Multi Baggers

Sabero Organics Gujarat Ltd.

Sabero Organics Gujarat Limited (Sabero) was established in the year 1991 to manufacture Specialty Chemicals and Crop Protection Chemicals. The company has its manufacturing facilities located in Gujarat. Sabero is an ISO 9001 and ISO 14001 certified company with a diverse product portfolio manufacturing and marketing a variety of Fungicides, Herbicides, Insecticides & Speciality Chemicals. The company has a well established Research & Development centre with sophisticated analytical equipment and a well qualified team of scientists. All existing products manufactured by the Company have been mostly developed in-house.

Sabero has extensive manufacturing infrastructure with state-of-the-art plant. The Company has subsidiaries and associate Companies in Europe, Brazil, Argentina, Australia and Philippines.

Financials:

The latest financial data of the company is given as under:

Share price - Latest equity

Conclusion and Investment Rationale

Sabero Organics was acquired by the Murugappa Group in December 2011. Murugappa Group came out with an open offer at a price of Rs.160 and in addition paid Rs.38.47 per share to the earlier promoters of Sabero as Non-compete fee.

Murugappa Group is a well respected group based in South India with diversified business interests. The group has many companies - Carborundum Universal, EID Parry, Cholamandalam Investments, Tube Investments, Coromandel International, etc. under its fold. The group has deep knowledge and experience in Agriculture related businesses and the management has capability to significantly scale up operations - which is evident from the way companies like Coromandel International and EID Parry have grown in the last decade. Sabero Organics greatly benefits from the already established marketing network of Coromandel International and can leverage this network for its benefit.

After the acquisition by the Murugappa Group, the focus of the management has been to become fully complaint on regulatory norms on emission control, enhance capacity utilisation of the plant and to pursue product registrations for better growth opportunities. The company currently has over 250 product registrations in over 60 countries. The benefits of rationalisation and higher capacity utilisation have started kicking in - in the first half of FY 14, the company has registered a 50percent increase in Topline to Rs.390 crores with its PAT going up to Rs.26.44 crores from a mere Rs.2.14 crores registered in the same period last year.

The manufacturing plant currently operates at 65 percent capacity which the management expects to scale up to 85percent over the next 2 years. The focus of the management also  has been to improve EBIDTA margin to 15percent from 10percent currently through debottlenecking and use of alternate fuel. We believe these two things will significantly improve the financials of the company further.

Promoters currently hold close to 75 percent stake in the company. We believe the company is still trying to get its house in order after acquisition by the Murugappa Group. We believe the initiatives undertaken by the management will lead to the company reporting higher revenues and profitability and at the same time get higher discounting on the bourses.

The stock looks attractive at the current levels and on declines.

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