Hold Dhanuka Agritech; target of Rs 857: Prabhudas Lilladher

Prabhudas Lilladher's research report on Dhanuka Agritech

DAGRI’s robust Q1 numbers were ahead of our (and consensus) estimates by a wide margin. The company capitalised on robust demand for agri-inputs amidst extremely vibrant agricultural environment. Apart from supportive external factors like good reservoir levels, normal widespread monsoon and remunerative crop prices Q1 observed a higher topline growth due to some postponement of 4Q’20 sales & preponement of Q2’21 sales (timely arrival of monsoon in FY21 v/s 30-day delay last year). Compared to last 6 years, FY21 is expected to be the best year for domestic agchem industry and an India focused company like Dhanuka Agritech is expected to be the biggest beneficiary.

Outlook

We have upgraded DAGRI’s Topline/EBITDA/APAT estimates for FY21 and FY22 by 6%/12%/12% and 6%/8%/9%. Despite factoring in higher earnings growth we downgrade the stock to HOLD (from Buy) given very sharp run up in stock price. We roll forward to Sept’22E earnings and revise our target price to Rs857 (previous Rs656) based on 18x (previous 16x) Sept’22 EPS of Rs48. Due to the proposed Rs1bn buyback at a maximum price of Rs1000/share the stock may continue to find support at higher levels till the completion of buyback.

Dhanuka Agritech 22072020-prabhu