Buy Dhanuka Agritech; target Rs 150: Emkay

Emkay Global Financial Services is bullish on Dhanuka Agritech and has recommended buy rating on the stock with a target price of Rs 150 in its February 21, 2013 research report.

"Dhanuka Agritech, Q3FY13 revenue growth of 26% to Rs 1.4bn was above our est. However EBITDA margins at 11.3% (-20bps yoy / -350bps qoq) was disappointing. Change in product mix as revenue contribution from top 5 products, where margins are relatively higher, declined to 25% from 31% previous year and 30% in Q2FY13. Driven by higher revenue growth, EBITDA increased by 25%yoy to Rs 158mn and PAT grew by 49% yoy to Rs 117mn resulting into EPS of Rs 2.3. It also announced interim dividend of Rs 1.5/ share.

Sale of company's key product – “Targa Super”, which accounts for ~20% to total revenues and enjoys higher margins, was adversely affected in current year due to poor monsoon. Though the placement season for next crop has yet to start (generally Q4 is the placement season for this product), management estimates that revenues from this product in FY13 will be down by 15-20%. A lower sale of this product has also affected its margins, resulted into higher inventory and has adversely affected working capital.

Management is confident about strong revenue growth going forward. A higher contribution from Targa Super driven by expectation of normal monsoon and comarketing arrangements with Insecticide, Godrej and Chambal fertiliser will drive revenues and margins. Successful launch of new products like Vitavax Ultra, Wetcit Lusture, Fluid etc should also contribute strong revenue growth in FY14. Higher contribution from these products which enjoys better margins is also like to drive Dhanuka's profit margins.

With placement season ahead and company's cautious decision to go slow on placement in Q4FY13, we have adjusted our FY13 est PAT marginally by 3% to Rs 607mn however keeping our FY14 est intact. We maintain our BUY recommendation on the stock (targe price Rs 150) at stock currently trades at 8.3xFY14 earnings," says Emkay Global Financial Services research report.

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