Dhanuka Agritech's Q1FY20 results (Outperformer) - Weak performance, recovery likely in Q2
Q1FY20 result
- Dhanuka reported muted sales growth of 2.8% to Rs2.18bn ( est Rs2.25bn) owing to delayed monsoon and weak kharif sowing
- Gross margins declined by 110bps to 34.1% ( est : 37%) on Dhanuka’s inability to pass on the increase in raw material prices (China slowdown)
- Tight control on operating expenses and employee costs led to 161bps improvement in EBITDA margins. EBITDA increased by 25% yoy to Rs199m albeit on a low base ( est : Rs271m)
- Lower other income (down 56% , est: Rs65m ) and higher tax rate ( 29.2% vs 23.4% in Q1FY19, est: 30%) led to 9.3% decline in PAT to Rs147m (est: Rs211m)
Key positives: New product launches, improvement in EBITDA margins
Key negatives: Muted revenue growth, decline in Gross margins
Impact on financials: Cut EPS by 3% in FY21E to factor in lower gross margins (China uncertainty)
Valuations & view
Dhanuka performance in Q1FY20 was impacted by delayed monsoons and weak kharif sowng,. In the near term (Q2FY20), normal monsoons and traction in new product launches (Largo and Apply ) is expected to drive growth. on the profitability front tight control over operating expenses should negate the impact of raw material price volatility. Dhanuka is a pure play on Indian agrochemicals with a differentiated, asset-light business model, based on its alliances with innovators to launch 9(3) registered products and generic sales. Dhanuka’s India-focused model has demonstrated fragility (versus geographically diversified peers), as its business has been adversely impacted due to erratic monsoons and liquidity constraints at the farmers’ end, along with volatility in raw material prices. We believe gradual normalization in raw material prices and impact of cost rationalization measures coupled with new product launches should aid a strong bounce back in Dhanuka’s earnings over FY19-21E. Return ratios should continue to stay healthy. We maintain our Outperformer rating on the stock with a target price of Rs435 (15x FY21E PER). A weak monsoon remains a key risk to our estimates.
Dhanuka Agritech Limited is engaged in formulation and marketing of plant protection agro-chemicals, including insecticides, herbicides, fungicides and plant growth regulators. The Company's brand portfolio consists of over 80 products. The Company offers a range of product categories, including Herbicides, such as TARGA SUPER, NABOOD, HOOK, SULTOP, DYNOFOP, CRAZE, WEEDMAR SUPER/WEEDMAR, NOWEED, BARRIER and OZONE; Fungicides, such as Vitavax Power, Vitavax Ultra FF, Kasu-B, Sheathmar, Cursor and Hi-Dice; Insecticides, such as OMITE, CALDAN 4 G, CALDAN 50 SP, DUNET, MARKAR, AAATANK, DHAWA GOLD and AREVA, and Plant Growth Regulators, such as DHANZYME, DHANZYME GOLD, DHANUVIT and WETCIT. The Company offers its crop solutions for various crops, such as soybean, paddy, cotton, sugarcane, potato, chilli, brinjal, onion and garlic, tomato, okra, and cabbage and cauliflower. The Company has a network of approximately 8,800 distributors/dealers and approximately 80,000 retailers across India.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.