Dhanuka Agritech's Q4FY18 results (Outperformer) - Performance improves
Q4FY18 result
- Dhanuka reported revenue growth above our expectation of 16.5% yoy to Rs1.85bn (est:Rs1.79bn) led by 10.5% volume growth
- Gross margins declined by 505bps yoy to 45.1% due to unfavourable product mix and high base, however improved sequentially by 182bps. Higher employee costs (up 12.6%yoy) and higher other expenses (up 17.1% yoy) led to 456bps decline in EBITDA margins to 17%. EBITDA declined by 4.3% yoy to Rs314m (est. Rs349.1m)
- Lower tax rate (17% versus 26.3% in Q4FY17) ,stable depreciation costs and higher other income ( up 34% yoy) led to 14.6% yoy increase in PAT .Net profit for Q4FY18 stood at Rs286.4m (est. Rs255.3m).
Key positives: Traction in new product launches
Key negatives: Decline in Gross margins
Impact on financials: Earnings estimates cut by 5%/7.3% in FY19/20E.
Valuations & view
Dhanuka witnessed healthy traction in new product launches and improved distribution in Q4FY18. In FY19E, increase in acreage and reservoir levels with forecast of normal monsoon and improved cash flow among sugarcane farmers is expected to drive growth. On the profitability front, stable realisation and favourable exchange rate in imported speciality products is set to augur well. Fall in area under oil seeds and poor rainfall in South India are the key challenges faced by the company in the past. We expect revenue, EBITDA and net profit CAGR of 13.8%, 19.3% and 15% over FY18-20E. Dhanuka is a pure play on Indian agrochemicals, with innovator alliances enabling 2-3 9(3) registered product launches per annum and debt free balance sheet. Moreover, given strong free cash flow (Rs1bn/year) and attractive return ratios (RoE of ~23-24%), Dhanuka will continue to command rich valuations. We maintain Outperformer with revised target price of Rs676
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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