Dharmaj Crop Guard IPO

Published by Sharekhan Education | November 28, 2022

Dharmaj Crop Guard IPO has an issue size of Rs.251 crores with a price band of Rs.216-237. Issue opens on 28th Nov 2022 and closes on 30th Nov 2022.

Company Overview:

Dharmaj Crop Guard is engaged in the manufacturing, distribution, and marketing of a wide range of agrochemical formulations. The product range includes insecticides, fungicides, herbicides, plant growth regulators, micro fertilizers, and antibiotics for its B2C and B2B customers.

It also provides crop protection solutions to farmers. 4200+ distributors in 17 states with 16 stock depots enable the company to have a deep geographic reach. Moreover, the exports business is supported by a strong international presence in more than 25 countries in Latin America, East Africa, the Middle East, and Far East Asia. Additionally, the company holds 157 trademark registrations, which also include branded products.

Objectives of Dharmaj Crop IPO:

 The IPO consists of a fresh issue of equity shares aggregating to Rs. 216 crores, and an offer for sale (OFS) of up to Rs. 35 crores by existing shareholders.
The company will use the proceeds from the fresh issue to fund working capital requirements, capital expenditure for setting up a manufacturing facility at Bharuch, and repay a portion of the existing borrowings. Investors need to apply for a minimum of 60 shares and in multiples thereafter. After allotment, both NSE and BSE will list the shares.

Industry Overview:

Pesticides or agrochemicals play a crucial role in improving the yield of crops. Moreover, India, being the 4th largest global producer of agrochemicals, has also emerged as the 13th largest exporter of pesticides globally. Additionally, the output of pesticides in India has shown substantial growth at a CAGR of 8.7%, increasing from 213k tonnes in 2017-18 to 295k tonnes in 2021-22. Consequently, the pesticides industry is estimated to continue experiencing upward momentum going forward.

The penetration of agrochemicals in India is low leading to an opportunity for growth for agrochemical producers.

Furthermore, the Government’s aim to reduce dependency on China and improve self-sufficiency is estimated to support the industry’s backward integration.

Competitive Strengths: 

The company has a niche portfolio of agrochemical products which range from insecticides to antibiotics. Its continued engagement with the dealers and wide reach to the farmers has helped them to identify new product opportunities from time to time. Its B2B customers include companies like Atul Limited and Heranba Industries. The institutional business allows economies of scale, diversifies the customer base, and provides a buffer against seasonal fluctuations. It has built many strong brands by leveraging the strength of marketing and distribution networks.

Key Concerns: 

The company is subject to strict technical specifications, regular inspections, and audits by the government and its customers. Any deviation will lead to a negative impact on their business performance. Emerging threats to their business include new-age farming trends such as organic farming, pest-resistant seeds, and genetically modified seeds. The nature of the business is cyclical as it is subject to seasonal variations and climatic conditions.

Financials:

The company has seen a robust 26% CAGR rise in revenues between FY20-22 and a growth of 39% in the bottom line over the same period. EBITDA margins have shown an improvement from 9.4% in FY20 to 11.7% in FY22. The debt-to-equity ratio is 0.5x as on 31st March 2022. At the higher end of the price band, the IPO prices the PE ratio at ~14.6 times FY23 annualized EPS. This is lower than peers such as Rallis (28.6 times), India Pesticides (18.7 times), and Bharat Rasayan (24.4 times).

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