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Dhanuka Agritech Q1FY15 results update

August 1, 2014, Friday, 07:08 GMT | 02:08 EST | 10:38 IST | 14:08 SGT
Contributed by Nirmal Bang


Dhanuka Agritech reported results below than estimates for the quarter Q1FY15 in terms of sales growth though margins are in-line. This is disappointing considering the competitor’s results those have reported strong sales growth till now led by good reservoir levels. Sales grew by 5% yoy for the quarter. Despite subdued sales growth, the company has reported improvement in EBITDA margins by 110 bps yoy to 16.2%. Management seems to be upbeat of its 20% FY15 sales growth outlook however with a caveat of improvement in monsoon situation from here.

Key Highlights

- Sales growth was mere 5% led by 2-3% volume and 2-3% improvement in realizations. Key reason for subdued is lackluster monsoon. However, management believes that sales would normalize going forward as the monsoon situation has improved in last few days and on back of new launches lined up for the rest of the year

- The company has received the approvals for two 9(3) products – Mortar (Insecticides for paddy and vegetables, In-house) and Sakura (Herbicides for soyabean, Tied up with Nissan). Mortar would be launched in Aug’14 and Sakura in Rabi season. There is one more 9(3) herbicides for sugarcane (in association with Nissan) which is likely to be launched in 2HFY15. Besides the company is in process of launching few 9(4) during the year. Pager (Insecticides for cotton and vegetables) has been launched in July’14 and Jackal (insecticides for multiple crops) would be launched in Sept’14. All above products are likely to drive the growth in 2H of the year.

- Tax rate for FY15 is expect to be under MAT however it would increase in FY16 as company is exhausting its MAT credits


Valuation & Recommendation

Near term growth would be determined by monsoon profile however medium term growth would be driven by recently launched products and new products which is expected to drive the volume. We have a positive outlook on the stock given the strong balance sheet, healthy revenue visibility, sustainable margins and ability to monetize innovative products due to strong relationships with global giants given its huge distribution network. The stock has given handsome returns since our initiating coverage (@ Rs 103). Considering the recent run-up and narrowing of the valuations gap with sector leader, we recommend investors to book partial profits and continue to remain HOLD balance shares for the price target of Rs 475, based on 18x FY16E EPS of Rs 26.4.