Recommendations » India

Dhanuka Agritech Q3 FY12 results update by Nirmal Bang

Contributed by Nirmal Bang

Results below expectations

Dhanuka Agritech reported results lower than expectations due to bad North East Monsoon which impacted the whole agrochemicals¡¦ industry.

The reported sales of Rs 109.8 cr has declined by 42.6% qoq and 2.9% yoy.

EBITDA margins declined to 10.9% (down 239 bps qoq and 467 bps yoy) due to higher raw material cost and administration cost. Management expects Q4 to be better than Q3, however real push in numbers would only be visible in Q2FY13 i.e. in the Kharif season.

Key Highlights

- Whole crop protection industry has been affected during the quarter as there was lower incident of pest attack due to poor north-east monsoon which impacted the key states of Andhra Pradesh, Maharasthra and Karnatka. Total sales impacted was around Rs 15-20 cr.

- Other major reasons of disappointing performance were: reduced acreages, lower produce prices of some crops and higher prices of fertilizers.

- Volume declined by ~6% during the quarter with stable pricing. Herbicides and fungicides were major hit. For (mFY12 volume grew by 6-8% with 3-4% price growth.

- Company¡¦s future pipeline looks strong as seven new products are lined up to launch till FY15.

- Management has lowered sales target for FY12 to 6-7% from around 15% earlier with similar PAT level as of FY11.

Valuation & Recommendation

We believe that worst is over for the company and it should start seeing recovery from Q4FY12 onwards with FY13 being robust year (subject to monoon) same as its past. We have positive outlook for the company and believe that it looks promising with factors like the low per-capita consumption of pesticides, which provides opportunities for growth, increased demand for food grains and the rising awareness about pesticide usage among the farming community.

At CMP the stock trades at 8.5x FY12E and 6.7x FY13E. We believe the stock is available at attractive valuations. We are rolling our price target o FY13E. Based on our EPS of Rs 12.9 for FY13E target price comes to Rs 116 (earlier Rs 140), potential upside of 34% from current levels. We maintain our BUY rating on the stock.