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Last Updated : Jun 12, 2020 02:01 PM IST | Source: Moneycontrol.com

This agrochemical stock is up 115% since March; analysts still see double-digit gains

The management is hopeful of gross margin expansion in FY21. The company is secured in terms of availability of products for the next 2-3 months.

Sunil Shankar Matkar
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Shares of Dhanuka Agritech have rallied 115 percent from its March lows of Rs 298.75. On June 11, the stock gained 2 percent to close at Rs 642.20 after March quarter earnings beat analysts estimates.

Brokerages have remained bullish on the stock and retained their buy rating. Majority of them still expect double-digit returns in the stock, going ahead.

"We continue to be positive on Dhanuka Agritech, value the stock at 17x FY22E EPS and maintain our buy rating on the stock with a target price of Rs 717 per share. We are expecting Sales/EBITDA/PAT CAGR of 14.5/22.7/19.1 percent over FY20-22," said Dolat Capital. Its target price implies 11.6 percent potential upside from current levels.


Dhanuka Agritech is an agrochemical company having a three manufacturing facilities in Rajasthan, Gujarat and J&K.

According to Dolat Capital, Dhanuka's asset light business model, superior return ratios (ROE/RoCE: 21.5/20.7 percent in FY22) and the recent product launches are expected to drive growth.

The brokerage expects Dhanuka Agritech to navigate through the pandemic with the help of a normal monsoon, strong distribution and product brand re-call. It believes that on the back of normalization of technical prices, margins will stabilize over the next few quarters.

Dhanuka Agritech reported a healthy performance in Q4FY20 with profit rising 45.8 percent to Rs 39 crore, revenue up 18.1 percent to Rs 227.6 crore and EBITDA surging 38.6 percent to Rs 45.8 crore compared to same quarter last year.

Sales growth was driven by higher volume growth of 19 percent, the company has taken price hikes for the upcoming Kharif season, while other income and lower tax cost boosted profitability.

Gross margins improved 84bps YoY as raw material price pressure has started abating coupled with a favorable change in the product mix. EBITDA margins jumped 298bps YoY to 20.1 percent, owing to improvement in gross margins and cost efficiencies.

"We raise our target multiple to 19x one-year forward (versus 18x earlier) due to robust demand outlook and strong balance sheet," said Emkay Global which has maintained a buy call on the stock with a revised target of Rs 715, implying 11.3 percent potential upside.

The brokerage raised its FY21/22 revenue estimates by 7/8 percent and EBITDA estimates by 12/11 percent on the back of robust demand environment (bountiful rainfall forecast), improving product mix in favor of specialty products and abating raw material price pressure.

Key risks to its rating are sharp increase in raw material prices, and adverse weather impact on demand, said Emkay Global.

While maintaining buy rating with a target price of Rs 656, Prabhudas Lilladher also said Dhanuka Agritech reported better-than-expected results driven by higher-than-anticipated sales in South (up 55 percent) and West (up 95 percent) in Q4FY20.

"Since Dhanuka's fortunes are entirely dependent on domestic agrochemical industry (with underlying tailwinds for the sector) earnings growth has a potential to surprise on the upside," said Prabhudas Lilladher which feels earnings growth is expected to accelerate driven by robust demand for Herbicides, traction in North & South India along with 5 new launches in FY21.

"Removal of weeds on certain crops like rice is very labour intensive and with lower labour availability, herbicide sales is seeing strong demand. Very severe locust outbreak is also leading to sharp demand surge for insecticides," the brokerage said.

The management is hopeful of gross margin expansion in FY21. The company is secured in terms of availability of products for the next 2-3 months.

In full financial year 2019-20, Dhanuka Agritech reported a 25.7 percent growth in profit at Rs 141.5 crore and 11.4 percent increase in revenue at Rs 1,120.1 crore compared to previous year. Volume growth was 12.7 percent in FY20.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Jun 12, 2020 02:01 pm