Buy Dhanuka Agritech; target of Rs 635: Prabhudas Lilladher

Prabhudas Lilladher's research report on Dhanuka Agritech

Dhanuka Agritech reported mixed set of results. Benefits of higher than anticipated topline growth of 25% (PLe- 15%) was off-set by continued gross margin contraction (11th straight quarter) of 146 bps. Higher other income (up 107% YoY) drove APAT growth. Business momentum is expected to maintain in 4Q driven by wheat herbicide sales & in FY21 driven by new launches (6 in FY21- 3 each in 9(3) and 9(4)) and turnaround in domestic agchem business. DAGRI's fortunes are entirely dependent on the domestic agriculture industry hence rapid growth is expected to continue in FY21 with remunerative crop prices, healthy soil moisture levels and higher water reservoir levels as a result in above normal monsoon in 2019.

Outlook

We have revised our topline/EBITDA/PAT estimates by 7%/10%/11% for FY21E and 7%/7%/0.8% for FY22E. We roll forward to FY22E earnings and maintain our Buy rating with revised target price of Rs 635 (Previous- 423) based on 17x (Previous 13x) FY22E earnings.