Dhanuka Agritech's Q3FY18 results (Outperformer) - Weak quarter
Q3FY18 result
- Dhanuka’s Q3FY18 performance was impacted by delayed rainfall in South India. Revenues stood at Rs2.21bn (est. Rs2.35bn), up 4.6% yoy led by volume growth of ~7%
- Gross margins declined by 135bps to Rs43.3% owing to unfavourable product mix and increase in raw material prices. This combined with higher employee costs (up 13.4%yoy) led to 237bps decline in EBITDA margins to 15.9%. EBITDA declined by 9% yoy to Rs343m (est. Rs410m)
- Lower tax rate (20.7% versus 28.6% in Q3FY17) ,stable depreciation costs and higher other income ( up 63.1% yoy) led to 6.4% yoy increase in PAT .Net profit for Q3FY18 stood at Rs286m (est. Rs291.4m).
Key positives: New product launches
Key negatives: Decline in gross margins
Impact on financials: Earnings estimates cut by 0.3%/1.4% in FY18/19E. Introduce FY20E EPS of Rs33.1/sh
Valuations & view
Dhanuka’s performance in Q3FY18 was impacted by delayed rainfall in South India, lower crop prices and higher raw material prices. In the near term (FY18E), improving reservoir levels, increase in area under rice and pulse cultivation 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. We expect revenue, EBITDA and net profit CAGR of 11.5%, 9.8% and 10.8% over FY17-20E. 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%), Dhanuka will continue to command rich valuations. We 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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