Dhanuka Agritech Ltd (Q1 FY15)

Dhanuka Agritech’s (DAL) revenues stood at Rs1748mn, below our estimate of Rs1910mn.

Aug 05, 2014 12:08 IST India Infoline News Service

CMP Rs422, Target Rs800, Upside 89.5% 
  • Revenue growth muted at 5.2% yoy primarily on account of weak monsoon and lower placements

  • Gross margins expanded by 158 bps yoy to 36.3% driven by better product mix and stable raw material cost of specialty products

  • Operating margin at 16.2% was slightly higher than our expectation; PAT grew by 17.9% yoy additionally aided by lower tax rate

  • Maintain Buy with a 24-month price target of Rs800

Result table
(Rs mn) Q1 FY15 Q1 FY14 % yoy Q4 FY14 % qoq
Net sales 1,748 1,662 5.2 1,528 14.4
Material costs 1,477 1,266 16.7 1,058 39.7
Personnel costs 157 133 18.0 146 7.8
Stock in Trade (376) (181) 107.2 (170) 121.2
Other expenses 206 193 6.9 217 (5.1)
Operating profit 284 252 12.7 278 2.2
OPM (%) 16.2 15.1 108 bps (18.2) (194) bps
Depreciation (13) (12) 14.7 (13) 4.3
Interest (9) (10) (11.2) (10) (12.8)
Other income 1 4 (59.5) 3 (57.1)
PBT 263 234 12.4 258 1.8
Tax (59) (61) (3.2) (34) 73.6
Effective tax rate (%) 22.3 25.9   13.1  
Adjusted PAT 204 173 17.9 225 (9.0)
Adj. PAT margin (%) 11.7 10.4 126 bps 14.7 (300) bps
Extra ordinary items - - - - -
Reported PAT 204 173 17.9 225 (9.0)
Source: Company, India Infoline Research

Revenue growth fell short of expectation due to lower placements and bad monsoon

Dhanuka Agritech’s (DAL) revenues stood at Rs1748mn, below our estimate of Rs1910mn. The underperformance was largely due to bad start to the monsoon which resulted in cautious placements by the company. However, monsoon has picked up in many parts of the country with IMD expected to reduce its forecast of rainfall deficiency to 10% versus 32% earlier. Although late, a revival in monsoon will help for a stronger Rabi season.

Inspite of muted revenue growth, gross margins have expanded by 158bps on the back of better product mix and stable raw material prices of specialty products. Two thirds of the revenue comes from specialty products where the company has contracted the raw material from its MNC partner at fixed prices and the price revision happens only yearly.

Two new 9(3) products received approvals; will launch 3 products in next 2 years

DAL has received approvals for two new products - Motor and Sakura. These products are registered under the section 9(3) of the Central Insecticides Board. ‘Motor’ is a novel formulation developed after extensive in-house R&D. It is an insecticide mainly for paddy and vegetables. ‘Sakura’, a weedicide, will be launched in partnership with Nissan. It will be positioned as a premium product and will mainly cater to soya bean crop. A third product is expected to receive approval during Q2 FY15. It will be a molecule developed by Nissan and will be launched in India for the first time by DAL. It is an herbicide for sugarcane. The company is working towards launching at least 3 more products in the next 24 months.

In-licensed product portfolio was further strengthened by addition of two more products. Pager, a broad spectrum insecticide, was launched in July 2014. It finds application in cotton and many vegetables. Jackal, another insecticide, will be launched in Sept 2014. Syngenta is the original innovator of Jackal’s molecule and had introduced it in India some years back.

New plant to be commissioned by Q4 FY15

Completion of its state of the art facility at Keshwana (Rajasthan) is on track and is expected to be commissioned by Q4 FY15. This plant will triple the existing capacity and has a potential to generate revenue of Rs5bn.

Long term story intact; maintain Buy

Some of the key issues the new Government wishes to address are a) improving crop yields to meet the rising food grain demand b) achieving agriculture growth of 4%, and c) connecting major rivers to provide year round water for irrigation. All these are most likely to boost agrochemical demand in the coming years.

With new capacity coming on stream by the end of this fiscal we expect DAL to be a major beneficiary of the anticipated pickup in demand. Strong response for recently launched products like Lustre and Maxyld and robust pipeline of new products will help DAL sustain margins above 16%. After a delayed start, monsoon has picked up in the past few weeks. However, this delay has caused loss in spraying of agrochemicals. Monsoon remains a key monitorable as the fate of kharif crops depend on it. Good rainfall over the next few weeks will encourage sowing activity. We remain optimistic about the growth of the company and estimate 26% earning CAGR over FY14-17E. We maintain Buy with 24-month target of Rs800.

Financial Summary
Y/e 31 Mar (Rs m)  FY14  FY15E  FY16E  FY17E
Revenues 7,395 9,317 11,745 14,877
Yoy growth (%) 27.0 26.0 26.1 26.7
Operating profit 1,216 1,540 1,961 2,499
OPM (%) 16.4 16.5 16.7 16.8
Pre-exceptional PAT 931 1,151 1,405 1,806
Reported PAT 931 1,151 1,405 1,806
Yoy growth (%) 44.5 23.5 22.1 28.5
EPS (Rs) 18.6 23.0 28.1 36.1
P/E (x) 24.1 19.5 16.0 12.4
Price/Book (x) 6.7 5.4 4.3 3.4
EV/EBITDA (x) 18.9 14.8 11.6 9.1
Debt/Equity (x) 0.2 0.1 0.1 0.1
RoE (%) 31.3 30.6 29.8 30.5
RoCE (%) 34.9 34.5 36.1 37.7
Source: Company, India Infoline Research

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