Agro-chemicals are vital for boosting crop yields, And Sabero is well-poised to reap a rich harvest
Moneylife Digital Team
Sabero Organics Gujarat has a presence in all the three sectors of crop chemicals—herbicides, fungicides and insecticides.
The company is the largest manufacturer of two of its key products—Glyphosate (a herbicide) and Mancozeb (a fungicide)—in India and the second-largest producer in the world of these products. Production of these two chemicals is through a process of backward integration, as Sabero produces yellow phosphorus for Glyphosate and the entire range of formulations for Mancozeb—granules, oil suspension, wettable powder, suspension concrete and blue-green Mancozeb.
As one of the world’s largest agrarian economies, the agriculture sector (including allied activities) in India accounts for more than 15% of the gross domestic product (GDP) and contributes to more than 10% of total exports. With growing global population and demand for food, pressure on the limited agricultural land is increasing. Agro-chemicals, which include fertilisers and pesticides, boost agricultural yield by providing nutrients and protecting crops against pests and weeds.
The Indian agro-chemicals industry (which is estimated at $1 billion) ranks second in Asia and 12th globally. It is estimated that India loses nearly 18% of its crops each year, valued at Rs90,000 crore, due to pest attacks. In our country, insecticides contribute the largest share of agro-chemicals (at 62%), compared to the global consumption of 28%. Globally, herbicides are the largest-consumed agro-chemicals, with a share of 48%. Agro-chemical products are protected by patents to encourage innovation. As per estimates, the patents of major products will expire by 2014; thus, opening up the markets for generic manufacturers. Sabero, being one of the major manufacturers of generic products, is likely to reap the benefits.
For the fiscal ended 31 March 2010, the company reported revenues of Rs430.32 crore, a growth of 17.36% over Rs366.66 crore in the previous fiscal. Net profit for the fiscal stood at Rs38.72 crore compared to Rs21.79 crore, an increase of 77.70%. Operating profit margin was 19.96% and return on net worth was 34%. Sabero declared a dividend of 12% for the previous fiscal.
Revenues for the December 2010 quarter stood at Rs92.87 crore over Rs109.41 crore, a dip of 15%, while operating profit for the third quarter plunged by 71% to Rs6.64 crore from Rs22.91 crore in the December 2009 quarter. Operating profit margin in the third quarter was 7% compared to 21% in the comparable previous period.
Based on the annualised results for the December 2010 quarter, its market-cap to sales was 0.35 times and market-cap to operating profit was 4.83 times. Buy the stock at the current price of Rs49.