Dharmaj Crop Guard Ltd. (DCGL) is an agrochemical company engaged in the business of manufacturing, distributing, and marketing a wide range of agrochemical formulations such as insecticides, fungicides, herbicides, plant growth regulators, micro fertilizers, and antibiotics to the B2C and B2B customers. It is also engaged in the marketing and distribution of agrochemical products under brands in-licensed and owned by it, and through generic brands, to Indian farmers through the distribution network.
The company exports products to more than 25 countries in Latin America, East African Countries, the Middle East and Far East Asia. Additionally, DCGL manufactures and sells general insect and pest control chemicals for Public Health and Animal Health protection.
DCGL sells bulk products to institutional customers domestically and in the international markets. Further, as of September 30, 2022, it had more than 154 institutional products that were sold to more than 600 customers based in India and in the international markets. Currently, DCGL has 4,362 dealers/distributors in 17 states with 16 stock depots.
Company classifies its product portfolio under the following categories:
Diversified product portfolio:
DCGL have developed niche portfolio of agro-chemicals. As per RHP, they have obtained
registrations from the CIB&RC to manufacture 464 agrochemical formulations out
of which 269 agrochemical formulations are for sale in India as well as for exports
and 195 agrochemical formulations are exclusively for exports. It has also obtained
registration from the CIB&RC for 6 agrochemical technicals for manufacturing
and sales in India as well as for export. The company has 157 trademark registrations
including branded products. Its formulations are sold as branded products to customers.
As of September 30, 2022, it had over 118 branded formulations that are sold to
farmers.
Established strong relationship with its institutional customers
DCGL has established strong and long-term relationships with various large and multinational
corporations that have helped them to expand its product offerings and geographic
reach. Certain of its key customers include Atul Limited, Heranba Industries Limited,
Innovative Agritech Private Limited, Meghmani Industries Limited, Bharat Rasayan
Limited, Oasis Limited, United Insecticides Private Limited and Sadik Agrochemicals
Co. Ltd. Company’s institutional business allows economies of scale, diversifies
its customer base and provides them with a buffer against seasonal fluctuations.
Robust relationship with the customers has enabled the company to delivery steady
financial performance for the past 3 years.
Strong R&D capabilities with focus on innovation and sustainability
Company has a research and development (“R&D”) centre and quality
control laboratory at its manufacturing facility, which primarily monitors the quality
of the raw materials and finished goods. They have been able to diversify its products
range mainly due to technological capabilities. Company intends to use established
R&D expertise to augment its registration capabilities.
Enhance manufacturing capabilities through backward integration
As a part of its expansion plans and in order to achieve backward integration for
its operations, they have acquired around 33,489.73 sq. mtrs of land at Saykha Industrial
Estate, Bharuch, Gujarat, India on leasehold basis for 99 years for Rs.105 cr. The
company will use proceeds from current issue to set up a manufacturing facility
on this land for Agrochemical Technicals and its intermediates which will be used
for internal consumption as well as for sales in domestic and international market,
which will give them more competitive strength.
They have obtained certain regulatory approvals such as environment clearance for new manufacturing facility from authorities. Setting up of the Technicals manufacturing facility will augment its manufacturing capabilities to produce domestic grade agrochemicals.
Strong track record of operational and financial performance
DCGL has demonstrated consistent growth in terms of Revenues and Profitability.
Revenues witnessed 41% CAGR at Rs.394 cr in FY22 from Rs.198 cr recorded in FY20.
EBITDA has shown a healthy CAGR of 58% at Rs.44 cr in FY22 from Rs.18 cr it clocked
in FY20. EBITDA Margin stood at 11% in FY22. On the net profit, company witnessed
robust CAGR of 63% to Rs.29 cr in FY22.
Particulars (Rs. in cr) | FY20 | FY21 | FY22 |
---|---|---|---|
Revenue | 198.22 | 302.41 | 394.2 |
EBITDA | 17.96 | 31.07 | 44.32 |
EBITDA Margin (%) | 9% | 10% | 11% |
PAT | 10.8 | 20.98 | 28.6 |
EPS(Rs.) | 8.62 | 12.74 | 11.62 |
Name of the Company (2022) | Revenue (Rs. in cr) | P/E (x) | EPS (Rs) | ROE (%) | RONW (%) |
---|---|---|---|---|---|
Dharmaj Crop guard | 394.00 | 20.39 | 11.62 | 34.64 | 18.15 |
Rallis India | 2604.00 | 27.45 | 8.44 | 9.68 | 9.68 |
India Pesticides | 716.00 | 18.53 | 13.78 | 24.76 | 24.76 |
Heranba Industries | 1450.00 | 10.80 | 47.25 | 26.46 | 26.46 |
Bharat Rasayan | 1301.00 | 24.00 | 423.52 | 22.85 | 22.85 |
No long – term purchase agreement with its existing customers: Company does not have any long term contract/ purchase agreement with its customers and any loss of its major customers could have a material adverse effect on business.
Cyclical in nature: Company’s business is subject to climatic conditions and is cyclical in nature. Seasonal variations and unfavorable local and global weather patterns may have an adverse effect on our business.
Dependent on limited number of customers for major portion of its revenues: Company is largely dependent on a limited number of customers for a significant portion of its revenues. In Fiscals 2020, 2021 and 2022, its top 10 customers contributed Rs.39.98 cr, Rs.52.6 cr, Rs. 75.7 cr, respectively of the total revenues from operations and represented 20.18%, 17.42% and 19.22% respectively, of the company’s total revenues from operations in such periods.
Competitive space: Company faces significant competition from both domestic as well as multinational corporations.
The upward momentum in pesticides industry is expected to continue going forward backed by a growth in food consumption in domestic market amid an expected increase in population, government support towards agriculture, demand from export markets, horticulture and floriculture market. The penetration of pesticides and agrochemicals in India is low and this offers an opportunity for growth for agrochemical producers like Dharmaj Crop guard. In addition to this, the government’s aim to reduce dependency on China and improve self-sufficiency is expected to support industry’s backward integration and growth.
Considering company’s, focus on R&D capabilities, capex on backward integration, strong relationships with its customers, experienced management, established distribution network, diversified product portfolio, strong track record of financial and operational performance and strong return ratios, we believe that company is well positioned to maintain its earnings growth momentum in the coming quarters. On the valuation front, Dharmaj Crop Guard is valued at 20x FY22 EPS of Rs.11.62 calculated at the upper band of Rs.237 which appears reasonable from a long - term viewpoint. Hence, we assign a SUBSCRIBE rating to the issue for the long term.
Use of Proceeds:
Use of Proceeds: The total issue size is Rs. 251.15 cr, of which
Rs. 216 cr is Fresh issue and balance (Rs.35.15 cr) is Offer for Sale (OFS). The
company will utilize the net proceeds from the fresh issue to fund capex for setting
up new manufacturing facility, fund working capital requirements, repayment of certain
borrowings and general corporate purposes. Kindly find the bifurcation in the table
given below
Sr. No | Particulars | Amount (Rs. in cr) |
---|---|---|
1 | Funding capital expenditure towards setting up of a manufacturing facility at Saykha, Bharuch, Gujarat | 104.97 |
2 | Funding incremental working capital requirements of our Company | 45 |
3 | Repayment and/or pre-payment, in full and/or part, of certain borrowings of our Company | 10 |
4 | General Corporate purposes | 56 |
Book running lead managers:
Elara Capital (India) Private Limited and Monarch Networth Capital Limited
Management:
Rameshbhai Ravajibhai Talavia (Chairman and Managing Director), Jamankumar Hansarajbha
iTalavia and Jagdishbhai Ravjibhai Savaliya (Whole time Director), Vishal Domadia
(Chief Financial Officer), Deepak Bachubhai Kanparia, Bhaveshkumar Jayantibhai Ponkiya,
Amisha Fenil Shah (Independent Director)
Particulars (Rs. in cr) | FY20 | FY21 | FY22 |
---|---|---|---|
Revenue | 198.22 | 302.41 | 394.20 |
COGS | 155.34 | 239.40 | 314.28 |
Gross Profit | 42.88 | 63.01 | 79.92 |
Gross Margins (%) | 22.00% | 21.00% | 20.00% |
Employee Benefits Expenses | 8.20 | 12.00 | 13.67 |
Other expenses | 16.72 | 19.94 | 21.93 |
EBITDA | 17.96 | 31.07 | 44.32 |
EBITDA Margin (%) | 9.00% | 10.00% | 11.00% |
Depreciation and Amortization | 2.17 | 2.60 | 5.27 |
EBIT | 15.79 | 28.47 | 39.05 |
Other Income | 0.94 | 1.15 | 2.00 |
Finance Cost | 2.23 | 1.41 | 2.61 |
Restated Profit before tax | 14.50 | 28.21 | 38.44 |
Tax Expenses | 3.70 | 7.23 | 9.84 |
PAT | 10.80 | 20.98 | 28.60 |
PAT Margin (%) | 5.00% | 7.00% | 7.00% |
EPS(Rs.) | 8.62 | 12.74 | 11.62 |