Dharmaj Crop Guard Limited (DCGL), an agrochemical company, is engaged in manufacturing, distributing, and marketing a wide range of agrochemicals such as insecticides, fungicides, herbicides, plant growth regulators, micro fertilizers, and antibiotics to B2C and B2B customers. The company markets and distributes its own branded agrochemical products, the ones in-licensed by them and other generic brands to Indian farmers. For its domestic branded business, it has a well-established distribution network that comprises over 4,362 dealers having access to 16 stock depots and a presence in 17 states. On the global front, the company has extended its export reach to more than 25 countries in Latin America, East African countries, the Middle East, and Far East Asia. Presently, the company has one manufacturing facility in Gujarat, with an aggregate installed capacity of 25,500 MT for its agrochemical formulations. As a part of its expansion plan and to achieve backward integration of its operations, DCGL has acquired additional land in Gujarat where it plans to set up a manufacturing facility for agrochemical technicals and its intermediaries in the future.
Objects of the issue:
The IPO proceeds of the fresh issue will be used towards the following purposes:
- Funding capital expenditure towards setting up of a manufacturing facility at Saykha, Baruch, Guajrat.
- Funding incremental working capital requirements of the company.
- Repayment and/or pre-payment, in full and/or part, of certain borrowings of the company.
- General corporate purposes.
Investment Rationale:
A well-diversified product portfolio mix
Since its incorporation, DCGL has focused on diversifying its product portfolio mix and is a manufacturer of agrochemical products in various categories such as insecticides, fungicides, herbicides, plant growth regulators, micro fertilizers, and antibiotics. Additionally, the company is involved in manufacturing and selling general insect and pest control chemicals for Public Health and Animal Health protection. Thus, the company’s move to develop a niche and diversified product portfolio of agrochemicals has enabled it to de-risk business operations.
Strong domestic and global pesticides demand
Indian pesticides and other agrochemicals market grew at a CAGR of 4.5% from ₹368 billion in 2013- 14 to ₹439 billion in 2017-18. Going forward, the overall Indian pesticides and other agrochemicals industry is estimated to increase at a CAGR of 7.5%-8.5% by 2026-27. The expected traction in international markets and an increase in domestic usage of pesticides in India will benefit the company’s revenues. Additionally, an opportunity amounting to around USD 5 billion going off-patent in pesticides in 2026-27 provides ample room for Indian manufacturers to increase their pesticide exports. The industry tailwinds coupled with a superior product mix and strong R&D capabilities are likely to aid Dharmaj Crop Guard’s business performance going forward.
Valuation and Outlook:
The company aims to further diversify its customer base and increase its market share in the agrochemical business. To achieve this goal, the company focuses on strengthening its business through effective branding of its own products and acquiring other brands to grow its product portfolio mix. Moreover, the set-up of the new factory will enhance the manufacturing capabilities of the business and lead to better profit margins due to backward integration. However, a low level of capacity utilization of around 35% in FY2022 remains a key concern for the business. On the upper end of the price band, the issue is valued at a P/E of 20.4x based on FY2022 earnings which we feel is fairly priced. Hence, we recommend a “SUBSCRIBE” rating for the benefit of listing gains.
