Dhanuka Agritech Ltd. share price target

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%).

Dhanuka Agritechs (DAL) 2QFY17 revenues grew by 15% YoY to Rs 3.1bn led by higher volumes. Higher share of specialty molecules and lower RM prices resulted in 278bps expansion in EBITDA margin to 22.8%. Consequently EBITDA was Rs 708mn ( 31%) and APAT was Rs 492mn ( 31%). Normal monsoon in 2016 (after two successive years of rain deficit) saved the Indian agriculture industry. Record sowing, favourable govt. policies and focus on pulses should lead to a bumper kharif season.

Innovation and new product launches hold the key to growth : The objective of identifying new crop protection solutions for Indian farmers, for marketing new agrochemicals and for registering new products led DAL to look for novel ideas in India and overseas. Innovation has been DAL's key strength with its technical collaborations with global MNC giants such as Dow Agro Sciences, Dupont, Sumitomo Corporation, Mitsui Chemicals, among others. Partnership-driven revenues accounted for almost 43% of DAL's total revenue in FY16. In FY16, DAL launched 5 new products Cover 9(4), Dhanvarsha, Dozo 9(4), Thiram 9(4) and Goldy 9(4). In FY17, in the first quarter, the company has already launched 4 new products ...

Dhanuka Agritechs (DAL) 1QFY17 revenues grew by 10% YoY to Rs 1.9bn mainly led by higher sales of herbicides. Better product mix resulted in 56bps expansion in EBITDA margin to 14.4% and consequently EBITDA was Rs 287mn ( 15% YoY). Higher tax rate dragged APAT to Rs 193mn ( 4.3%).

EBITDA margin stood at 20%: Even after the stressed quarter for the whole agrochemical industry, Dhanuka reported, Rs 541mn EBITDA with the EBITDA margins of 20% (expansion of 60bps/616bps YoY /QoQ respectively)...

Management Discussion: 1) The management expect revenue to grow at ~10 FY16, 2) 1QFY16 volume grew by 7% vs value growth of 3%, 3) the management expect margins to be at pressure due to product mix, 4) capex...