoCEs. Continued
strong financial performance and management of scale-related challenges of
this unique model are the key catalysts for any further valuation re-rating. Given
the business model, key risks are currency volatility and regulatory changes in its
key markets.
Key financials
In ` mn
Net Sales
EBITDA
EBITDA (%)
EPS
RoCE (%, post tax)
P/E (x)
FY10
3,518
619
17.6%
3.2
10.3%
FY11
4,418
806
18.2%
4.6
13.8%
FY12
6,135
1,225
20.0%
7.6
19.1%
FY13
7,777
1,400
18.0%
9.4
18.6%
FY14
7,819
1,458
18.6%
11.9
19.5%
80.0
56.0
33.8
27.5
21.7
Analyst Details
Ritesh Gupta, CFA
+91 22 3043 3242
riteshgupta@ambitcapital.com
Source: Company, Ambit Capital research

Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capital
may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making their investment decision.
Dec-14
Dec-14
Dec-14
Nov-14
Nov-14
Oct-14
Oct-14
2.0
1.8
1.6
1.4
1.2
1.0
0.8
Sep-14
Quality execution on acquiring registrations

Sharda has 1,089 and 166 registrations for formulations and AIs, respectively
and 575 in the pipeline. It has built sourcing capabilities for 60-plus molecules
in China through time tested (decade-old) quality suppliers; alongside, it has
also built global distribution capabilities with over 440 third-party
distributors/100-plus direct sales personnel in over 60 countries. It has a small
market share (<0.5%) in most geographies; growth will be driven by new
molecules, launch of biocides and expansion of extant molecules to new
crops/countries.
Sharda Cropchem
Company background
Business description - A unique company
Sharda Cropchem Limited is a fast-growing Indian agrochemical company, with most
of its revenues coming from Europe, NAFTA and Latin America across fungicides,
herbicides and insecticides. Shardas core competence lies in identifying fast-growing
generic molecules that offer attractive margins and then registering the molecule
through diverse regulatory regimes across Europe, Latin America, and NAFTA. Sharda
owns over 1,089 registrations for formulations and 166 registrations for active
ingredients (AIs). The company has further filed over 575 applications for
registrations globally, which are pending at different stages.
The company offers a diversified range of formulations and generic AIs in the
fungicide, herbicide and insecticide segments for crop protection and the in biocide
segment as disinfectants, catering to a varied market demand.
Sharda also runs a non-agrochemical business comprising order-based procurement
and supply of non-agrochemical products including conveyor belts and general
chemicals, dyes and dye intermediates.
Exhibit 1: Sharda's revenue spread by regions (%)
Exhibit 2: Sharda's business breakup as of FY14

Nonagrochemi
cals, 18%
50 49
16
Europe
21 20
20
NAFTA
FY14
13 12
Latin America
Others
Agrochem
icals, 82%
1HFY15
Exhibit 3: Shardas operations summary

Europe
Latin America
NAFTA
Third-party manufacturer in China
Conducting tests for registration

Third-party manufacturer in
Europe
Third party in respective country

Third-party manufacturer in
US; rest from China
Distribution
Third party and direct sales
Marketing
Distributor
Distributor
Key molecules
Tebuconazole, Quizalofop, Diquat,

Imidacloprid and Nicosulfuron
2,4-D Acid, Paraquat, Imidacloprid,

Chlorimuron and Fomesafen
Registrations acquired
545
335
Distributor
Paraquat, Chlorpyriphos,
Imidacloprid, Propiconazole and
Fomesafen
68
Registrations pending
239
147
86
Salience
50
21
16
Technical
Formulation
Source: Company
Seasonality: 4Q is the strongest quarter

For Sharda, 4Q brings the highest revenues share, followed by 1Q, 2Q and 3Q. 4Q
accounts for nearly 40% of annual sales.
January 16, 2015
Ambit Capital Pvt. Ltd.
Page 2
Sharda Cropchem
Evolution of the company

Shardas promoter, Mr. R.V. Bubna, had earlier started with dyes and dye
intermediates through two private entities, Sharda International (1987) and Bubna
Enterprises (1989). These two entities merged to form Sharda Worldwide Export
Limited in 2004. The company changed its name to Sharda Cropchem Limited in
2013.
Initially the company was predominantly involved in trading; however, later (in 2008)
it started acquiring registrations aided by investments from Henderson Equity Partners
(HEP). HEP subscribed to 1.7mn equity shares (10% of shareholding) for `600mn in
March 2008 and 1.1mn equity shares (6% of shareholding) for `400mn in May 2008.
The company also acquired a 76% stake in a smaller India-based agrochem
company, Axis Crop Science, for `5.07mn in Nov11.
The company subsequently did their IPO in September 2014, with Henderson Equity
Partners selling its entire 15.87% stake and with the promoters offering a 9.13%
stake to comply with SEBIs ruling to keep the promoter holding below 75%; there
was no fresh issuance of shares.
Exhibit 4: Promoters background
Name
Details
Ramprakash V. Bubna, CMD
Ashish R. Bubna, Executive Director
Manish R. Bubna, Executive Director
B.Tech (Chemical Engineering) from IIT Bombay.

45 years of experience in chemicals, agrochemicals and related businesses.
Formerly associated with Zuari Agrochemicals, Coromandel Fertilisers, Tata Oil Mills and others.
Elder son of Mr. R.V. Bubna
B.Com from Mumbai University with 22 years of experience
Takes care of agrochemical business. Instrumental in strategising early investment in product registrations
and building dossier library
Younger son of Mr. R.V. Bubna
B.Tech (Chemical Engineering) from UDCT, Bombay University, with 20 years of experience
Leads Shardas conveyor belt and general chemicals business. Oversees IT, logistics and documentation
functions for the overall company.
Source: Company
Exhibit 5: Board of Directors Good quality board

Director
M. S. Sundara Rajan
Urvashi Saxena
Shoban Thakore
Shitin Desai
P. R. Srinivasan
Profile
Masters Degree in economics from Madras University , Company Secretary and CAIIB
B.Com from University of Mumbai
B.Tech (Mechanical Engineering) from Anna University, Chennai, PGDM from IIM, Bengaluru
Former CMD of Indian Bank

Masters Degree in arts from University of Allahabad
37 years of experience in Income tax department; ex-Chief Commissioner of Income Tax in Delhi and Mumbai
Member, Vice- Chairperson of IT Settlement Commission
BA (Politics) & LLB from University of Bombay
Solicitor at Bombay HC & Supreme Court of England & Wales
Legal advisor various companies in corporate matters
Former partner at law firm AZB
Former Executive Vice Chairman of DSP Merrill Lynch; spent 40 years in financial services sector
Member of Bhagwati Committee appointed by SEBI
MD of Exponentia Capital Partners LLP & worked earlier with CVCI

One of the founders of HSBC PE in India
Source: Company
January 16, 2015
Page 3
Sharda Cropchem
Geographical breakup
strongest in its portfolio
Europe
business
is
the
Europe business (50% of revenues): On a solid footing driven by registrationrelated barriers

The Europe business contributed to 52% of the companys revenues in FY14; we
believe the Europe business is the strongest business region for the company. Given
stricter regulatory norms for entry, the number of players in a segment is limited. The
region also delivers the best margins for the company (300-400bps higher than the
overall average). The growth strategy for the company in the segment is pinned on:
(1) entry into biocides, (2) leveraging its GLP dossiers for existing molecules to expand
registrations into new crops and new countries, and (3) entry into new molecules. The
top countries contributing to this business are Spain, Germany, Italy, Poland, and
Hungary. The business grew by 15% (in USD terms) in FY14 and 43% in 1HFY15. The
Company has 20 approved molecules so far in EU and expects this number to be
over 30 Molecules over the next 2-3 years. New molecules have a current market size
of more than US$1.1bn.
LatAm business (21% of revenues) - Relatively easy to enter, but cost is the
key advantage
Sharda has been trying to build its business in Latin American countries such as
Uruguay, Argentina, and Peru. The company has not been able to get many
registrations in Brazil so far partly due to the longer registration process. Brazil is a
bigger market (US$12bn) and the company is looking to organically build its
presence here. The process for expansion in Latin America is also driven by the
addition of a direct sales force targeting bigger B2C clients. The management
believes that currently it has a smaller share of the overall segment and it is looking
to build on this by getting more registrations and building a direct field force.
Top-five molecules comprising,

Tebuconazole, Imidacloprid,
Quizalofop, Chlorpyriphos and
2,4-D Acid, contribute 13.3%,
7.5%, 5.6%, 6.2% and 3.9% of
consolidated revenues
NAFTA business (16% of revenues) Trying to get a foot in the door

The NAFTA business is growing driven by the companys entry into the Canada and
US markets. In the US, the company has shifted its strategy from targeting the offpatented or high-value segment to the more generic segment of high-volume lowvalue markets. Sharda had a good momentum in Canada with the launch of the
herbicide product, Diquat. The company has 12 registrations now in the US primarily
in cereals and soybean.
ROW (13% of revenues) Many potential opportunities
ROW covers various countries in Asia, Africa, and the Middle East. The company
started with its first registration in Algeria. Now Sharda has a presence in over 20
countries in key markets including India, Morocco, the Philippines, South Africa and
Taiwan.
Its key generic molecules in ROW are Chlorpyriphos, Imidacloprid, Hexaconazole,
Azoxystrobin and Glufosinate Ammonium. The company is also focusing on the India
opportunity through: (1) new registration of larger molecules by leveraging its global
supply chain and (2) expansion of its direct distribution.
Exhibit 6: SWOT analysis
Strengths
Weaknesses
Strong portfolio of over 1,200 registrations across key markets of
Limited development capabilities hinder product innovation on
Europe, NAFTA, and Latin America
formulation and combination product development
Tight control over costs and capital allocation discipline driving best-inclass EBITDA margins and return ratios
Lack of direct marketing to farmers may impact brand building in the

long run
Strong execution capabilities demonstrated by the management
Long working capital cycle
Opportunities
Threats
Share of generics is on a rise globally; low-cost generic players are
Adverse forex movements given high amount of receivables
gaining market share
Expansion into Brazil and Latin American markets
Cost advantage due to sourcing from China may fade away with rising
labour and environmental costs and appreciating currency
January 16, 2015
Page 4
Sharda Cropchem
Primary checks Clean chit

During our discussions with suppliers and certain peers, we received fairly positive
feedback about both the key promoters: Mr. R. V. Bubna, and Mr. Ashish Bubna. Most
of them find the promoters very hard-working, with a good business acumen and a
cost efficiency driven mindset. One of Mr. R.V. Bubnas peers who has worked with
him in his corporate professional days finds him to be fairly strong on integrity.
Mid-level manager with a large competitor
Their cost management is a clear marvel for them. We checked and found their
stated numbers to be correct. They have been able to amass a significant number of
registrations in a very small period of time. Their cost control is something to learn
from. We believe they can grow really well from here on
CXO with a medium-sized competitor
I have worked earlier with the promoter before he started his entrepreneurial
journey. I find him to be quite clean and good integrity-wise. He has built a business
model which is sustainable.
A domestic competitor with significant sourcing from China
Shardas business model is clearly quite sustainable. There are all kinds of suppliers
in China. Sharda carefully picks its suppliers and has a very good sourcing from
China.
January 16, 2015
Page 5
Sharda Cropchem
Global agrochemical market growing at a

fast pace
The demand for crop protection products is on a surge driven by limited availability of
arable land and changing food preferences. According to agribusiness consultant
Phillips McDougall, the agrochemical market has delivered a CAGR of 6.8% between
2003 and 2013. During the same period, the off-patent agrochemical category
(including non-crop applications), which includes proprietary off-patent products, has
delivered a CAGR of 7% whilst the patented category (including non-crop
applications) recorded a CAGR of 5%.
Exhibit 7: Geography-wise revenue breakup
Exhibit 8: World crop protection market (US$ bn)

60
NAFTA,
18.5%
Europe,
25.1%
54
47
50
43
40
41
2009
2010
50
40
30
20
LATAM,
25.9%
10
ROW,
30.5%
0
2008
Source: Phillips McDougall, Company
2011
2012
2013
Source: Phillips McDougall, Company
Global generics market expanding

The generics market in pesticides has been growing as a percentage of the overall
market. Industry statistics suggest that the market has grown from 33% in 2000 to
52% in 2013. In addition, products with a market size of ~US$6bn are going offpatent over 2014-2020. With more products going off-patent, there is an increasing
likelihood for this market to grow further at a rapid pace.
Exhibit 9: Value of agro-chemicals going off-patent over 2014-2020 (US$ bn)
1.6
1.3
1.2
0.9
0.7
0.4
0.2
2014
2015
2016
2017
2018
2019
2020
Source: Industry, Ambit Capital research
January 16, 2015
Page 6
Sharda Cropchem
Exhibit 10: Global pesticides market breakup (2000)
Off-Patent
Proprietary
Product,
37%
Generic
Product,
33%
Patented
Product,
30%
January 16, 2015
Exhibit 11: Global pesticides market breakup (2013)

Off-Patent
Propreitary
Product,
26%
Patented
Product,
22%
Generic
Product,
52%
Page 7
Sharda Cropchem
Registration a key entry barrier for generic

agrochemicals
Registration a key entry barrier
Agrochemicals are highly regulated across markets. Before any AI or a formulated
product can be sold in a country, it must receive approval from the relevant
authorities to verify its efficacy, safety, and environmental impact for each specific
crop application. These processes are expensive and time-consuming and require
specific knowledge of the local regulatory frameworks across regions, countries, and
local jurisdictions.
Registration requirements make a

new entry into markets more
difficult, regardless of whether the
products are patented or not; in
addition to be relevant to the
market, one needs to have
Registrations in particular take a long time in difficult regulatory regimes such as registrations of 30-40 molecules
Europe and the US which have strict norms on product and environmental safety. In
addition, every EU country requires specific registration for each formulation. Recent
regulatory pressures have also led to increasingly stringent efficacy, safety, and data
requirements, leading to increased costs of field trials and risks of commercialisation
failure.
Sharda has a strong team of regulatory experts focused on obtaining and
maintaining registrations for their products swiftly and effectively, which provides a
significant advantage in the time and cost to bring a new product to market.
Exhibit 12: Testing process for registration
Exhibit 13: Process for registration application
Source: Company
Source: Company
European registrations Turning more and more stringent

Sharda derives nearly 50% of its revenues from the Europe business. With rising
stringency on agrochemicals, it is incrementally becoming difficult for new players to
enter the market. Any new registration requires an investment of Eur5mn and also
takes 4-6 years to get a new registration. We believe once 2-3 players have entered
the market, it gets difficult for new players to enter due to the less lucrative margin
profile and a long payback period to recover registration costs.
January 16, 2015
Page 8
Sharda Cropchem
Exhibit 14: Significant decline in the number of molecules registered in Europe post new registration norms
No. of
products
Products of
Commercial Significance*
Accepted into
Annex 1
Re- registration
pending/ resubmitted
Not Accepted/ Not

Supported
90
90
56
34
148
114
34
80
389
262
109
153
204
12
List
Existing Products
Biologicals
Total
21
21
15
831
499
218
281
86
49
New Active Ingredients

New Biologicals
14
12
Total New AIs
100
61
Total Exiting + New AIs
318
61
290
Source: Company
Exhibit 15: Europe accounts for the

existing registrations
largest
chunk of
Exhibit 16: Sharda

registrations
has
strong
pipeline
of
575
RoW, 103,
18%
RoW, 307,
25%
Europe,
239, 42%
Europe,
545, 43%
Latin
America,
147, 25%
NAFTA,
68, 5%
Latin
America,
335, 27%
NAFTA, 86,
15%
Given that the company has amassed a total of 1,255 registrations across various
countries and crops, it is well placed to that extent.
Latin America too is turning difficult
Latin America has significant regulatory complexity which requires careful
management at the local level. In the rest of the Latin American region, regulatory
requirements in each country are increasing, especially as the needs of the major
export markets have to be met.
In Brazil, the registration data requirements are broadly equivalent to those anywhere
else in the world, but there are three separate Ministries involved in the review and
approval of crop protection products (Health, Environment, and Agriculture) and each
has an independent decision-making process, which adds time and complexity. In
most cases, a new registration takes a minimum of four years in Brazil and although
the authorities are influenced by decisions in other countries, they often reach a
different conclusion. New legislation is anticipated soon in Brazil which is likely to
include improved risk assessment and criteria for registration decision-making. The
impact of these changes is not known at this time.
January 16, 2015
Page 9
Sharda Cropchem
Exhibit 17: Registrations breakup - Formulation and Active Ingredients
Pipeline
Current
476
Formulation
1089
99
Active Ingredient
166
0
200
400
600
800
1000
1200
Source: Company
Aggressive investments on acquiring new registrations

The company has been aggressively investing in getting new registrations to grow its
target market size. The management stated that whilst many of the existing generic
players are slowing down on registrations due to internal issues, Sharda is
aggressively growing its registration base to drive superior growth.
Exhibit 18: Fixed assets are minimal but intangibles are key to the company (` mn)
Tangible assets
Intangible assets
Intangible assets under
development
Fixed Assets
FY10
FY11
FY12
FY13
FY14
11
13
14
14
19
1,059
863
567
628
619
181
335
631
884
1,335
1,251
1,211
1,211
1,526
1,975
Source: Company
January 16, 2015
Page 10
Sharda Cropchem
Strong track record on execution

22% revenue CAGR and 39% PAT CAGR over last four years
Sharda has been able to deliver strong 22% revenue CAGR over the last four years to
`7.8bn. Whilst revenue growth in FY14 was muted at 1%, the company registered
revenue growth of 50% in 1HFY15. The management is guiding for a 20% growth
over the next few years. We believe this should be achievable given the significantly
lower base and aggressive pipeline of registration.
Sales growth in FY14 was at just 1% due to the one-time large order of Acephate
from a customer in Brazil in FY13 and the absence of a similar order in FY14.
Exhibit 19: Shardas revenues have grown at a 22% CAGR
over the last four years
9,000
60%
22.0%
50%
20.0%
50%
8,000
Exhibit 20: EBITDA margin trend likely to be above 18%
20.0%
39%
7,000
6,000
27%
26%
5,000
4,000
3,000
1%
2,000
FY10
FY11
FY12
FY13
40%
18.0%
30%
16.0%
20%
14.0%
10%
12.0%
0%
10.0%
FY10
FY14 1HFY15
Source: Company. Note: Revenue (Rs mn) on LHS and growth rates (%) on RHS
17.6%
18.2%
FY11
18.0%
FY12
FY13
18.6%
FY14
Source: Company
Shardas EBITDA margins have been healthy at 18-20% (19-23% including other
income). The management believes that it should be able to sustain EBITDA margins
of 18-22% (including other income) in the future.
Strong control on overheads
The management has been able to maintain a good control on its cost overheads.
The promoters have been cautious towards adding unnecessary costs and have
always been looking to keep those minimal. In terms of salary structure, the
management keeps a significant proportion of salaries as variable. Other expenses in
FY14 increased on account of higher consultancy charges and higher sales costs from
increased number of third-party distributors/own sales force.
Exhibit 21: Operating expenses fairly well controlled
Other expenses (%, LHS)
Employee expenses (%)

13.3%
14%
12%
40%
35%
9.8%
9.9%
10.3%
20%
6%
15%
2%
1.5%
30.0%
FY10
FY11
34.3%
30.0%
25%
8%
4%
30.3%
31.7%
30%
11.3%
10%
Exhibit 22: Gross margin relatively lower given trading

business model
1.9%
1.8%
1.7%
2.3%
10%
5%
0%
0%
FY10
FY11
FY12
FY13
FY14
Source: Company. Note: Other expenses in FY14 also included forex impact.
January 16, 2015
FY12
FY13
FY14
Source: Company
Page 11
Sharda Cropchem
Healthy return ratios
Given an asset-light model and healthy EBITDA margin trend, the company has
reported healthy return ratios.
Exhibit 23: RoE and RoCE have been on an uptrend
ROE
ROCE
25%
20%
19.3%
19.1%
19.6%
18.6%
20.9%
19.5%
FY12
FY13
FY14
13.8%
13.8%
15%
10.4%
10.3%
10%
5%
0%
FY10
FY11
Source: Company
January 16, 2015
Page 12
Sharda Cropchem
What are the sustainable competitive

advantages for Shardas business?
Cost-efficient player
Sharda does not focus much on the resource-intensive part of the agrochemical value
chain such as product research and manufacturing. However, it acts as an aggregator
of various parts of the value chain and actively works on the biggest entry barrier,
registrations. In addition, it has the one of the most cost competitive sourcing from
China whilst maintaining a certain quality standards.
Multiple combinations of a matrix of many molecules, geographies, and crops
combined with a matrix of manufacturing suppliers, distribution dealers, and
registration consultants makes it a very complex business to manage in a profitable
manner. If we take a look at its peers, Sharda has the best profitability and return
ratios as compared to other generic peers.
We believe Shardas capability lies in the most cost-effective execution of managing
various moving parts of the business. Sharda has been able to perfect this model
through years of experience.
Manufacturing strong sourcing base in China
The company relies mostly on third-party China-based suppliers for manufacturing.
However, the company takes care of quality control through its own employees based
in China.
It also de-risks itself by focusing on developing multiple vendors for the same
molecule. The company usually has 1 or multiple vendors for each molecule. All the
active ingredients are sourced from its suppliers in China. For Europe and the US, the
company does formulation in the respective region/country itself whilst for other
countries formulation is directly done from China.
Exhibit 24: Agrochemical value chain Red color denotes areas where Sharda is present
Source: Company
Arysta (similar business model to Sharda) prospectus on US SEC website:

During the last decade, China has developed a chemicals industry that the Company
estimates to be the largest in the world. Within this industry, the agrochemicals industry
has also developed, including thousands of players who invested in manufacturing
infrastructure, of which half of their production capacity is presently directed to exports,
intended for sale through small and large companies, including the Company and its
competitors. The growth in production capacity, on one hand, and the price levels and
competitiveness of the products produced in China on the other hand, affect the
structure of competition in the entire industry.
Sourcing model dependent on Chinese suppliers
The company procures formulations and generic active ingredients in their finished
form from third-party manufacturers for onward sale. The company also procures
generic active ingredients for preparation and sale of formulations wherein it
outsources the process of preparation of formulations to third-party formulators for
the US and Europe.
Forward integration through addition of direct sales force
Historically, the company was dependent on third-party distributors based in Europe,
NAFTA, Latin America and Rest of the World for distribution. The company is setting
up its own sales force in various countries in Europe as well as Mexico, Colombia,
January 16, 2015
Page 13
Sharda Cropchem
South Africa and India in addition to third-party distributors. Since 2010, the
company has increased its own sales force to over 100 personnel globally including
India. It continues to focus on increasing its own sales force in addition to third-party
distributors. The management believes continuous interactions with its sales force and
distributors help it identify new molecules to seek registrations for.
Distribution fairly well entrenched across key markets
Most of the companys distribution is governed by third-party distributors. The
company has ~440 distributors globally. It is also building a direct sales network to
build a direct distribution force.
In the past, the company was undertaking the distribution of its products only through
third-party distributors based in Europe, NAFTA, Latin America and Rest of the World.
With an objective to increase its presence in the agrochemical value chain, the
company has set up its own sales force in various countries in Europe as well as in
Mexico, Colombia, South Africa and India and other jurisdictions in addition to thirdparty distributors.
Registrations turning more and more stringent
Registrations take a long time to get specifically in Europe where there are strict
norms on environmental safety. In addition, every EU country requires specific
registrations. Significant data collection and field trials are required to ascertain the
overall impact of new molecules. Apart from developed countries such as EU and US,
registration norms in developing countries too are turning more and more stringent.
But given the operating model, is the business

scalable?
Shardas current capabilities and low market share will allow it to grow at a healthy
sales CAGR of >20% over the next few years; however, in the long run, building
strong capabilities in its direct sales force and building brands and
capabilities in new formulations and combination products will be a
necessity.
Note that Sharda has a miniscule share of the global market. We believe the
companys widening registrations base (a pipeline of 500+ registrations), entry into
new geographical regions or new crops, entry into new molecules, and entry into
adjacencies such as biocides, will drive the growth for the company.
Exhibit 25: Revenue market share
Company revenues
(US$ mn)
Market size
(US$ bn)
Salience
Europe
54
14
0.4%
LATAM
22
14
0.2%
NAFTA
18
10
0.2%
ROW
10
16
0.1%
Total
103
54
0.2%
Source: Company
January 16, 2015
Page 14
Sharda Cropchem
High-quality financials vis-a-vis peers

Sharda has been able to deliver healthy growth rates of 22% CAGR over the last four
years, well ahead of the peer median growth of 18%. On margins, it is well ahead of
the peer median of 18%. Despite the company not having manufacturing facilities, it
has been able to command healthy margins of 18-20% over the last few years
through tighter cost control initiatives.
Exhibit 26: Sharda has been able to grow ahead of the
industry median at 22% CAGR on sales
FY14
CAGR
(%)
17,254 21,392 22,723 27,253 32,452
17%
Company/Metric
Bayer
FY10
FY11
FY12
FY13
Exhibit 27: Shardas

healthiest
Company/Matrix
EBITDA
margins
are
among
the
FY10
FY11
FY12
FY13
FY14
Bayer
13.6%
11.1%
11.5%
13.7%
13.3%
14.4%
16.0%
15.1%
15.3%
17.0%
9.3%
9.7%
10.8%
11.3%
9.5%
Dhanuka
4,081
4,910
5,292
5,823
7,384
16%
Dhanuka
Insecticides India
3,774
4,501
5,218
6,167
8,641
23%
Insecticides India
Kaveri Seeds
1,621
2,337
3,724
7,120 10,111
58%
PI Industries
16.1%
16.2%
16.5%
15.9%
18.2%
PI Industries
5,425
7,200
8,791 11,514 15,955
31%
Rallis
18.5%
18.2%
15.9%
14.4%
15.1%
Rallis
9,005 10,934 12,749 14,582 17,466
18%
Median
5,425
7,200
8,791 11,514 15,955
18%
Median
14.4%
16.0%
15.1%
14.4%
15.1%
Sharda Cropchem
3,518
4,418
6,135
22%
18.2%
20.0%
18.0%
18.6%
7,777
7,819
Sharda
17.6%
Cropchem
Source: Company data
With healthy EBITDA margins and an asset-light model, the company also has been
generating good RoCEs of ~20%. In addition, it has been witnessing improvement in
working capital, leading to a good amount of cash conversion of 90%, ahead of the
industry median of 83%.
Exhibit 28: RoCE (post-tax) for Sharda is at the top end of its
peers given its asset-light model and healthy operating
margins
Exhibit 29: Sharda has demonstrated good cash flow

conversion (pre-tax CFO: EBITDA)
Company/Metric
Company/Metric
FY10
FY11
FY12
FY13
FY14
Bayer
25.7%
19.3%
22.1%
19.6%
15.9%
Dhanuka
25.0%
22.6%
22.2%
22.0%
25.1%
Insecticides India
23.3%
19.8%
16.3%
13.0%
13.1%
Kaveri Seeds
16.8%
24.2%
25.4%
39.8%
43.1%
PI Industries
16.9%
19.5%
17.6%
16.2%
23.9%
Rallis
24.9%
26.2%
20.3%
20.3%
21.6%
Median
24.9%
Sharda
10.3%
Cropchem
19.8%
20.3%
19.6%
21.6%
13.8%
19.1%
18.6%
19.5%
FY14
5 year
Average
71.5%
72.5% 105.4%
82.5%
91.0%
73.0%
46.0%
52.0%
4.3% 109.6% -47.8%
13.5%
56.3%
27.4%
61.2% 100.4% 152.1%
78.7%
86.0%
95.7%
FY10
FY11
FY12
Bayer
70.6%
79.7%
Dhanuka
48.0%
2.0%
Insecticides India
Kaveri Seeds
FY13
PI Industries
114.2%
33.4% 101.6%
76.7% 100.7%
87.4%
Rallis
169.1%
79.8%
66.5%
85.8%
89.0%
95.0%
Median
70.6%
79.7%
71.5%
73.0%
89.0%
82.5%
Sharda
93.8%
70.1%
52.3%
85.2% 134.6%
89.7%
Exhibit 30: Indian peers Dupont analysis good asset turnover and better margins driving higher ROCEs
Company/metric
United Phosphorus
(Cons)
PI Industries
RoE (%)
PAT margin (%)
Asset turnover (x)
Financial leverage (x)
FY12
FY13
FY14
FY12
FY13
FY14
FY12
FY13
FY14
FY12
FY13
FY14
15%
18%
19%
7%
8%
9%
1.1
1.1
1.3
1.9
1.9
1.6
29%
23%
31%
9%
9%
12%
1.6
1.7
1.9
1.6
1.2
Rallis India
19%
20%
23%
8%
8%
9%
2.2
2.2
1.2
1.2
1.1
Dhanuka Agritech
30%
27%
31%
11%
11%
13%
2.2
2.1
2.3
1.3
1.2
1.1
Bayer CropScience
19%
21%
16%
6%
11%
9%
2.9
2.0
1.7
1.1
1.0
1.0
24%
23%
24%
8%
10%
10%
2.2
2.0
1.9
1.4
1.2
1.2
19%
20%
21%
11%
11%
14%
1.7
1.8
1.6
1.0
1.0
1.0
Peer group average

(ex Sharda)
Sharda Cropchem
Source: Company data, Bloomberg
January 16, 2015
Page 15
Sharda Cropchem
Working capital is stretched but improving!
The companys debtor period of six months is balanced by creditor days of three
months. In addition, inventory days are at ~40 days. Over the last four years, the
cash conversion cycle has come down from 145 days to 129 days.
Exhibit 31: Working capital days Debtor days are significantly higher but inventory days are lower
Average Debtor
days
FY11 FY12 FY13 FY14
Average Inventory
days
FY11 FY12 FY13 FY14
Bayer
43
45
40
42
70
78
Dhanuka
87
100
95
79
94
97
Insecticides India
58
59
61
52
99
115
Kaveri Seeds
60
32
25
14
229
229
PI Industries
71
72
69
59
62
Rallis
31
31
34
35
69
Average creditor
days
FY11 FY12 FY13 FY14
61
59
94
93
35
127
113
97
204
180
203
66
67
64
65
73
68
55
Average cash conversion

cycle
FY11 FY12 FY13 FY14
32
28
54
68
78
75
37
31
23
146
160
158
149
101
100
97
60
73
87
68
230
209
178
86
31
20
16
70
68
75
82
62
71
61
41
63
101
98
86
77
-5
17
22
Median
58
59
61
52
70
78
69
64
70
68
75
77
60
71
78
68
Sharda
191
171
166
182
39
48
46
41
86
87
86
93
145
132
125
129
Source: Company
The companys auditors are E&Y which is a highly reputed firm. However, some of
the entities are audited by local auditors.
Exhibit 32: Dependent and independent directors
Dependent
Independent
Bayer
Price Waterhouse
Rallis
Deloitte Haskins & Sells LLP
PI Industries
SS Kothari Mehta & Co
Dhanuka
Dinesh Mehta & Co
Insecticides India
Mohit Parekh & Co
Kaveri Seeds
P.R.Reddy & Co
5*
S. R. Batliboi (E&Y)
Sharda Cropchem
Auditors
Source: Ambit Capital research. Note: * Includes one nominee director from HEP Mauritius.
Management remuneration as a percentage of PBT is fairly low.

Exhibit 33: Managerial remuneration as a percentage of PBT - Comparison with peers
10.1%
2.4%
3.1%
3.2%
3.4%
Insecticides
India
Sharda
PI Industries
1.3%
Rallis
Bayer
Dhanuka
Source: Company
Exhibit 34: Promoter salary (in ` mn) Conservative and in line with peers
Salary
Commission
Total
R.V. Bubna
9.8
8.8
18.6
Sharda Bubna
1.9
Nil
1.9
Anish Bubna
7.6
5.9
13.5
Manish Bubna
7.6
5.9
13.5
26.9
20.6
Total
PBT
1,484
47.5
3.2%
Source: Company filings
January 16, 2015
Page 16
Sharda Cropchem
Contingent liabilities
In terms of contingent liabilities, we do not find anything other than service tax of
`79mn to be materially alarming.
Exhibit 35: Contingent liabilities (` mn)
Head
Charges
Service Tax
Others
Source: Company
79
3
Depreciation policy - Registrations amortised in five

years
The company capitalises registration and broadly has registrations in fixed assets. The
companys policy is to amortise everything over a period of five years. It had a lot of
molecules that were capitalised during FY09 and FY10 which have actually been
completely amortised by FY14. As a result, depreciation charges have been gradually
falling. They are likely to pick up gradually once a new wave of registration enters
fixed assets.
Exhibit 36: Depreciation rates (` mn)
Depreciation and Amortization
Net Assets
% of Net Intangible Assets
1,200
70%
1,000
60%
50%
800
40%
600
30%
400
20%
200
10%
0%
FY10
FY11
FY12
FY13
FY14
Source: Company
January 16, 2015
Page 17
Sharda Cropchem
Relative valuations At a significant discount

Sharda is currently trading at 13x, at a 30% discount to the peer median. We
recognise the scalability concerns on Shardas business model. Whilst future
performance could alleviate these concerns, execution is the key and the same has
been good so far. Given a healthy operating performance, strong RoCEs and absence
of any significant accounting and promoter-related issues, we believe these discounts
can narrow.
Exhibit 37: Comparative valuation sheet
Company
Name
Market ADVT
P/E
P/B
EV/EBITDA
ROE
CAGR (FY14-FY16)
Cap
- 6m
(USD
(USD FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E Sales EBITDA
EPS
mn)
mn)
Global Agri Majors

Monsanto
Dow
Chemicals
FMC Corp
56,791
7.2
20.0
17.3
15.0
7.1
6.5
5.2
12.2
11.1
9.9
36.5
41.8
42.6
5.1%
51,185
7.7
14.7
13.6
11.4
2.0
1.9
1.8
7.7
7.8
6.9
14.5
16.4
18.2
2.1%
13.4% -2.7%
7,852
1.3
15.1
13.9
12.2
4.6
3.6
3.0
10.5
9.5
8.8
32.5
28.1
24.7
6.8%
11.4% 30.3%
Syngenta
31,721
1.4
16.1
14.6
13.1
2.8
2.6
2.4
12.5
11.5
10.4
16.9
18.2
19.0
3.6%
6.0%
Bayer AG
112,602
3.8
19.3
16.9
14.9
4.4
4.0
3.6
11.7
10.4
9.5
21.8
22.4
23.4
6.0%
5.7% 27.1%
75,565
3.8
12.8
12.5
11.4
2.3
2.2
2.0
7.7
7.5
7.0
17.9
17.3
17.9 -1.6%
1.2
27.9
21.5
17.0
8.0
6.2
4.8
19.3
15.0
11.8
30.0
30.4
29.8 20.4%
25.2% 26.8%
Rallis India
687
1.5
Bayer
2,157
1.2
CropScience
UPL Ltd
2,503 10.0
Dhanuka
422
0.4
Agritech
Insecticides
183
0.9
India
Excel Crop
203
0.3
Care
Domestic Seeds Players
24.2
18.4
15.0
5.1
4.3
3.6
14.1
11.1
9.1
22.8
25.8
26.8 15.1%
18.9% 22.9%
36.0
30.4
23.5
6.4
5.3
4.4
24.2
20.4
16.3
18.7
16.2
10.3 18.1%
23.4% 26.3%
13.2
11.2
9.8
2.5
2.1
1.8
7.9
7.1
6.4
19.9
19.8
19.3 11.0%
11.1% 17.7%
24.1
19.3
16.1
6.3
5.1
4.0
18.0
14.2
11.6
28.4
28.4
28.0 19.3%
23.1% 21.6%
19.0
13.3
9.8
3.7
3.0
2.3
12.7
9.8
7.9
21.8
25.2
26.9 19.4%
30.0% 43.2%
12.9
10.9
DNA
3.6
3.0
DNA
8.5
7.3
DNA
27.8
27.4
DNA
Kaveri Seeds
859
2.5
17.5 14.1
11.3
7.0
5.0
3.6
16.7
Monsanto
898
2.7
36.0 28.2
24.4
11.5
9.0
9.3
31.4
India
Source: Company, Ambit Capital research, Consensus; Note: DNA= Data Not Available
13.6
11.0
46.7
40.5
36.6 21.6%
28.4% 31.3%
25.0
22.0
37.3
38.6
41.9 15.7%
18.6% 23.0%
BASF
9.3%
3.9%
9.8%
9.1%
5.4%
Domestic Agro Chemical Players

PI Industries
1,154
January 16, 2015
DNA
DNA
DNA
Page 18
Sharda Cropchem
Comparison with global generic players

We compare Sharda with other global generic players. We find that company has
been able to sustain better gross margins primarily driven by efficient sourcing from
Chinese manufacturers. The companys operating expenses too are lower than its
global generic peers.
Exhibit 38: Global generic peer comparison - Note that Sharda commands much better margins and RoCEs along with its
strong growth profile; Sharda broadly trades in line with its global peers despite much better RoCEs and better growth
profile; we expect Sharda to trade at a premium vs its global peers
Market cap Gross Margin (%)
FY12
Operating
Expenses (%)
EBITDA Margin (%)
FY13 FY14
FY12
FY13
PAT Margin (%)
ROCE
FY14 FY12 FY13 FY14 FY12 FY13 FY14
FY12
FY13
FY14
Nufarm
1,043
28
27
25
10
10
18
17
16
6.1
5.8
3.7
Chemtura
2,151
26
27
23
13
14
10
13
13
13
-8
7.0
6.1
NA
Cheminova*
1,260
27
30
30
11
12
18
19
18
(1.2)
9.3
14.0
FMC
7,592
35
37
35
21
22
20
14
15
15
11
12
23.1
22.2
19.3
NA
31
32
32
14
15
15
17
17
17
8.5
8.9
8.6
NA
35
34
35
27
26
26
Loss
Loss
Loss
4.6
6.5
9.1
378
32
30
34
20
18
19
12
12
15
11
11
14
19.1
18.6
19.5
Adama
Arysta
Sharda Cropchem
Source: Company. Acquired by FMC recently.
Exhibit 39: Working Capital Cycle Receivable days are stretched!!

Inventory Days
Receivable Days
Payable Days
Cash Conversion Cycle
FY12
FY13
FY14
FY12
FY13
FY14
FY12
FY13
FY14
FY12
FY13
FY14
131
123
145
115
105
108
93
102
93
153
127
160
Nufarm
Chemtura
Cheminova
FMC
93
97
86
62
62
58
33
35
34
97
123
110
139
130
130
134
125
113
86
88
96
187
168
147
68
95
96
96
108
120
66
68
62
98
134
154
201
217
213
77
95
110
97
97
108
180
215
214
54
57
185
181
100
96
139
142
UPL
145
Sharda
61
Cropchem
131
113
94
102
100
72
84
91
167
149
122
44
38
194
178
187
104
91
96
151
131
129
Adama
Arysta
Exhibit 40: Cash conversion (Data in local currency) One of the better ones given improvement in working capital
EBITDA
CFO
CFO/EBITDA
Cumulative
FY12
FY13
FY14
FY12
FY13
FY14
FY12
FY13
FY14
CFO/EBITDA
Nufarm
213
238
232
195
77
313
0.91
0.32
1.35
0.86
Chemtura
336
318
221
182
218
79
0.54
0.69
0.36
0.55
Cheminova
495
672
821
270
630
639
0.55
0.94
0.78
0.77
FMC
714
755
786
429
419
482
0.60
0.55
0.61
0.59
Adama
381
430
466
328
79
392
0.86
0.18
0.84
0.63
133,148
74,680
101,651
100,051
0.76
1.34
0.97
14,067
16,733
20,484
(451)
14,281
10,754
(0.03)
0.85
0.52
0.48
1,225
1,400
1,458
641
1,192
1,963
0.52
0.85
1.35
0.93
Arysta
UPL
Sharda Cropchem
January 16, 2015
Page 19
Sharda Cropchem
Exhibit 41: Global generic agrochemical peers dupont analysis good asset turnover and better margins driving higher
ROCEs
Company/metric
RoE (%)
PAT margin (%)
Asset turnover (x)
Financial leverage (x)
FY12
FY13
FY14
FY12
FY13
FY14
FY12
FY13
FY14
FY12
FY13
FY14
15%
18%
19%
7%
8%
9%
1.1
1.1
1.3
1.9
1.9
1.6
19%
20%
21%
11%
11%
14%
1.7
1.8
1.6
1.0
1.0
1.0
Nufarm
-4%
5%
5%
-2%
3%
4%
0.7
0.8
0.7
2.1
2.2
2.3
Chemtura
12%
10%
-17%
5%
5%
-8%
0.9
0.7
0.8
2.9
2.8
2.8
Cheminova
-1%
6%
14%
0%
2%
4%
1.0
1.0
1.0
3.0
3.2
3.0
Adama
10%
10%
9%
4%
4%
4%
1.2
1.2
1.1
1.8
2.0
2.1
FMC
31%
31%
20%
11%
12%
8%
1.0
0.8
0.8
3.0
3.0
3.2
Arysta
DNA
-35%
-28%
DNA
-10%
-6%
DNA
0.7
0.8
DNA
5.0
7.8
United Phosphorus
(Cons)
Sharda Cropchem
Exhibit 42: Given its size, Sharda will grow faster than its peers
Mcap
(US$ mn)
CAGR (FY10-FY14)
CAGR (FY14-FY17)
P/E
Sales
EBITDA
PAT
Sales
EBITDA
PAT
FY15
FY16
FY17
Nufarm
1,043
5%
5%
NM
4%
17%
55%
12.7
10.7
9.7
Chemtura
2,151
-3%
32%
-12%
-2%
11%
-278%
30.2
21.0
13.3
Cheminova
1,260
5%
45%
NM
8%
17%
30%
23.5
15.7
12.2
FMC
7,592
8%
14%
6%
6%
11%
30%
14.6
13.3
11.8
Adama*
IPO Filed
9%
27%
38%
DNA
DNA
DNA
DNA
DNA
DNA
Arysta*
IPO Filed
6%
28%
NM
DNA
DNA
DNA
DNA
DNA
DNA
10.6%
17.1%
12.0
10.3
9.1
26%
24%
16.3
13.5
11.2
UPL
Sharda Cropchem
2,250
19%
22%
26%
10.7%
378
22%
24%
39%
25%
Source: Company. Adama and Arysta IPO has been filed but listing is pending.
January 16, 2015
Page 20
Sharda Cropchem
Key risks
Adverse currency exposure
The company is exposed to various currencies through its operations across Latin
America, NAFTA, and Europe. Significant currency depreciation in many of the
emerging countries such as Latin America may pose significant risks to the companys
reported profits. Imports from China in USD act as a natural hedge for its revenues in
other countries. The significant amount of receivables also poses devaluation risks in
case of adverse currency movements. The management noted that it partially takes
covers for such forex risks and relies on natural hedge for other exposures.
Challenges of managing expansion
Till now the promoters have been able to exercise significant control over the
companys operations across various regions. The promoters are one of the key
drivers for significant cost control company commands vs other peers. With its
growing size, the company may have to rely on its managers for such controls. In
addition, expansion into new regions will expose the company to new risks such as
credit risks from new distributors and geopolitical risks.
Manufacturing advantages from China may fade away
The company relies on Chinese manufacturers for most of its sourcing needs. There
are challenges related to RMB appreciation, rising labour costs, and rising costs of
environmental compliance which could significantly impact the competitiveness of
Chinese manufacturers. The management believes it is still able to source
competitively from China and most of its suppliers were already facing costs related
to environmental compliance.
Key litigations as in the DRHP
Most of the key litigations against the company are: (1) direct and indirect tax cases
against Sharda Cropchem most of these cases have very limited liabilities; (2)
cheque dishonour cases against Mr. R V Bubna when he was a director at Piramal
Financial Services `40mn in size.
January 16, 2015
Page 21
Sharda Cropchem
History of European registration

We believe one of the biggest competitive advantages for Sharda has been
generated from its ability to capitalise on Directive 91/414/EEC over the 2000-2010
decade. With the help of in-house consultants and financial investments from private
equity players, Sharda transferred existing registrations with certain dealers to its
name. The company also took fresh registrations during this window period.
Directive 91/414/EEC
Before the 1990s, individual member states were responsible for approving pesticides
in their own countries. Directive 91/414/EEC was implemented in 1993 to harmonise
the approvals process across the EU. Any active substance had to meet specific
criteria on safety and efficacy before it could be placed onto the European market.
Prior to Directive 91/414/EEC there were around 1,000 active substances authorised
in at least one Member State. All existing approved substances had to be re-approved
under the new Directive. This resulted in around only 230 pesticides having approval
in the EU by 2009.
Updated Legislation Regulation EC 1107/2009
This replaces Directive 91/414/EEC and came into force in June 2011. It has more
stringent requirements for active substance approval (see below).
Active substances will not be approved (or re-approved) under 1107/2009 if they are
classified as having the following properties:
Mutagenic
Carcinogenic or have reproductive toxicity (unless the exposure is negligible)
Endocrine Disruptors which cause adverse effects (see below for more details)
Persistent Organic Pollutants (PoPs)
Persistent Bio-accumulative and Toxic (PBT)
Very Persistent/very Bio-accumulative (vPvB)
These are known as the cut-off criteria. There is a derogation allowing pesticides to
be approved for five years in exceptional circumstances, even if they fall within the
above criteria, if they are necessary to control a serious danger to plant health that
cannot be contained within other means.
January 16, 2015
Page 22
Sharda Cropchem
P&L Summary (` mn)
FY10
FY11
FY12
FY13
FY14
Total revenue
3,559
4,494
6,201
7,926
8,147
Gross Profit
1,068
1,325
1,942
2,334
2,679
30.3%
30.0%
31.7%
30.0%
34.3%
Income:
Gross Profit (%)

Employee benefits expense
Employee expenses (%)
Other expenses
52
84
109
136
181
1.5%
1.9%
1.8%
1.7%
2.3%
396
435
608
799
1,039
Other expenses (%, LHS)
11.3%
9.8%
9.9%
10.3%
13.3%
Total expenses
3,207
3,985
5,339
6,748
6,664
EBITDA
EBITDA Margin (%)
Depreciation and amortisation expense
619
806
1,225
1,400
1,458
17.6%
18.2%
20.0%
18.0%
18.6%
306
371
427
367
289
Finance costs
14
Other income
41
76
66
149
328
63
94
178
334
415
289
414
685
843
1,069
'Total tax expense

PAT
Minority Interest
PAT after MI
(3)
(0)
289
414
687
844
1,069
January 16, 2015
Page 23
Sharda Cropchem
Balance Sheet Summary (` mn)
Share Holders Funds
(a)
Equity
share capital
180
180
902
902
902
(b) Reserves and Surplus
2,615
3,015
3,027
3,766
4,655
Total of Shareholder funds
2,795
3,196
3,929
4,668
5,557
59
43
51
90
102
59
43
52
90
104
22
24
34
459
399
Trade payables
907
1,171
1,745
1,932
2,049
Other current liabilities
403
428
472
708
755
Non-current liabilities
Deferred
tax liabilities (Net)
Long
Term Provisions
Total
of
Non- current liabilities
Current liabilities
Short-term borrowings
Short-term provisions
33
106
106
277
Total of Current liabilities
1,337
1,656
2,356
3,205
3,480
Total Equity and Liabilities
4,191
4,895
6,337
7,964
9,142
Fixed assets:
Goodwill
on consolidation
Tangible assets
Intangible assets
Intangible assets under development
Fixed Assets
11
13
14
14
19
1,059
863
567
628
619
181
335
631
884
1,335
1,251
1,211
1,211
1,526
1,975
(b) Non-current investments
40
41
40
48
53
(c) Long-term loans and advances
27
27
80
138
205
(d) Other
90
26
29
74
80
1,408
1,305
1,360
1,786
2,313
173
255
324
923
1,692
non- current assets
Total non-current assets

Current assets
Current investments
Inventories
376
579
1,020
929
808
2,149
2,484
3,266
3,788
4,002
Cash and bank balances
68
233
297
357
216
Short-term loans and advances
Trade receivables
15
35
67
159
87
Other current assets
22
24
Total current assets
2,783
3,590
4,978
6,178
6,829
Total Assets
4,191
4,895
6,337
7,964
9,142
Based on Average
Inventory Days
Receivable Days
Payable Days
39
48
46
41
191
171
166
182
86
87
86
93
January 16, 2015
Page 24
Sharda Cropchem
Cash Flow Summary (` mn)
Particulars
FY10
FY11
FY12
FY13
FY14
353
508
862
1,178
1,484
306
371
427
367
289
CASH FLOW FROM/(USED IN) OPERATING ACTIVITIES

Profit before taxation (as restated)
Non-cash adjustments to reconcile profit before tax to net
cash flows
Depreciation and amortisation expense
Net gain on sale of non- current investments
Unrealised foreign exchange (gain)/loss (Net)
Finance costs
Interest income
(10)
104
(26)
20
66
94
14
(5)
(3)
(3)
(4)
(8)
Dividend income
(17)
(9)
(16)
(19)
(7)
Operating profit before WC changes
739
838
1,289
1,583
1,786
(21)
(53)
(58)
(67)
trade receivables
(212)
(310)
(662)
(657)
(79)
inventories
(161)
(204)
(425)
91
233
short-term loans and advances
(1)
(20)
(28)
(93)
125
other current assets
(1)
(2)
(3)
214
268
460
219
(147)
other current liabilities
(4)
13
48
48
in short-term provisions
21
(2)
46
60
64
Movements in Working Capital

long-term loans and advances
trade payables
in long-term provisions
Change in working capital
Cash flow from operations
(0)
(158)
(273)
(648)
(390)
176
581
565
641
1,192
1,963
Direct taxes paid (Net of refunds)
(82)
(80)
(248)
(354)
(402)
Operating Cash Flows
499
485
393
838
1,560
59
(507)
(300)
(420)
(489)
(855)
198
(70)
(41)
(565)
(696)
63
(2)
(72)
29
(280)
(303)
(2)
(2)
Cash Flow from Investments

Proceeds from sale of non-current investments
Purchase of fixed assets, including intangible assets
(Purchases)/Proceeds from sale of Current Investments (Net)
Redemption/(investment) in bank deposits
Net cash generated from/(used in) investing activities
(473) (1,125) (1,505)
Cash Flow from Financing Activities

Finance costs paid
(1)
(4)
(14)
Dividend paid on equity shares
(90)
(90)
Tax on equity dividend paid
(15)
(15)
short-term borrowings (Net)
(115)
(3)
426
(100)
Net cash generated from/(used in) financing activities

Exchange Difference arising on conversion debited to Foreign
Currency Translation Reserve
Net change in cash
(117)
(0)
(4)
317
(219)
(97)
(16)
145
28
Beginning cash
Effect of exchange differences
165
62
30
(135)
61
67
230
296
325
(1)
(1)
(1)
67
230
296
325
216
Cash and Cash Equivalent taken over on acquisition

Total Cash and Cash Equivalent at the end of the year
28
Source: Company
January 16, 2015
Page 25
Sharda Cropchem
Valuation parameter summary
EPS
Book Value per share
P/E
P/BV
EV/EBITDA
EV/EBIT
EV/Sales
FY10
FY11
FY12
FY13
FY14
3.22
31.1
80.0
8.3
37.1
73.4
6.5
4.6
35.5
56.0
7.3
28.2
52.3
5.1
7.63
43.7
33.8
5.9
18.5
28.3
3.7
9.37
51.9
27.5
5.0
15.7
21.3
2.8
11.88
61.8
21.7
4.2
14.6
18.2
2.7
Source: Company
Ratio analysis
FY10
FY11
FY12
FY13
FY14
Net Profit margin
8.2%
9.4%
11.2%
10.9%
13.7%
Net Debt to Equity
(0.1)
(0.1)
(0.1)
(0.2)
(0.3)
ROCE (Post Tax) %
10.3%
13.8%
19.1%
18.6%
19.5%
RoIC (%)
10.0%
13.0%
19.0%
19.2%
20.8%
8.9%
9.8%
13.0%
13.2%
14.8%
PBT Margin
Source: Company
January 16, 2015
Page 26
Sharda Cropchem
Institutional Equities Team

Saurabh Mukherjea, CFA
CEO, Institutional Equities
(022) 30433174
saurabhmukherjea@ambitcapital.com
Research
Analysts
Industry Sectors
Desk-Phone E-mail
Nitin Bhasin - Head of Research
E&C / Infra / Cement / Industrials
(022) 30433241
nitinbhasin@ambitcapital.com
Aadesh Mehta, CFA
Banking / Financial Services
(022) 30433239
aadeshmehta@ambitcapital.com
Achint Bhagat
Cement / Infrastructure
(022) 30433178
achintbhagat@ambitcapital.com
Aditya Bagul
Consumer
(022) 30433264
adityabagul@ambitcapital.com
Aditya Khemka
Healthcare
(022) 30433272
adityakhemka@ambitcapital.com
Ashvin Shetty, CFA
Automobile
(022) 30433285
ashvinshetty@ambitcapital.com
Bhargav Buddhadev
Power Utilities / Capital Goods
(022) 30433252
bhargavbuddhadev@ambitcapital.com
Dayanand Mittal, CFA
Oil & Gas / Metals & Mining
(022) 30433202
dayanandmittal@ambitcapital.com
Deepesh Agarwal
Power Utilities / Capital Goods
(022) 30433275
deepeshagarwal@ambitcapital.com
Gaurav Mehta, CFA
Strategy / Derivatives Research
(022) 30433255
gauravmehta@ambitcapital.com
Karan Khanna
Strategy
(022) 30433251
karankhanna@ambitcapital.com
Krishnan ASV
Real Estate
(022) 30433205
vkrishnan@ambitcapital.com
Pankaj Agarwal, CFA
(022) 30433206
pankajagarwal@ambitcapital.com
Paresh Dave, CFA
Healthcare
(022) 30433212
pareshdave@ambitcapital.com
Parita Ashar
Metals & Mining / Oil & Gas
(022) 30433223
paritaashar@ambitcapital.com
Rakshit Ranjan, CFA
Consumer / Retail
(022) 30433201
rakshitranjan@ambitcapital.com
Ravi Singh
(022) 30433181
ravisingh@ambitcapital.com
Ritesh Gupta, CFA
Midcaps Chemical / Retail
(022) 30433242
riteshgupta@ambitcapital.com
Ritesh Vaidya
Consumer
(022) 30433246
riteshvaidya@ambitcapital.com
Ritika Mankar Mukherjee, CFA
Economy / Strategy
(022) 30433175
ritikamankar@ambitcapital.com
Ritu Modi
Automobile
(022) 30433292
ritumodi@ambitcapital.com
Sagar Rastogi
Technology
(022) 30433291
sagarrastogi@ambitcapital.com
Sumit Shekhar
Economy / Strategy
(022) 30433229
sumitshekhar@ambitcapital.com
Sandeep Gupta
Media / Midcaps
(022) 30433211
sandeepgupta@ambitcapital.com
Tanuj Mukhija, CFA
E&C / Infra / Industrials
(022) 30433203
tanujmukhija@ambitcapital.com
Utsav Mehta
Technology
(022) 30433209
utsavmehta@ambitcapital.com
Sales
Name
Regions
Desk-Phone E-mail
Sarojini Ramachandran - Head of Sales
UK
Deepak Sawhney
India / Asia
(022) 30433295
deepaksawhney@ambitcapital.com
Dharmen Shah
India / Asia
(022) 30433289
dharmenshah@ambitcapital.com
Dipti Mehta
India / USA
(022) 30433053
diptimehta@ambitcapital.com
Hitakshi Mehra
India
(022) 30433204
hitakshimehra@ambitcapital.com
Nityam Shah, CFA
USA / Europe
(022) 30433259
nityamshah@ambitcapital.com
Parees Purohit, CFA
UK / USA
(022) 30433169
pareespurohit@ambitcapital.com
Praveena Pattabiraman
India / Asia
(022) 30433268
praveenapattabiraman@ambitcapital.com
Sajid Merchant
Production
(022) 30433247
sajidmerchant@ambitcapital.com
Sharoz G Hussain
Production
(022) 30433183
sharozghussain@ambitcapital.com
Joel Pereira
Editor
(022) 30433284
joelpereira@ambitcapital.com
Nikhil Pillai
Database
(022) 30433265
nikhilpillai@ambitcapital.com
+44 (0) 20 7614 8374
sarojini@panmure.com
Production
E&C = Engineering & Construction
January 16, 2015
Page 27
Sharda Cropchem
Sharda Cropchem (SHCR IN, NOT RATED) - Stock price performance
350
300
250
200
150
100
50
Jan-15
Jan-15
Dec-14
Dec-14
Dec-14
Dec-14
Dec-14
Nov-14
Nov-14
Nov-14
Nov-14
Oct-14
Oct-14
Oct-14
Oct-14
Sep-14
Sep-14
SHARDA CROPCHEM LTD

Source: Bloomberg, Ambit Capital research
January 16, 2015
Page 28
Sharda Cropchem
Explanation of Investment Rating
Investment Rating
Expected return (over 12-month)
BUY
>5%
SELL
<5%
NO STANCE
We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation
UNDER REVIEW
We will revisit our recommendation, valuation and estimates on the stock following recent events
NOT RATED
We do not have any forward looking estimates, valuation or recommendation for the stock
Disclaimer
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January 16, 2015

Effectively capturing the global wave

Registration gains for large value

Sales growth delivery of above 20%

Competitive position: MODERATE Changes to this position: UNCHANGED

Good capital allocation and cost control

Source: Bloomberg, Ambit Capital research

Healthy return ratios driven by profitability and low asset base

Source: Company, Ambit Capital research

Quality execution on acquiring registrations

Exhibit 2: Sharda's business breakup as of FY14

Source: Company, Ambit Capital research

Source: Company, Ambit Capital research

Exhibit 3: Shardas operations summary

Third-party manufacturer in China

Conducting tests for registration

Third-party manufacturer in China

Third party in respective country

Third-party manufacturer in China

Third party and direct sales

Third party and direct sales

Third party and direct sales

Tebuconazole, Quizalofop, Diquat,

2,4-D Acid, Paraquat, Imidacloprid,

Third-party manufacturer in China

Seasonality: 4Q is the strongest quarter

January 16, 2015

Ambit Capital Pvt. Ltd.

Evolution of the company

Ramprakash V. Bubna, CMD

Ashish R. Bubna, Executive Director

Manish R. Bubna, Executive Director

B.Tech (Chemical Engineering) from IIT Bombay.

Exhibit 5: Board of Directors Good quality board

B.Com from University of Mumbai

Former CMD of Indian Bank

MD of Exponentia Capital Partners LLP & worked earlier with CVCI

January 16, 2015

Ambit Capital Pvt. Ltd.

Europe business (50% of revenues): On a solid footing driven by registrationrelated barriers

Top-five molecules comprising,

NAFTA business (16% of revenues) Trying to get a foot in the door

Strong portfolio of over 1,200 registrations across key markets of

Limited development capabilities hinder product innovation on

Europe, NAFTA, and Latin America

formulation and combination product development

Lack of direct marketing to farmers may impact brand building in the

Strong execution capabilities demonstrated by the management

Long working capital cycle

Share of generics is on a rise globally; low-cost generic players are

Adverse forex movements given high amount of receivables

gaining market share

Expansion into Brazil and Latin American markets

Source: Company, Ambit Capital research

January 16, 2015

Ambit Capital Pvt. Ltd.

Primary checks Clean chit

January 16, 2015

Ambit Capital Pvt. Ltd.

Global agrochemical market growing at a

Exhibit 8: World crop protection market (US$ bn)

Source: Phillips McDougall, Company