>SABERO ORGANICS GUJARAT LIMITED (HDFC SECURITIES)

Medium risk – Small cap investment idea

At the current price of Rs. 35.25, SOGL is available at 4.7 times its FY09 EPS. We feel that investors could buy the stock at current levels and average on dips to Rs 28 with sequential targets of Rs 42 to Rs 49 in the next 2 quarters.

Company Background
Sabero Organics Gujarat Limited (SOGL) was established in the year 1991 to manufacture specialty chemicals and intermediates for the crop protection business. It then forward integrated in 1997 into manufacturing crop protection chemicals. In order to have a diversified portfolio, SOGL chose one or two key products in each sector such as Acephate and Monocrotophos (Insecticides), Glyphosate (Herbicide) and Mancozeb (Fungicide). As the company was already manufacturing some of the intermediates for these products, it excelled in the technology for manufacturing organophosphorus and dithiocarbamate products.

Apart from sales of unbranded technical and formulations, the Company also established in 1997 its business of branded agrochemical formulations. It launched a full range of products, which included in addition to its own technical based product, other products such as
Ethephon, Cypermethrin, Chlorpyriphos, Dichlorvos, Profenofos, Triazophos, Propiconazole, and Hexconazole etc. The company went public in the year 1994 through an IPO, which was followed up by a Rights Issue in 1997.

SOGL has an extensive manufacturing facility with state-of-the-art sophisticated equipments and PLC based process control. The company is a signatory to the Responsible Care Program and has extensive facilities for treatment of all wastes to meet statutory environmental standards. It has extensive facilities centered on various methods of treatment & mitigation with redundancy including a biological effluent treatment plant, chemical treatment plant, incinerators, by product recovery plant and multiple effect evaporators. All these facilities were extensively upgraded and expanded in FY09.

The company first started manufacturing Organo Phosphorous Pesticide Intermediates, Phosphorus Trichloride (PCL3), Tri Methyl Phosphite (TMP) & Di Ethyl Thio Phosphoryl Chloride (DETC), in 1994. In 1998, SOGL forward integrated into the manufacture of
active ingredients, Acephate and Glyphosate. In 2000, it started production of Mancozeb and also forward integrated into branded formulations, building an all India distribution network. It started exports to asia, Australia & Europe in 1999 onwards. It also then formed subsidiaries in Europe and Australia. In the year 2002 it started manufacturing Monocrotophos and Dichlorovos. It later expanded the export business to Latin America, USA and Africa from 2002 onwards. In the year 2005 it started to manufacture Chlorpyriphos and set up subsidiaries in brazil and Argentina by 2006. It debottlenecked Acephate & Monocrotophos plants in 2008. During the financial year 2008 –09 it undertook a major project to expand Mancozeb, Chlorpyriphos & Glyphosate capacities with majority of the capital investment in Mancozeb.

Company Highlights

• Manufacturing facility located in Gujarat
• Recognized export house with more than 65% of its revenues coming from exports
• Amongst the lowest cost producers in the world for its main products
• ISO 9001 & ISO 14001 certified
• R&D Department recognized by Govt. of India
• Employs 525 people
• Pioneer industry title by Govt. of Gujarat

Promoter Background
The Chuganee Family promoted SOGL. Its Chairman H J Chuganee has more than 4 decades of experience as a technocrat and was the CEO of Rohm & Haas, India for 15 years. The shareholding of Chuganee family and associated stands at 42% (post warrant conversion – 46.72 lac warrants allotted in June 2009).

Products
The segments of the market that SOGL operates in are:

· Intermediates: PCL3, TMP & TEP
· Technicals: Acephate, Mancozeb, Maneb, Propineb, Zineb, Monocrotophos, Glyphosate, DDVP and Chlorpyriphos
· Formulations: 13 different products sold under different brand names based on own and 3rd party technicals

Planning to Introduce:
· Insecticides: Fipronil
· Herbicides: Trichlopyr, Clodinafob Propargyl Bispyribac Sodium

The company sells its products either as technical/active ingredient, bulk formulations, small pack formulations in customer brand name and small pack formulations in own brand name.

To see full report: SOGL