Sabero Organics Gujarat Limited (SOGL) BSE Code: 524446 NE Id: SABERORGAN

Addressing the needs of the robustly growing population.

CMP (BSE): Rs. 73.50

CMP (NSE): Rs. 73.75

Industry: Agrochemicals

The world population is currently 6.7 billion and 750 million people are born every year. Population is projected to reach 9 billion by 2050. In order to feed such huge population, the yields from the farm has to be increased substantially from the current levels. Due to this the demand for agrochemicals is going to be very strong in the coming years, because of it being one of the key inputs to increasing yields.

Sabero Organics Gujarat Limited (SOGL) is a company that is a leader in crop protection and a leading producer and supplier of agrochemicals such as fungicides, herbicides, insecticides and specialty chemicals. Currently it has a product portfolio of 5 insecticides, 2 fungicide and 1 herbicide. It has its manufacturing facilities located in Gujarat and has marketing offices in India, Brazil, Europe, Australia and Argentina. It supplies its products to over 1000 customers in 50 countries.

In our country, agriculture and allied sectors account for around 18% of the GDP but employs almost 70% of the total workforce. Hence it is still the largest economic sector and plays a significant role in the overall socio-economic development in India. In addition to this the performance of this sector is more dependent on the weather and climatic conditions and to some extent is largely insulated from the financial markets and economic scenario. SOGL exports almost 65% of its turnover and to that extent it is insulated from the regional climatic conditions by diversifying this risk by selling to countries in all the parts of the world in the southern and northern hemispheres, both of which have opposing climate throughout the year. In addition to this it is present in all the three segments- insecticides, fungicides and herbicides, so if there is a dip in the demand in one segment it can be made up in other segments. This is how it diversifies its risk of uncertainity. This also ensures fairly stable and uniform sales throughout the year. Currently insecticides and fungicides each bring in about 40% of SOGL's revenues while the herbicide - Glyphosate, brings in the remaining 20%.

In the herbicide segment, the largest herbicide globally is Glyphosate which is used to kill unwanted plants in both agricultural and non- agricultural landscapes. The demand for this product has gone up significantly. The company has recently obtained registration for glyphosate technical in Europe and is now focusing on high margin markets like Africa and Latin America. SOGL is the undisputed leader of glyphosate in India and stands second in the world.

In the fungicide segment, Mancozeb is the largest selling product. SOGL has recently expanded its mancozeb capacity to 30000MT, which has a potential to deliver $125 million of revenues at full capacity. The company has gained significant market share in Phillipines, Ecuador, Guatemela, Cameroun, Costa Rica, Columbia and also in some of the European countries. SOGL is the leading player in Mancozeb in India and the 2nd biggest player in the world.

In the insecticide segment, the largest selling insecticide globally is Chlorpyriphos. The demand for this product had increased globally. The company has received orders from Brazil in excess of half of its capacity from Brazil alone. SOGL is also a significant producer of acephate, the other large selling insecticide and a major product in India, Brazil, USA, Argentina, Paraguay and Japan. SOGL is a major player in both this products, in both domestic as well as international markets.

SOGL has set up a total of 6 subsidiaries and associate companies in Australia, Europe, Philippines, Argentina and Brazil. Though them SOGL obtains registrations both locally as well as in neighboring countries. Currently, SOGL and its subsidiaries have about 240 product registration in 50 countries. A product registration is a prerequisite to selling a product in a particular market. Brazil is the 2nd largest agrochemical market in the world and hence registrations in such countries are more expensive and difficult to obtain. SOGL obtained its first registration of Chlorpyriphos in April,2009. SOGL expects to obtain three more registrations of Mancozeb, Acephate and Glyphosate in Brazil.

New Initiatives:

• SOGL is filing for new product registrations in key markets such as US, Europe, Argentina, Brazil and Latin America. In the last 3-4 quaters , 4-5 new products have already been registered in Australia and Argentina. Approval of 3-4 more product registrations are present in th pipeline and will be complete within the next 2 months. This is expected to drive SOGL's topline as well as its bottomline.
• SOGL has entered into the formulations business for it to become an integrated player in the crop protection industry. The strategy is to use its own technical products to form new formulations. SOGL is also planning to set up a plant in Dahej SEZ which will help it to reduce its cost. In addition to this, SOGL also plans to launch 2-3 new products every year to enhance its product base and help it in backward as well as forward integration.

During the past 5 years, the profits of SOGL has grown at 61% CAGR and its sales have grown at 30% CAGR. Currently SOGL is quoting at a PE of just 6.93 in an industry whose average PE is 17.40. Its EPS for the FY10 was Rs. 13.15 as compared to the EPS of FY09 which was Rs. 7.47, an increase of about 76% in its earnings. Its revenues showed a growth of 15.5% as it stood at Rs. 461 cr for FY10 up from Rs. 399 cr for FY09. Its EBIDTA was up by 62.5% to Rs. 85.87 cr in FY10 from Rs. 52.82 cr in FY09. This resulted in higher operating margins. The operating margins stood at 19.95% in FY10 compared to 14.41% in FY09. The net profit margin was up 77.7% at Rs. 38.72 cr in FY10 from Rs. 21.79 cr in FY09. The net profit margin also improved to 9% from 5.9% in FY09.

SOGL is following a steady business model that requires little capex to grow. Registering more and more products in overseas market, introducing new products and expanding retail footprint are the three prolonged strategies adopted by SOGL. At a time when Indian agrochemical players are expected to gain from the pressure to improve the agricultural yield and the shift of manufacturing base from western countries to Asia, long term investment in SOGL should be considered.

Happy Investing.