As Dr. Vijay Malik says: The agrochemical industry is a lot like the pharmaceutical one. Think of pesticides as the drugs for crops, keeping them alive and kicking. Just like with human medicine, it’s all about finding the right mix to fend off the pests and diseases. If you’re looking to size up a pesticide company for the first time, understanding this analogy will give you the lay of the land. 

And for those, like me, who don’t like to touch pharmaceutical business with a barge pole –  this will hopefully be a good exercise to understand both the industries with the case study of a very interesting + fast growing Ahmedabad based Agrochem company. 

The active industry is generally classified into  Technicals (or Intermediates / APIs) and Formulations – just like Pharmaceuticals. Technicals are the active ingredients which does the dhishum dhishum  – whether to the pests/fungi on crops or to viruses and bacterias in our body. Whereas, Formulations are basically the inert materials in which the Active ingredients or Technicals are mixed. Basically a ready to use thing. We gave an example of coffee in our previous blog. You might like to read that Agrochemical 101. Click here:

 And there’s one more commonality – Just like China, our Indian players also tend to import the active ingredients here and do the packaging (formulations); post which they sell the final , ready to use product – drug or pesticide. Formulations = Easy but less margins. Technicals = Difficult but these are Value Added Products.

However, on the backdrop of geopolitical tensions  between China and the United States, the world’s supply chains are in a flux. Plus, the cost of production (labor, environment) in the West in general has become prohibitive for the heavyweights in the respective countries anyway. 

And this has opened a gateway for our Agrochem India Inc. to venture into the good stuff – technicals as well. European and Japanese companies are actively contemplating transferring technology / patents to Indian companies for manufacturing. Sumitomo for example. 

Also, many companies in India are also waiting for the molecule or product (APIs) to go off patent to start manufacturing their products. These are called ‘generic’ products which are sold relatively cheaper to the patented products. Obviously. Folks. This is commonality number 3 between the Agrochem and Pharma Sectors. And the4th would be that the registration process in both the industries is country specific, expensive and time-taking. 

Well, there’s also CRAMS and CDMO in agrochem but that is for another day. 

Axioms of Agrochemical Industry

With this out of the way. Let’s day down certain markers or axioms  when analyzing the Agrochemical Industry:

1. It is a Working Capital Intensive business. It’s CFO/EBITDA conversion ain’t going to make you comfortable. It is the nature of the business. A puritan will not like it here. 
2. Agrochemical companies often extend long credit periods to farmers, who purchase pesticides on credit at the end of the sowing cycle due to depleted resources, promising to pay after the harvest. -> High Working Capital Cycle. Moreover, these are generic products and thus, these agrochem have no bargaining power. 
3. The use of certain pesticides rides on the back of specific crops, and it’s all about the specific seasons. When it’s time to sow, demand for a particular pesticide shoots up in a particular season like a shot of whiskey, hitting its peak for a few months. But once the crop season wraps up, that demand falls off a cliff. 
4. As the demand for pesticides fluctuates widely depending upon factors like rainfall (monsoon), pest attacks, pest resistance etc – there might be inventory built up as well. 
5. Bottomline- It is extremely difficult to gauge the demand in this sector. Therefore, even at the risk of inventory building up, companies need to stock their products sufficiently as any shortage impacts their brand image + switching costs are not high either (low pricing power).
6. Sudden demand slump and volatile raw material prices, mainly derived from crude oil, hit the agrochem industry hard. Generic producers (as compared to patented product manufacturers)  struggle to pass on rising costs due to low bargaining power, leading to global inventory destocking. Volumes might increase, but profits don’t—stay informed on industry trends to avoid false hopes.
7. Most of the Indian companies churn out generic pesticides, which are pretty much commodities. One brand’s product is just like the next, no frills or fancy differences + There’s a lot of overcapacity = A lot of undercutting of price in the generic segment -> low margins. 
8. Product obsolescence is a major challenge for pesticide companies, driven by pests developing resistance over time. This necessitates continuous investment in R&D for new pesticides  + Govt might decide to ban certain active ingredients due to safety reasons.  Companies must renew their product portfolio regularly. 
9. The companies who spend significant money on R&D to develop new drugs/generics are in a competitively better position than others.
10. Pesticide demand is crop-specific, seasonal, and prone to obsolescence, making companies reliant on a single product or region highly vulnerable. Diversified agrochemical companies with multiple products and geographies have a comparative advantage, mitigating risks like rainfall deficits and pest resistance.Look for companies with vast distribution networks and touchpoints. 
11. Agrochem companies which manufacture blue label (moderately toxic) and green label (slightly toxic) products  >>>  than  those which manufacture  toxic red and yellow label products.
12. Integrated players, producing both technical products and formulations, capture more of the value chain, earning higher profit margins and gaining better control over the entire supply-chain.
13. Just like Pharma, exports markets are lucrative and result in that incremental increase in margins. Look for those companies which are geographically diversified and have their products registered in difficult markets like Europe and the US.
14. In the agrochemical industry, particularly in formulation manufacturing, companies in general utilize about 60% to 65% of their production capacity (a thumb-rule, there can be exceptions). This is because the business is highly seasonal. They have machinery that can produce a single product, but that product is only in demand during a specific season each year. As a result, the machinery is not used year-round, leading to lower overall capacity utilization.
15. In the agro chemical industry,  Q2 and Q3 is where the major consumption happens at ground level. Q1 is totally preparation for Q2 + Q3. There is no consumption in Q1. Also, do note that Q2 is for sales, Q3 is on collections. Receivables stretch in Q2 as per the credit policy. 
16. In the rainy season, pests are rampant and 60-65% of cropping happens in Kharif, while Rabi sees 35-40%. Now the highest pesticide consuming crop is paddy or cotton – also Kharif Crops. Wheat – A Rabi crop is the  highest harvested but doesn’t see many pest attacks. Thus, changing cropping patterns (Kharif to Rabi)  shifts pesticide use. Kharif is higher, Rabi lower. There will never be a sequential growth QoQ in this industry.

Steady? Good. 

With this in the backdrop, now let’s get to the cake. The company we will be discussing today is Dharmaj CropGuard. 

First up- as is the ritual – About the Company. 

Dharmaj CropGuard

Dharmaj Crop Guard Limited, a fresh face in the agrochemical space in India, was founded in 2015 by seasoned pros from big names like Coromandel and Sumitomo. 

They kicked off operations in 2016 with a formulation plant in Gujarat, quickly building a robust B2C and B2B network. Over eight years, they established 15,000+ touchpoints, 5,000+ dealers across 24 states, and engaged with over 700 clients on the institutional side. With a revenue hitting Rs. 650 crores, growing at close to 40% CAGR over the last 5 years, they’ve made a mark.

Their Formulations plant in Ahmedabad has an annual capacity of 25,500 MT, whereas their recently commissioned Sayakha Plant in GIDC Bharuch has a capacity of 8,000 MT.

Currently on the formulations front they have about 535 product registrations of which 85 are for export. They also have an additional 202 export grade product registrations in the pipeline. Whereas, they already have 15 technical registrations for the products coming out from their Sayakha with 28 more under registrations. 

Source: Q4FY24 Dharmaj Crop Guard Investor Presentation

The total revenue that Dharmaj can make from their formulations facility is anywhere between INR 1000 crores to 1100 crores.

In 2022, Dharmaj went public, raising Rs. 251 crores, primarily to fund a new plant at Sayakha and thereby integrating their operations. This facility, which was recently commissioned in January 2024, will produce technical and intermediates, boosting cost competitiveness and EBITDA margins. 

Looking ahead, Dharmaj aims to strengthen its branded formulations by expanding their geographic presence domestically, enhance institutional formulations sales by becoming cost competitive post their backward integration, and expand exports. With plans to double revenue every three years and ramp up of their technical ingredient plant in Sayakha which would result in expansion of their EBITDA margins, Dharmaj is on a relentless growth trajectory.

The horse is strong but the jockey is smart as well. Perfect for taking a bet. 

The promoters have more than two and half decades of experience in the agro-chemicals industry; their strong understanding of market dynamics and healthy relationships with suppliers and customers should continue to support the business.

Source: Q4FY24 Dharmaj Crop Guard Investor Presentation

Now, I understand that the juice is in the final conclusion where it is expected that the industry is turning and Dharmaj is going to smash it when the market opens. But bear with me. I would like to tell you the story in two parts like we discuss our human history in terms of BCE and AD : 

1. Part-I : Pre-Sayakha Plant 
2. Part-II – Post – Sayakha Plant

Before you Google, Sayakha is the name of a place in Bharuch. And this is where Dharmaj’s new plant has been set up.

The company is new – thank god.  So, we should be able to keep this short. The company got listed near Q3FY23 anyway.  

Here we go.

Part-I : Pre-Sayakha Plant (Till FY23)

Source: screener.in

Dharmaj has been growing its sales at a staggering rate of ~37% CAGR in the last 5 years, though starting from a relatively low base in FY19. Still. It is a stellar performance.  

Though in this part of the story, we will be concerned with their performance and developments in FY23 as they will set the stage for their next leg of growth post FY24.

As many of you know, the agrochemical industry has been hit hard in recent quarters, both domestically and in export markets. The challenges are mounting, with global supply chain disruptions, widespread destocking, and continuous declines in both input and output prices. These factors have combined to create a significant slump, putting pressure on companies across the board. We’ve also covered this in detail in our detailed Agrochemical: Out of the Woods Yet? Blog.

Having been conscious of the same, a couple of things screamed at us as we looked at the financials and developments at Dharmaj. 

1. Investors would appreciate that despite the tail-winds, Dharmaj grew considerably faster than its peers, albeit at a lower base, when you compare with its peers like Heranba, Bharat Rasayan or even Rallis. And yes, I’m conscious of the fact that apart from other product segments, all these peers are very well integrated in terms of in-house manufacturing technical/active ingredients within their complex. 

Though an outdated data, one can comprehend that Dharmaj is still relatively low in the manufacturing (reminder: this is pre-Sayakha Plant) :

Source: Dharmaj Crop Guard RHP

2. Their compact working capital cycle,  and by that affect – a 2 month cash conversion cycle. This looks extremely well managed given the nature of the industry. However, we are cognizant of the fact that the company’s scale is relatively small as well. 

This is the beauty of how Dharmaj has managed to scale so fast, and so efficiently. It is Pabrai style pure Dhandho- Max. 

FY23 saw  a 25% drop in price realization across the agrochemical industry. Dharmaj was no different. However, they managed to increase their volumes substantially vis-a-vis their peers (you can check the growth of the above listed players on screener). Dharmaj grew at 35% in FY23 on sequential year on year basis, whereas companies like Rallis and Bharat Rasayan grew at mid-teens or didn’t grow at all. 

Mind you. In this timeline of the story, Dharmaj is still a low-end of the value chain, generic formulations business. Their operating margins compressed on the account of their increased share of institutional sales and added spends on marketing – Ads, Increase in on-ground marketing team.  

Now this is the right juncture in our story to understand the business model of Dharmaj at the end of FY23. 

Business Strategy of Dharmaj Crop Guard: A Projection of Promoter’s Competence

As mentioned in the introduction of the company, Dharmaj operates in 2 business segments as of now:

1. B2C – Their own branded formulations/products which they sell directly to farmers.
2. B2B – Provide agrochemical products and manufacturing services to multinational corporations to sell further.

Source: Q4FY23 Investor Presentation

It’s obvious that the profitability in their institutional formulations segment or the B2B segment is lower as compared to selling their branded formulations to their customers. And it is worth to be noted that their major chunk of the revenues come from this low-margin B2B business, leading to a lower ceiling on their margins. However, 11% of their sales from B2B also came via exports in FY23.

When we talk about their B2C business, investors should note that in FY23 their Top 15 products contributed to just 11% of their semental revenue. This means that Dharmaj’s B2C business is very broad based / diversified. 

Moreover, if you look at their product portfolio, you will find many generic products like Fipronil, Chlorpyriphos, Glyphosate 2, 4-D. Now, don’t be balked at by these jargons. Just know that these are pretty mature products in the market. But our axioms in the beginning said ‘generics bad’. 

So, what explains? 

Well, this is where my dear friends, the marketing experience of the promoters, get into the picture. 

Their game plan? 

Crank up the volume and roll out new, differentiated products made using their in-house R&D expertise each year, where they combine various molecules as per the specific requirement (crop, soil etc.). 

While they drive up their volumes in the generic category of their products, they use their connections with the same farmers  to push these new offerings such as Fipro plus Lambda or  Zinc plus Sulphur (ZeekaSulf) hard, stirring up demand through their on-ground marketing /education efforts. This helps them rake in decent margins.

They market aggressively in B2C, which at the same time is minimal in their B2B segment.

Talking about Dharmaj’s B2C Business Strategy, the strength of their B2C team is that they get down in the dirt. They go to the farmers’ fields, do the demos, hold meetings, show off their products right there in the mud. That is how the word spreads. That’s their edge in field-level demand generation. That’s why Dharmaj is growing in B2C.

And they’ve also got over 400 Central Insecticides Board (CIBCR)  licenses in their pocket. This enables them to break down which molecule saves the farmers money. Then they choose the product according to the margin of the channel and the margin of the company. 

It is then they push the demand hard via their on-field activities with farmers. Our gross margins climb, and we hold our ground in the cutthroat market. That’s how Dharmaj stays in the game.

Promoter has 30 years of experience and has condensed his life learnings into building Dharmaj as an exception in the agrochem industry. “Dharmaj naam naya hai lekin log bade puraane hai ” said the promoter confidently. 

He gave a very enlightening example of how they deploy their expertise: For eg. Madhya Pradesh is ripe for Moong cultivation. 6 lakh acres. Their team has complete/deep knowledge of the pest that thrives on moong cultivation. They work closely with the farmers on solving this pest issue by training them that for the first 5 days use this product, after 10 days use the other product. This is the level of competence and involvement we are seeing from Dharmaj.

Promoter claims that nobody understands certain pesticide related problems like they do, at least in the regions they are present in.

Thus, they are confident that their aggressive marketing strategy in the B2C segment will pay off in the coming quarters. They aim to increase their contribution in this segment from the current 30% to about 32%-35% over time.

Speaking of their product development /launch strategy, management has stated that every year, they dive into the market, survey it hard, and pinpoint two to three products to launch. Then they target specific crops, roll out the new goods, and gauge the market’s reaction the next year. If it hits, it sticks. 

If not, it still trickles along, never really dying out. But of course, the volumes come down.

Moreover, their technical plants which are going to manufacture synthetic pyrethroids will help them become backward integrated and increase their margins going forward. For those uninitiated, here is what synthetic pyrethroids do; taking cue from our Avengers analogy in the previous blog:

1. Fast Acting: They act quickly, so bugs don’t stand a chance.
2. Long-Lasting: Once sprayed, they keep working for a long time, like a superhero standing guard.
3. Low Toxicity to Humans and Pets: They are safe around people and animals, so no need to worry about your cattle.
4. Effective in Small Amounts: A little goes a long way, making them efficient and powerful.
5. Broad Spectrum: They can fight off many different types of bugs, not just one kind.

So, synthetic pyrethroids are like superhero sprays that keep your home and plants safe from bugs, working quickly and staying effective for a long time, without being harmful to you or your pets.

Source: Slideshare

Now these are used in the technical/active ingredient industry as a key raw material. India manufactures 70% of the world’s Synthetic Pyrethroids and it is majorly exported. 

Oh, there’s one more trivia. China is not present in Synthetic Pyrethroids! 

Anyway, this might confuse many, but the management wants to double down on their institutional formulations business, especially with the new Sayakha Plant. 

And there is a method to this madness too. 

Source: Q4FY23, Dharmaj Crop Guard Conference Call Transcript

Though they’re diving into the synthetic pyrethroid market with their Sayakha plant, they are aiming to make our mark across India, especially in B2B. 

Their strategy? Hit every small formulator out there—over 1,500 of them. They plan to become a PAN India player in the B2B business. They don’t want to miss a single business opportunity. 

So what they do is pretty interesting. They approach small customers/small formulation players having < INR 10cr of turnover with their 250+ products and help them by providing pan -India services. Nobody else is doing this in the industry. 

They’re also playing the long game with the big corporate players. They’ve started talks with the likes of Coromandel, UPL, Hemani, Heranba, Bharat, and Rallis. Now Tata companies like Rallis are huge and that is where Dharmaj has found an opportunity. Rallis has a QC department which approves the products it takes from formulators. And then once they decide on a vendor, they stick with them for long. 6-7 products of Dharmaj are approved by Rallis and they’ve already started delivering these to them. 

As and when more products are approved and more institution empanelment happens, Dharmaj will see an impressive growth in the coming years according to the management. 

The idea is to build strong, lasting relationships, paving the way for bartering deals—trading their synthetic pyrethroids for these big players’ technical products, which will further bring down Dharmaj’s costs. This approach is already showing promise with their ongoing talks with Coromandel, and will pay off big time in the years to come.

At the end of FY23, the company’s existing formulation plant was operating at 60-65%, inline with the seasonality prevalent in the industry.

Moving onto their balance sheet, we can see their working capital cycle expanding despite drop in receivable and inventory days. However, the management seemed to have made use of the market conditions perfectly well. Prices are coming down – Industry wide. Due to the poor rabi season, inventories are getting flushed at discounted rates, but also their raw materials are available at cheap rates. 

Dharmaj decides to go on a raw material buying spree here –  at a heavily discounted rate – by paying upfront! Hence the inflated payables relative to the previous financial year. 

Source: screener.in

They buy stuff when they need it, no sooner. Cheapest goes first. Last thing they get is the pricey technical part, which they grab at the last possible second from the market. Then they quickly process it, pack it and ship it out. Just-in-time inventory. 

Moreover they have an internal policy where they operate most of their business in cash and  give service to only those B2B customers who work in the receivable cycle of 90 days to 120 days with discipline.

That’s their secret sauce. This is how they control their working capital. This is what differentiates them from their competition. 

Lastly, I would like to emphasize that the company’s raw material costs have been near constant at 81% since 2019 except FY22 and FY23.  

And it was in FY23 that we saw that the company was unable to transfer the increase in their costs to their customers. 

Interestingly, Dharmaj has managed to keep their rest of the expenses constant, which shows their operational efficiency. In fact they have managed to bring down and maintain their other manufacturing expenses to 1% in FY23 from 2% in FY21.

With FY23 drawing curtains, the management is looking forward to FY24 where they will be commissioning their Sayakha Plant. The next trigger for the company which will set into motion their 3-way model for growth: 1. Their B2C business 2. Their B2B and finally, 3. Their Technicals Plant making their operations completely integrated.

Now let’s analyze their performance in FY24 before we go ahead with the second part of the story. The hope was that H2FY24 would see a reversal in the fortunes of the agrochem industry, but we still saw the same old reasons – poor/untimely monsoons, global inventory destocking and volatile raw material prices. 

Despite the challenges, Dharmaj managed to grow its topline by 24-25% for the full year. This was primarily on the account of 50% growth in volume rather than their realizations. 

Though their profitability in Q4FY24 was impacted heavily, one needs to understand that it was on account of their new Sayakha plant getting operational as there were higher fixed costs and finance  + depreciation costs. 

Both of their primary revenue segments saw healthy 22%/29% growth in the full year while they also managed to grow their exports by 6%.

Source: Q4FY24, Dharmaj Crop Guard Investor Presentation

Dharmaj has been phenomenal in keeping their Working Capital Cycle short. We discussed how they do it. But the working Capital Cycle again has been stretched for the last two years. Though management has alluded to the fact that they are expanding into new territories as part of their strategy. 

Moreover, as explained earlier, they made use of the downward pricing trend and bought their raw materials in cash at a heavy discount (hence less payables). So FY23 was clearly an exception. 

The team is confident that this will stabilize from the next financial year. 

However, with the new technical plant online, there will be a new normal when it comes to their working capital cycle. Credit period in technical products is generally close to 120 as compared to the 90 days in formulations. Thus, their CFO in the last call made it clear that they will now be having a working capital cycle of  about 85-90 days as compared to the sub 60 days they used to manage earlier.

We referred to Dharmaj entering new geographies just now, right. Turns out, they require 3 years to completely establish themselves in the new markets and they see revenue coming in from the 2nd year onwards. In FY24, Dharmaj entered 4 new states, which brought their tally to 24 states pan India. 

So, to summarize Part-1 of the story:  Dharmaj has managed to grow rapidly in a highly commoditized market  with their formulations business, especially in their B2B segment. They are expanding geographically in their B2C segment as well and their upcoming Sayakha plant will add new dimensions to their business and let’s know how. 

This brings us to the second part of the story:

Part-II : Post-Sayakha Plant (FY25 Onwards)

The Rs. 275 Cr.  the multipurpose Sayakha plant finally got commissioned on January 22, 2024.Dharmaj straight away kicked off trial batches, ramping up to commercial scale by April. 

As planned, this saw Dharmaj’s Phase 1 of Project online and it brought 7 to 8 products to life—5 synthetic pyrethroids and 3 non-synthetics. As discussed the 5 synthetic pyrethroids which are recently commercialized will be used in bartering with B2Bs as referenced earlier.

Their dedicated products have dedicated plants. If opportunity arises, they can pounce on it. Not many peers have this model.

By May, the company nailed the required purity levels. In its first full year, that is from FY25 onwards, they are aiming for 200 metric tons a month of production, i.e 30% capacity by end of the year.  It’s presumably going to be a grind, as is with any chemical plant and Dharmaj is targeting FY27 for the plant to become fully operational. 

Moving on. Dharmaj has already started exporting to Asia from this new plant, with shipments rolling out in April and May of FY2024. Big markets like North and South America, Europe, and Australia are in our sights, but those registrations take time. In two years, our export game will be stronger because of the Sayakha Plant. 

Moreover,  earlier the plan was to only do Synthetic Pyrethroids but looking at the market conditions management decided to tweak their plans. They will now also be producing non-synthetic pyrethroids. (Refer to our discussion on pyrethroids above). 

Source: Q4FY24, Dharmaj Crop Guard Conference Cal

Dharmaj also decided to go ahead with sophisticated machinery than previously planned owing to better quality of output. This has led to slight  cost overrun in the capex. However, the management is confident that this will hold them in steady waters in the future. 

This new plant will ultimately result in 100-100bps increase in Dharmaj’s OPMs as well. 

Source: Q4FY24, Dharmaj Crop Guard Conference Call

Dharmaj’s targets to achieve 30% utilization in FY25 but for breakeven, they will need to clock ~ 40% capacity utilization (next year). This should translate to around 2400 tonnes in volume and Rs. 200 to Rs. 220 crores in sales, including 30% captive consumption,  from the Sayakha plant.

Source: Q4FY24, Dharmaj Crop Guard Conference Call

Interestingly, Gharda, which is the largest manufacturer in the synthetic pyrethroid industry, has had their plant shut down for the past 6 to 8 months as they relocate from Dombivli to Sayakha. 

This transition will take about two years to complete, leaving a gap in the market. And Dharmaj’ new technicals / Synthetic Pyrethroid plant has come right on time to fill this gap. 

Source: Q4FY24, Dharmaj Crop Guard Conference Call

Sayakha / GIDC, Bharuch has the full potential of becoming the Agrochem capital of India, where an entire ecosystem is being prepared. Along with Gharda, Bharat Rasayan in JV with Nissan Chemical Corporation has also come up with their intermediate manufacturing facility which uses synthetic pyrethroids as their raw material. This will potentially and strategically open up opportunities for Dharmaj as well.    

Source: Prdnt_Investor on ValuePickr

This was all about their new Sayakha Plant. It was short, because it is just the beginning. And considering the above, how management is guiding for the future is what will make this company even further interesting. 

Management Guidance 

Overall, for FY25, management has guided for > Rs. 900 crores topline and about Rs. 65cr. PAT. They are targeting around 2400 MT in technical sales and 30-35% growth in volumes in their formulations business as well. 

They are targeting a break up of Rs. 800Cr from Formulations business and Rs. 150 Cr. excluding captive consumption in FY25. Though at the operational levels, we need to be prepared for a loss of about Rs. 15 Cr. to Rs. 20 cr. from their new plant (depending on the pricing).

Assuming the company delivers, and given the integrity and expertise of the promoters, we are confident they will. Dharmaj is currently trading at about 13.5x one-year forward earnings, making it an even more compelling case.

However, it is FY26 where we will be seeing a turnaround in the business of Dharmaj because now there will not be any major CAPEX and all the expenditures are already set and they will be seeing revenue improvement in all their verticals.

But my view is longer in this business. At its peak performance (by FY27), management expects to do about Rs. 400 in sales. (excluding captive consumption. ). Do note that – 75% to 80% will be the maximum of our optimal utilization of what we are seeing here.

Also, once the plant is fully operational by FY27, we will see their overall EBITDA margins shot back to 14% as well. And if we assume that their formulations business will grow at 25% year on year, we might see them clock close to Rs. 1650 Cr in topline at the end of FY27. Of course, this will highly depend on the global pricing environment as well. 

Financing the new plant has resulted in some bloating of their balance sheet with a debt of about Rs. 80-85 Cr. However, with the government subsidies kicking in their interest cost is only 3%, which should not pain them much. Though, they plan to be debt free in the next 3-4 years anyway.

Source: Q4FY24, Dharmaj Crop Guard Conference Call

Risks and Conclusion

If I had to list down the risks there are only 2 which come to my mind. Dharmaj is dealing with the challenge of bringing their working capital cycle down. As discussed,  there will be a new normal with the new plant recently commissioned but will the company sustain their WC Cycle at 85-90 days remains to be seen. 

Moreover, the domestic agro-chemicals game is anyway risky. Government bans and erratic monsoons keep everyone on edge. Fake pesticides and insecticides can wreck brand trust and crops. 

Also there’s huge competition. Local players and big multinationals are fighting it out, driving prices down and squeezing margins. As Dharmaj  ramps up fast, it will be interesting to see if their growth rate sustains in this cut-throat competition. 

If so, it will surely be an interesting feat. 

All in all. New plant is online. Company is completely integrated. No capex apart from some maintenance ones. Not much room for geographical expansion as well. 

The cards have been laid out. Will it be a Royal Flush?  Nonetheless, their 2000 cr. company by 2030 mission seems to be underway.

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Disclaimer: No recommendation to buy. This is just for education purpose. SSIAS has no holding in this company. However, the author, @shivam_zn has taken a position last week in this business, so there might be bias.