Sharda Cropchem, a company known for marketing and distributing agrochemical products, had a positive start in the first quarter of the current financial year. While the company’s performance improved, this was largely due to a low base from last year. The firm, however, may continue facing some hurdles in the future, much like the ones it experienced last year.
Previous Year’s Struggles and Current Growth Trends
During FY24, Sharda Cropchem encountered several obstacles, including weak export demand, inventory buildup, and sharp price declines for many generic molecules. Revenue from its non-agrochemical segment also dropped by 35%, mainly due to logistical challenges and increased freight costs amid the Red Sea crisis.
Despite these issues, the company saw some improvement this year, primarily by focusing on a strategic product mix and the liquidation of high-cost inventory. However, it’s essential to note that much of its recent growth can be attributed to the low base effect from the previous year. The real question is whether the company can maintain this momentum going forward.
Agrochemical Market Easing but Still Facing Difficulties
The global agrochemical market has slowly started recovering from challenges such as oversupply and pricing pressure. As a result, Sharda Cropchem experienced less pressure in the first quarter of FY25 compared to the previous year. However, the company is yet to see significant growth due to unfavorable weather conditions in some of its major export markets. Europe, for example, has been affected by floods, snowfall, and wildfires, while Brazil is experiencing severe droughts—both key regions for Sharda Cropchem’s agrochemical business.
Positive Outlook Hinges on Weather and Export Demand
Looking ahead, the company’s volume growth for the rest of FY25 will depend heavily on improved weather conditions and stronger demand in its primary export markets, including the European Union and Latin America. One of the company’s biggest challenges is competition from Chinese manufacturers, who are producing at extremely low margins. This makes it harder for Indian companies like Sharda Cropchem to maintain their market share while keeping profitability in check.
The prices of several agricultural products, which once stood at $90 per gallon, have now plummeted to around $20. However, experts believe prices could recover slightly to around $30-40 by the end of the year.
Sharda Cropchem Sets Targets Amid Tough Competition
Despite the ongoing challenges, Sharda Cropchem has set a target for 15-18% volume growth this financial year. The company also expects its EBITDA margin to stay within the same range. It anticipates some recovery in product prices during the fourth quarter of FY25, but not to the levels previously seen, as competition from Chinese companies remains intense.
To ensure long-term growth, Sharda Cropchem will need to expand its focus on launching new products in new markets. This approach could help the company stay competitive and capitalize on untapped opportunities.
Should Investors Consider Buying Sharda Cropchem Shares Now?
For potential investors, Sharda Cropchem presents a mixed picture. On the positive side, the company has a strong balance sheet and its stock is trading at a price-to-earnings (P/E) ratio of 15 times FY26 estimated earnings, which is lower than its historical average. However, the business outlook still raises concerns due to stiff competition and market uncertainties.
Those considering investing in Sharda Cropchem may want to wait for clearer signals of market improvement before taking the plunge. For now, cautious optimism might be the best approach when looking at this stock.
(Disclaimer: Stock investments are subject to risks. Always consult with a financial expert before making any investment decisions.)
