Dharmaj Crop Guard Limited IPO

About the company:

Dharmaj Crop Guard Limited is an agrochemical company incorporated in 2015 and is engaged in manufacturing, distributing, and marketing a wide range of agrochemical formulations and works in in the B2B and B2C segments. The company also provides crop protection solutions to farmers to assist them to maximize productivity and profitability. The company classifies its product portfolio under the following categories:

The company’s products are exported to more than 25 countries in Latin America, East African Countries, the Middle East, and Far East Asia. The exports form 10% of its total revenue from operations.

The agrochemicals business is classified into domestic brands business, domestic institutional business and exports institutional business. Of the total domestic sales, a majority is Domestic Institutional Sales to companies like Atul Limited, Heranba Industries Limited, Bharat Rasayan Limited etc.

The company has a manufacturing facility located in Ahmedabad which has an installed capacity for agrochemical formulations of 25,500 MT. The company manufactured 8,891.90 MT of agrochemical formulations in fiscal 2022. The company is in the process of setting up an additional manufacturing facility at Bharuch, Gujarat.

The company has obtained 464 registrations for agrochemical formulations from the CIB&RC (Central Insecticide Board and Registration Committee), out of which 269 agrochemical formulations are for sale in India as well as for export and 195 agrochemical formulations are exclusively for exports. Further, the company has 157 trademark registrations including branded products. As of September 2022, there are 118 branded formulations sold to farmers. The company has more than 154 institutional products sold to more than 600 customers based in India and the international markets.

Industry Analysis:

Growth in food consumption in the domestic market due to an expected increase in population, coupled with government support towards agriculture, and demand from export markets, among others indicates a positive outlook in the pesticides industry. In addition to this, the government’s aim to reduce dependency on China and improve self-sufficiency is expected to support the industry’s backward integration and thus its growth.

The penetration of pesticides and agrochemicals in India is low and this poses an opportunity for growth for agrochemical producers.

Key Financials:

The revenue of the company grew at a CAGR of 41.02% in the last 2 years. During Fiscal 2022, the total revenue from the top 5 customers was Rs. 483.68 million (12.26% of its Revenue). The EBITDA Margin rose from 9.37% in fiscal 2020 to 11.72% in fiscal 2022. PAT has grown at a CAGR of 63.28% and the earnings ratios look healthy.

Objects of the issue:

1) Funding capital expenditure towards setting up a manufacturing facility at Saykha, Bharuch, Gujarat.
2) Funding incremental working capital requirements of the company.
3) Repayment or pre-payment, in full or part, of certain borrowings of the Company.
4) General corporate purposes.

Peer comparison and IPO valuation:

The upper price band of Rs. 237 per share translates into a PE of 31.85X and a PB ratio of 5.67X (based on the July 2022 book value of Rs. 41.83 per share). According to the above table, the company has the least revenue among its peers yet it demands the second-highest PE. It can be justified considering the recent attractiveness of the sector and the steady top and bottom-line growth shown by the company in the last few years.

IPO Details

1) The IPO opened on 28^th November 2022 and will remain open till 30^th November 2022.
2) The total issue size is Rs. 251.15 crores out of which fresh issue amounts to Rs. 216 crores and offer for sale amounts to Rs. 35.15 crores.
3) The price band of the issue is Rs. 216 to Rs. 237 per share and a retail investor can apply for a maximum of 14 lots.
4) As of releasing the blog, (29^th November 2022, 3.30 pm), the IPO has been subscribed 4.25 times and the GMP is Rs. 54.