Dhanuka Agritech Ltd. share price target

We maintain NEUTRAL with a TP of Rs 730/sh (22x Dec FY19E EPS). Dhanuka Agritech (DAL) reported muted revenue growth of 4.6% YoY at Rs 2.21bn in 3QFY18, this was largely driven by volume growth. Higher RM costs resulted in lower gross margins at 43.3% (-134bps). EBITDA stood at Rs 353mn was impacted owing to higher employee cost (+13.4% YoY), consequently, EBITDAM declined by 237bps YoY to 15.9%. APAT stood at Rs 286mn (+6.4% YoY).

Dhanuka is India's second largest agro-chemical formulations company in domestic branded sales focusing on speciality molecules from global innovators. It has grown at revenue CAGR of around 11% over FY11-17, following an asset light model of producing formulations only and not technicals, which it sources from global partners. It has 11 tie-ups with global MNCs, which ensure new specialty products in Indian markets. Dhanuka has regularly launches new products, mainly in the fast-growing Herbicide/ Fungicide segments and over the years, it has a strong basket...

We maintain NEUTRAL with a TP of Rs 712/sh (22x FY19E EPS). Dhanuka Agritech (DAL) reported healthy revenue growth of 11.4% YoY at Rs 3.4bn in 2QFY18, owing to new product launches which boosted volume growth. Higher RM costs resulted in lower gross margins at 41.0% (-139bps). EBITDA at Rs 750mn was impacted owing to higher other expenditure and employee cost (+7.1% and 9.6% YoY). APAT stood at Rs 528mn (+5.3% YoY).

Dhanuka reported 2.2% YoY decline in revenue led by volume de-growth of 1.5% YoY (Bayer's domestic revenue down 5-7%; Rallis down ~5%; UPLs up 6%). Management highlighted that volumes have normalized from mid-July.

Gross sales dropped by 2% yoy to Rs2.1bn on the back of destocking ahead of GST implementation but was above our estimate of Rs2bn. Absence of operating leverage and higher RM cost resulted in 250bps yoy contraction in EBITDA margins to 11.8%. EBITDA fell 14% yoy to Rs245mn and was below our estimate of Rs278mn. PAT dropped by 19% yoy Rs161mn and was below our estimate of Rs197mn due to lower other income. Post GST, re-stocking has progressed at a healthy pace across north, central and west India owing to good monsoon and lower channel inventory. However, sales are yet to pick up in South India which has so far received deficient rainfall....

For FY18, the management guided (a) revenue growth of 15% vs. 17.5% earlier, (b) slight moderation in EBITDA margin (vs. 50-100 bps increase guided earlier) on increased investment in dealer network, and (c) 50-75 bps increase in effective tax rate.

Dhanuka Agritech (DAL) reported weak 4QFY17 numbers, owing to poor NE rains, lower pest attacks and demonetisation. Revenues were at Rs 1.6bn (-9% YoY). Better product mix/ inventory gains led to an EBITDA margin of 21.6% ( 428 bps). EBITDA was at Rs 342mn ( 14%). A higher tax rate and depreciation dragged APAT down to Rs 242mn (-4%).

Q3FY17 PAT at Rs 266 mn was higher than our/street estimate of Rs 230 mn due to strong gross margin at 44% (vs. 38% in Q3FY16 and 40% expected). While margin expansion was expected given weak raw material prices (now inching up) and better product mix, the extent has surprised us positively.

Dhanuka Agritechs (DALs) 3QFY17 revenues were muted at Rs 2.1bn ( 2% YoY) with demonetisation impacting volume growth. Higher share of specialty molecules and lower RM costs resulted in a 265bps expansion in EBITDA margin to 18.6%. EBITDA was at Rs 388mn ( 18%) and APAT at Rs 266mn ( 18%).