Super Crop Safe Ltd
(BSE Code: 530883) (CMP: Rs.152.65) (FV: Rs.10)
Company Background: Incorporated in 1987, Super Crop Safe Ltd (SCSL) manufactures and sells agro chemicals and bio products. It manufactures a broad spectrum of technical grade pesticides and formulations of insecticides, fungicides and weedicides for crop protection. It holds Central Insecticides Board (CIB) registrations for 10 Technical Grade Pesticides and supplies 65+ products under various brand names. Its Technical Grade Pesticides manufacturing and formulation units are located at Himatpura in Bilodra (near Ahmedabad) on an area of 20,000 sq.yd. Its distribution network spans across Gujarat, Rajasthan, Punjab, Haryana, Madhya Pradesh, Maharashtra and Chhattisgarh.
SCSL primarily operates in three product categories:
1) Agriculture: This category includes three segments -
a) Pesticides: SCSL recently launched a high margin product ‘Commander’. Other brands include Super Coat, Super Tara, Spider Plus and Artica.
b) Fungicides: The main brands in this vertical include Super Safe and Super Suraksha.
c) Herbicides: The main brands in this vertical include Super Kill and Super Penda.
2) Bio-pesticides: It has two products in this category - Spinosyns and Neem.
3) Nutraceuticals: It has diversified into Microbial biotechnology (Mycorrhiza, Spirulina), which is developed by its inhouse R&D team.
Spirulina is the only nutrient supplement, which is a complete food as per World Health Organization (WHO). It is used as a food supplement all over the world in different forms like Tablets, Capsules, Powder, Health drink, Noodles, etc. The product is HACCP (Hazard Analysis & Critical Control Points) and FSSAI (Food Safety and Standards Authority of India) certified. It has also obtained the GMP (Good Manufacturing Practice) certificate from Royal Stancert Inc. SCSL has started supplying Spirulina to its institutional partners. Dabur, Amway, Patanjali, Himalaya, E.I.D. Parry etc to sell 100-120 tablets priced at Rs.400-1000. It is a high margin product and is exempted from GST. SCSL plans to enhance its production capacity to 1 MMT per month and also launch its own ‘Superlina’ brand in the near future. Super Gold (Mycorrhiza Bio Fertilizer) is a licensed product with manufacturing capacity of 2,000 TPA. Its production from the root level to formulation is done in SCSL’s Bio division, which is done by very few companies in India. This product reduces the usage of chemical fertilizers and water, which in turn reduces the cost of farming. It reduces the use of chemical fertilizers up to 50% and enhances the yield of the plants up to 40%. The GST council has reduced GST rates on fertilizers from 12% to 5%, which is a positive for farmers as well as manufacturers. In FY17, SCSL had entered into a marketing arrangement with Maharashtra Agro Industries Development Corporation Ltd (MAIDC) for supplying Mycorrhizal Bio Fertilizer. It has started catering to MAIDC this year and expects good sales orders, which will boost its revenue and profitability.
Performance Review: During FY17, SCSL’s net profit zoomed 140% to Rs.2.88 crore from Rs.1.2 crore in FY16 on higher sales of Rs.75.27 crore fetching an EPS of Rs.4.12. PAT has grown at 95% CAGR over the last three years and 32% CAGR over the last five years. During Q2FY18, it reported sales of Rs.16.16 crore with 48% higher PAT at Rs.1.76 crore against Rs.1.24 crore in Q2FY17 fetching an EPS of Rs.2.28. For H1FY18, PAT soared 75% to Rs.2.56 crore from Rs.1.54 crore in H1FY17 on sales of Rs.34.06 crore fetching an EPS of Rs.3.31.
SCSL has obtained the following ratings from CRISIL - "NSIC-CRISIL Rating: CRISIL MSE 2"; Financial Strength: High; and Operating Performance: Highest.
Dividend: SCSL is an investor-friendly company and has regularly paid dividends over the past 7 years.
Outlook: SCSL’s Super Gold product has done well in the market, which is evident from the H1FY18 results. SCSL has recently launched new products sold under the brands - Artica, Commander, Super Desire, Super Swift, Super Shoot, Super Tab and Super Tabu. This growth will be propelled further with the introduction of new innovative products each year. In addition, it will strengthen and expand its reach to new underdeveloped markets and crop segments. Moreover, institutional tie-ups with the corporates for supply of agrochemicals have also started reaping benefits and will contribute to its growth.
Conclusion: The SCSL stock is available at a P/E of 30x on TTM EPS. At the CMP, its Price Earning to Growth (PEG) ratio is just 0.32x based on its performance in the last three years, which indicates that the stock is highly undervalued against its peers. Based on its current going, SCSL is expected to notch an EPS of Rs.6.6 in FY18 and Rs.12 in FY19. At the CMP, the stock trades at a P/E of 23x on FY18E and 13x on FY19E earnings respectively. A reasonable P/E of 30.61x (industry P/E 42.79x) will take its share price to Rs.210 in the short-term and Rs.375+ thereafter. Investors can buy this stock with a stop loss of Rs.135. The Board has approved splitting of its equity share from Rs.10 paid-up to Rs.2 paid up. The stock’s 52-week high/low is Rs.180/90.70.
Many stocks in this sector have delivered multifold returns in the last one decade. For example - Dhanuka Agritech, which traded at Rs.26 in 2006, made an all-time high at Rs.940 in May 2017. Its sales grew from Rs.54.42 crore in FY06 to Rs.876 crore in FY17 while PAT climbed from Rs.2.95 crore to Rs.120 crore over the same period. Today, its market cap stands at Rs.3215 crore. UPL, Rallis India, Excel Crop Care, P I Industries, Bharat Rasayan have also delivered multifold returns in the last 5-10 years.