Highly undervalued against peers
Super Crop Safe Limited (SUCROSA) is one of the leading players in Agrochemical Industry with presence in more than 8 states with 2100+ distributors’ network. The Company was incorporated in 1987 with the aim of crop protection. It engaged in manufacturing of various types of agro chemicals like technical grade pesticides, formulation of insecticides, fungicides and weedicides since inception. At present, the company supplies more than 100 products in the market under various brand names. The Company moves towards biological and herbal products which are based on sustainable development that balances the need for economic growth with environmental protection and social equity. The Technical Grade Pesticides manufacturing unit and formulation unit are located at Himatpura in Bilodra about 65 kms away from Ahmedabad on 20,000 sq. yd. land.
The Company’s equity is just Rs7.90 crore with a reserve of around Rs23.22 crore. Promoters hold 38.43% while investing public hold 61.57% stake in the company.
During FY18, its net profit jumped 78.34% to Rs4.94 crore from Rs2.77 crore in FY17 on sales of Rs68.29 crore fetching an EPS of Rs1.28. Its bottom-line has grown at 77.29% CAGR over the last five years. During Q3FY19, its net profit grew 27% to Rs1.45 crore from Rs1.14 crore in Q3FY18 on higher sales of Rs17.47 crore. For 9MFY19, it posted 10% higher PAT of Rs4.06 crore on higher sales of Rs51.90 crore and an EPS of Rs1.03.
Nutraceutical industry has very high growth prospects in future. Hence, the Company is soon planning to make debut in nutraceutical segment for which it has already acquired HACCP, FSSAI, and GMP certifications. So far it has completed one product “Spirulina” on nutraceutical front and rest of the products are in the R&D pipeline.
While announcing the result of the Quarter ended December 2019 the management has remarked that the intent is to become a pan India player increasing distributor’s network from 2100 to 4000 by 2020 with significant product mix. The Company is committed to launch 3-4 high margin and high demand products every year and looking at improved margins in the coming years. About the Q3 result the management said that “this year the monsoon was not quite good due to which the entire Gujarat, some parts of Maharashtra, Rajasthan and Madhya Pradesh had impacted. The Company’s high margin products SuperGold & TriNetra got well established in the market. In the recent interim budget 2019 finance minister has emphasized on organic food which tends to accelerate growth in use of bio-fertilizers. The government’s direct income support to farmers of Rs6,000 per annum is again indirect indication of increase on spends of agrochemicals products by farmers.”
The Company continues to expand its distribution network and range of products. Since 2016, SUCROSA is investing a lot in R&D and it has started yielding positive result. Company has commercialized Mycorrhizal Bio-Fertilizer, triNETRA which are one of the most successful products of Super Crop! Last year Promoters have bought 2,80,000 preferential shares at Rs32 per share and 6,90,000 convertible warrants at Rs34 per share.
Stock is available at Price to Earnings Ratio of 15x on TTM EPS. At CMP its Price Earning to Growth (PEG) ratio is just 0.20 based on last five years performance which claims that, this stock is highly undervalued against its peers. We are highly bullish on this stock. Based on above financial and performance parameters, the SUCROSA share looks quite attractive at the current level and investors can accumulate this share with a stop loss of Rs15 for an upper target of Rs40-50 in next 18 to 24 months.
There is an enormous growth opportunity for Agrochemicals Industry in India. Globally, India stands on 4th position in the production of agrochemicals. Global fertilizers and Agrochemicals market is expected to grow to US$ 195 billion and Indian Agrochemicals market at US$ 6.3 billion by 2020. It gives a strong indicator to the Indian market to enhance the coverage for the agro-based chemical business. Global pesticides market is in the line of growth due to the small size of the area under cultivation. It is expected to grow from US$ 75 billion (in 2017) to US$ 90 billion by 2023. During the stages of Agriculture inputs, a significant value is created by the pesticides to increase the production. India was accounted for 10% of the total global pesticide market in FY17. India’s per hectare pesticides consumption is 0.6 kg as compared to US (5-7 kg/ha) and Japan (11-12 kg/ha) which is the lowest in the world. It is due to the low purchasing power of the farmers and small land holdings. Paddy and Cotton accounted for the maximum share of pesticide consumption, i.e. (26%-28%) and (18%-20%) respectively.
In the usage pattern of crop-protection chemical, insecticides contributing to 55%, followed by herbicides 23%, fungicides 18% and rest of the other products such as bio-pesticides. The global fertilizer market has shown strong footprints and expected to grow at 14.56%t CAGR during the forecast period of 2015-2023. Bio-fertilizer is an effective solution to enhance the quality of soil affected by chemical fertilizers. The global bio-fertilizer industry is multiplying at an annual rate of 14% and is expected to reach the market value of US$ 1,580 million by 2023. The Asia-pacific market of bio-fertilizers is the most resourceful and revenue-generating market for biofertilizer manufacturing industries owing to the availability of cheap labour force and low-cost raw material in the region. Furthermore, the market is expected to register a CAGR of 11.2% over the forecast period, i.e. 2016-2023.
India is a growing market for bio-fertilizer products due to its cost effectiveness. It has multiple features like eco-friendliness, easy application and it is non-toxic. It is a reliable alternative to chemical fertilizer especially in case of fuel based chemical fertilizer which affects imports and subsidies of the country. Government of India introduced a number of schemes to promote the usage of the product in the country like National Mission of Sustainable Development (NMSA)/ Paramparagat Krishi Vikas Yojana, Rashtriya Krishi Vikas Yojana (RKVY), Pradhan Mantri Kisan Samman Nidhi and National Mission on Oilseeds and Oil Palm (NMOOP) and Indian Council of Agricultural Sciences (ICAR). Indian bio-fertilizer market is directly related to the organic food market which is expected to grow by nearly US$ 1 billion from 2014-2020.