IPO Analysis: Dharmaj Crop Guard Limited

IPO Rating: Invest for long term

About the issue: 

Dharmaj Crop Guard Limited which exports products to more than 20 countries in Latin America, East African Countries, the Middle East and Far East Asia is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 10 per equity share. The price band of the issue has been fixed at Rs 216 to Rs 237 per equity share. The issue size is Rs 251.15 crore at higher price band.  

The IPO opening date is November 28, 2022, and it will be closing on November 30, 2022. The issue is likely to be listed on the exchange on December 8, 2022. The IPO market lot size is 60 shares and in multiple thereof. A retail-individual investor can apply up to a maximum of 14 lots (840 shares or Rs 199,080 at upper price band). 

Objects of the Issue 

The net proceeds of the Fresh Issue are proposed to be utilised in the following manner: 

1. Funding capital expenditure towards setting up of a manufacturing facility at Saykha, Bharuch, Gujarat. 

2. Funding incremental working capital requirements of the company. 

3. Repayment and/or pre-payment, in full and/or part, of certain borrowings of the company. 

4. General corporate purposes. 

Promoter holding  

The pre issue shareholding is 100 per cent, post the IPO the promoter stake will be 73.03 per cent.  

About the company: 

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.  

DCGL provides crop protection solutions to the farmer to assist them to maximize productivity and profitability. The company exports products to more than 25 countries in Latin America, East African Countries, the Middle East and Far East Asia. It sells agrochemical products in granules, powder, and liquid forms to its customers. Additionally, DCGL manufactures and sells general insect and pest control chemicals for Public Health and Animal Health protection. 

With an aim to offer a wide product portfolio across the Agri-value chain, it continues to expand its product portfolio by introducing new products. The company manufactures and sells various formulations of insecticides, fungicides, herbicides, plant growth regulators, micro fertilizers, and antibiotics. As of the date of this Red Herring Prospectus, it has obtained 464 registrations for agrochemical formulations from the CIB&RC, out of which 269 agrochemical formulations are for sale in India as well as for export and 195 agrochemical formulations are exclusively for exports. Additionally, it has also applied for registrations of 18 agrochemical formulations and 17 agrochemical technicals from the CIB&RC, which are pending at various stages. 

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. 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. As of September 30, 2022, it exported products to more than 66 customers across 25 countries. Currently, DCGL has 4200+ dealers/distributors in 17 states with 16 stock depots. 

Some of its key customers are 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. As a part of its expansion plans and in order to achieve backward integration for its operations, DCGL has also acquired around 33,489.73 sq. meters of land at Saykha Industrial Estate, Bharuch, Gujarat, India. As of September 30, 2022, it has 314 employees on its payroll and also employs contract workers as and when required.   

Financial  

On the financial performance front, for the last three fiscals, DCGL has posted a turnover/net profit of Rs 199.17 crore / Rs 10.76 crore (FY20), Rs 303.57 crore/Rs 20.96 crore (FY21), and Rs 396.29 crore/ Rs 28.69 crore (FY22). For the four months of FY23 ended on July 31, 2022, it earned a net profit of Rs 18.36 crore on a turnover of Rs 221.17 crore. Thus, it has posted an average CAGR of 41+ per cent in revenue and 63 per cent+ in net profits.  

Valuation and Outlook 

The top line of the company is growing at a CAGR of 41 per cent and net profit of 63 per cent. For the last three fiscals, DCGL has reported an average EPS of Rs.9.60 and an average RoNW of 34.86%. The management is confident on the continuing trend of growth. The issue is priced at a P/BV of 5.78x based on its NAV of Rs 40.99 as of July 31, 2022, and at a P/BV of 2.53x based on its post-IPO NAV of Rs 93.84 (at the upper cap).  

If we annualize FY23 earnings and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of around 14.55x. Based on its financial performance, the issue appears reasonably priced.  

Due to strong fundamentals, positive outlook and attractive pricing we recommend investors to invest in this IPO for the long-term.