Dharmraj IPO: Check detailed review

Dharmaj Crop Guard Limited IPO opens for subscription on 28th November. The company is looking to raise up to Rs 251.15 crore through the public issue. Here are the details: 

Dharmaj Crop Guard Limited (DCGL) IPO Details

• Dharmaj Crop Guard IPO Date: 28 November - 30 November 2022
• Dharmaj Crop Guard IPO Price band: Rs 216 - Rs 237
• Dharmaj Crop Guard IPO Issue Size: Rs 251.15 crore (Fresh Issue of Equity shares aggregating up to Rs 216 crore and remaining OFS)
• Reservation: QIB 50%, Retail - 35%, NII 15%
• Minimum Investment: Rs 14,220
• Bid lot: 60 shares, and in multiples of 60 shares

Dharmaj Crop Guard Limited IPO: Objects of the Issue

The net proceeds of the fresh issue will be used for below purposes:

• Funding capital expenditure towards setting up a manufacturing facility at Saykha, Bharuch, Gujarat.
• Funding incremental working capital requirements of the company.
• Repayment and/or pre-payment of certain borrowings of the company and general corporate purposes.

Dharmaj Crop Guard Limited IPO: About Dharmaj Crop Guard Limited

• They are an agrochemical company incorporated in 2015 and engaged in the business of manufacturing, distributing, and marketing a wide range of agrochemical formulations.
• The products include insecticides, herbicides, fungicides, plant growth regulators, micro fertilizers, and antibiotics.
• DCGL also provides crop protection solutions to the farmer and assists them to maximize productivity and profitability.
• They export products to more than 20 countries, including East African countries, Latin America, the Middle East, and far East Asia.
• The company's manufacturing facility is located in Gujarat, India. DCGL also has a research and development center at the manufacturing facility.
• They have 157 trademark registrations, including branded products.

Dharmaj Crop Guard IPO: Products

Some of DCGL's products are as below:

• Insecticides: They manufacture a wide range of insecticides to suit the requirement of farmers in preventing and curating different crops from being damaged by insects.
• Fungicides: The company manufactures a wide range of fungicides that protect the crop from diseases caused by pathogenic organisms.
• Herbicides: They effectively eliminate weeds and thus reduce mechanical and manual weeding. 
• Plant growth regulator: They also manufacture plant growth regulators, also known as plant hormones. It helps in increasing the crop yield and improving its quality. 

Dharmaj Crop Guard IPO: Industry Outlook

• During the five years 2017-2021, the global pesticides market is estimated to have grown at a CAGR of around 2.5% from $62 billion in 2017 to $68 billion in 2021.
• The market is estimated to grow at a CAGR of around 1.6% - 1.8% between 2022 and 2027 and is likely to reach approximately $75 billion by 2027.
• Asia Pacific and Latin America together accounted for more than 50% of the global pesticides market in 2021, with each region contributing around 30% of the total $68 billion market. 
• Asia Pacific will continue to be the largest market for the global pesticide industry and is expected to grow at the fastest CAGR of 3.4% - 3.7% by 2027 among all the industry regions

Dharmaj Crop Guard IPO: Listed Peers

Dharmaj is in the agrochemical industry and has many listed peers. The listed peers include India Pesticides, Punjab Chemical & Crop Protection, Bharat Rasayan, Astec Lifesciences, and Heranba Industries. Below is the comparison with listed peers:

• Among listed peers, Dharmaj is the smallest player in terms of revenue (for FY22), with Rs 394.20 crore revenue. The biggest player is Rallis India with a revenue of Rs 2603.93 crore.
• The Earning Per Share (EPS) is high for most listed peers with an average of over 100. Dharmaj has an EPS of 7.44.
• Rallis India, India Pesticides, Punjab Chem., Bharat Rasayan, Astec Lifescience, and Heranba Ind. are trading at a P/E of 28.60, 18.74, 17.78, 24.40, 43.22, and 11.70, respectively (23 Nov 2022). The asking PE of DCGL is around 14.55, which makes its valuation attractive compared to most peers.
• Return on Net Worth (RoNW) is also on the lower side compared to other listed peers.

Dharmaj Crop Guard IPO: Financials

• The company has reported revenue from operations of Rs 394.21, Rs 302.41 crore, and Rs 198.22 crore for FY22, FY21, and FY20, respectively. The revenue has nearly doubled in the same period.
• The EBITDA for FY22, FY21, and FY20 was Rs 46.19 crore, Rs 32.04 crore, and Rs 18.58 crore, respectively. The EBITDA margin in the same period was 11.72%, 10.59%, and 9.37%, respectively.
• The gross profit for the period was Rs 79.93 crore, Rs 63.00 crore, and Rs 42.85 crore, respectively.
• For the last three financial years, the company reported an average EPS of Rs.9.60 and an average RoNW of 34.86%.
• The ROCE has increased from 28.76% in FY20 to 32.87% in FY22.
• The Debt to equity ratio has come down marginally down from 0.57 in FY20 to 0.43 in FY22.

Dharmaj Crop Guard Limited IPO: Unique Selling Propositions

Diversified product portfolio: They have a niche portfolio of agrochemical products which range from insecticides to antibiotics. The diversification across products and categories allows them to de-risk their business operations.

Strong R&D capabilities: They have a strong research and development center with a quality control laboratory. It helps them monitor the quality of raw materials and finished goods. The R&D team helps them to manufacture products more efficiently and cater to the demand of overseas customers across the agro-industry.

Established distribution network: They have pan-India sales and dealer presence in 17 stages with a dedicated sales force that provides customer service and undertakes production promotion. They have built several strong brands by leveraging the strength of marketing and distribution networks.

Dharmaj Crop Guard Limited IPO: Growth Strategies

Enhance manufacturing capabilities: As a part of its expansion plans and to achieve backward integration for operations, they have acquired around 33,489.73 sq. meters of land at Saykha Industrial Estate, Gujarat on a leasehold basis for 99 years to set up a manufacturing facility for Agrochemical Technicals and its intermediates which will be used for internal consumption, for sales in the domestic and international market, which will give them more competitive strength. 

Targeting new customers and expanding customer business: To further diversify its customer base and increase market share, DCGL intends to augment sales in the markets where they sell products and expand into new markets. Towards this objective, they seek to continue to leverage its relationships with existing customers through cross-selling of products.

Expanding public health and animal health product segment: The global pyrethroids market increased at a CAGR of 4% from $2,678 million in 2016 to $3,309 million in 2021. It is expected to increase by a CAGR of around 5% to touch the size of approximately $4,300 million by 2026. They intend to increase manufacturing and sales in the public health and animal health products segment.

Branding, promotional and digital activities: They plan to strengthen their existing brand-building activities, including dealer training programs, field demonstrations, field shows, farmers training programs, jeep campaigns, and participation in various national and international exhibitions for marketing products.

Dharmaj Crop Guard Limited IPO: Risks

Approvals and licenses: They require certain approvals and licenses in the ordinary course of business, including certain registrations from the Central Insecticides Board and Registration Committee (CIB&RC) for agrochemicals. Any failure to successfully obtain such registrations or maintain statutory and regulatory permits and approvals required to operate the business and manufacturing facility would adversely affect the business.

No long-term agreements: DCGL does not enter into long-term agreements with most of its customers though they have repeat orders from customers. With no long-term contracts, no assurance existing customers will continue to purchase their products.

Weather risks: Their business is sensitive to weather conditions such as rains, drought, floods, cyclones and natural disasters, and events such as pest infestations. Seasonal variations and unfavorable local and global weather patterns may hurt its business, results of operations, and financial condition.

Dharmaj Crop IPO: Detailed review and Analysts' Recommendation

• A robust rise in revenues: Dharmaj Crop has seen a robust 41% CAGR rise in revenues between FY20- 22.
• Healthy rise in profits: Dharmaj Crop’s net profit has grown from just Rs 198.22 crore in FY20 to 394.21 crore in FY22, at a healthy CAGR rate of 58%.  
• Stable margins: Dharmaj’s EBITDA margins have shown an improvement from 9.4% in FY20 to 11.72% in FY22.  
• Niche player: Dharmaj Crop is an emerging player in the agrochemicals industry, catering to both B2B and B2C customers. Dharmaj has 157 trademark registrations which includes branded products. As of Sep 30, 2022, the company sold over 118 branded formulations to farmers.
• Reasonable valuations: At the higher end of the price band,  Dharmaj Crop IPO is priced at a post-issue PE ratio of ~14.60 times FY23 annualized EPS on a fully diluted basis. This is lower than peers Rallis (28.6 times) India Pesticides (18.74 times), Bharat Rasayan (24.4 times).
• Dharmaj Crop IPO review: Given factors such as a solid rise in revenues, healthy rise in profits, a good runway for growth and reasonable valuations, various external analysts have given a ‘positive’ rating on the company’s long-term prospects.

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.