Sharda Cropchem Q1 Results Review - Subdued; Near Term Outlook Bleak: Prabhudas Lilladher
Volume/price decline of 11%/18% YoY; forex up 6.5% YoY in Q1 FY24.
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Prabhudas Lilladher Report
We trim our FY24/25E estimates of Sharda Cropchem Ltd. by 27%/16% and downgrade the rating to ‘Accumulate’ (earlier 'Buy') citing near term pressure on both revenues and margins, led by adverse weather conditions in key geographies and high inventory concerns both at manufacturer and distributor levels which in turn exerts pressure on revenue growth and margins.
Sharda Cropchem reported subdued set of results with revenue decline of 23% YoY to Rs 6.3 billion (our estimate: Rs 8.0 billion), led by volume/price de-growth of 11%/18%YoY partially aided by positive forex variance of 6.5% YoY.
Gross margins contracted 1670 basis points YoY to 8.7% (lowest in the last 10 years), largely led by-
high cost inventory provisions of Rs 710 million;
higher sales return of Rs 1.35 billion; and
acute pressure on price realizations particularly in the NAFTA region.
Lower gross margin coupled with higher opex up 530 bps YoY has resulted into an Ebitda loss of Rs 688 million (including IU&AD write-off of Rs 27 million in Q1 FY24 versus Rs 29 million in Q1 FY23).
Citing cautious near term growth outlook, management has revised downward their FY24E revenue growth guidance to 8-10% (earlier ~15%) thereby putting pressure on margins (Ebitda margins guided earlier at 18-20% for FY24E).
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