Dhanuka Agritech's Q3FY19 results (Outperformer) - Weak performance
Q3FY19 result
- Dhanuka reported revenue and EBITDA below our estimates owing to weak rabi sowing and lower realisations.
- Revenues declined by 2.1% to Rs2.16bn below our est. of Rs2.35bn owing to 6% decline in volumes
- Gross margins declined sharply by 670bps to 36.6% on dhanuka’s inability to pass on the increase in raw material prices
- Despite lower employee costs, higher operating expense led to 600bps decline in EBITDA margins to 9.9%. EBITDA declined by 39% yoy to Rs214.9m (est. Rs275m).
- Higher tax rate of 34% vs 20.7% in Q3FY18 led to further 49% yoy decline in PAT. Reported PAT stood at Rs146m ( much below our est: Rs258m)
Key positives: traction in product launched in FY18 , improvement in working capital
Key negatives: Muted product launches in FY19, decline in volumes
Impact on financials: Cut EPS by 15% /18% in FY19E/20E respectively to factor in lower profitability. Introduce FY21E EPS of Rs28.5/ share
Valuations & view
Dhanuka’s performance in Q3FY19 was severely hit by weak rabi sowing, subdued commodity prices and lower realisations. While management expects current weakness to continue in Q4, growth is expected to pick up in FY20E with normal kharif season and introduction of new products. On the profitability front, tight control on operating expenses and improvement in product mix is set to augur well in the near term. Dhanuka has a differentiated, asset-light business model with established alliances with innovators enabling 2-3 9(3) registered product launches per annum: however the company is a pure play on Indian agrochemicals since it derives its entire revenues from the sale of products in India hence the company is exposed to the risk of uncertain monsoons. Further, spending on speciality products (more expensive than commoditised generic products) is largely dependent on agriculture produce price and liquidity among farmers. Moreover lack of AI manufacturing capabilities can restrict Dhanuka’s ability to increase profitability. We have cut our target price to Rs428 based on 15x FY21E (20x earlier) EPS of Rs28.5/sh. Maintain outperformer.​
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.
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