Buy Dhanuka Agritech; target Rs 140: Nirmal Bang

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Buy Dhanuka Agritech; target Rs 140: Nirmal Bang

Nirmal Bang is bullish on Dhanuka Agritech and has recommended buy rating on the stock with a target price of Rs 140 in its November 16, 2011 research report.

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Nirmal Bang is bullish on Dhanuka Agritech and has recommended buy rating on the stock with a target price of Rs 140 in its November 16, 2011 research report.

"Dhanuka Agritech reported sales of Rs 191.2 crs, registering a growth of 15.2% yoy and 103% qoq. Due to erratic rains the sales was lower than the expectations. The company is expecting higher growth in Q3 however also believes that Q3FY12 will also have some spillover effect of this irregular rains. (June and July being the long dry months and August and Sept received above average rains). Q2 is seasonally weak quarter for the company in terms of margins as material cost increases during the quarter. The company reported EBITDA margins of 13.3% during the quarter as compared to 16.2% in Q1FY12. However, there was an improvement as compared to Q2FY11 where margins were 12.7%. EBITDA margins are expected to come back to normal levels of around 14.5%-15.0% from Q3 onwards. For the full year FY12E Dhanuka is expected to report EBITDA margins of 14.7%."

"Despite lower margins on sequential basis, PAT margins were higher at 11% as compared to Q1FY12 of 10.7% due to lower tax. The company has changed product mix at its Uddampur facility (which is under 100% tax benefit currently) in addition with usage of surcharge tax resulted in lower tax rate during the quarter. The company launched four new products during the quarter with association with various MNCs. Dhanuka is in process of acquiring 25% stake in a Seed Company and is expected to complete the process during FY12."

"We still believe the outlook for the company looks promising with factors like the low per-capita consumption of pesticides, which provides opportunities for growth, increased demand for food grains and the rising awareness about pesticide usage among the farming community. Based on our EPS of Rs. 12.7 for FY12E and a target multiple of 11x we arrive at target price of Rs. 140 potential upside of 38% from current levels," says Nirmal Bang research report.

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