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Recommendations India

Dhanuka Agritech Q4FY14 results update

May 22, 2014, Thursday, 16:11 GMT | 11:11 EST | 19:41 IST | 22:11 SGT
Contributed by Nirmal Bang


Dhanuka Agritech reported results in-line with estimates for the quarter Q4FY14. Sales grew by 15% yoy for the quarter and 29% for the year FY14 led by volume growth. It’s the result of company’s strategy of focusing on the branded formulations which has pushed the gross margins higher to 60.4% for the quarter (58.6% in Q3FY14 and 56.5% in Q4FY13) and 61.5% in FY14 (59.5% in FY13). Consequently, EBITDA margins have improved to 320 bps qoq to 18.2% however flattish on yoy basis. Management highlighted of maintaining similar levels for FY15 with 20% sales growth led by volume growth


Key Highlights

- Sales growth of Q4 of 15% led by 12-13% volume and 2-3% improvement in realizations. For the year, volume contributed 21% to the growth and realizations rest 6-7%.

- Till now, DAGRI has spent 18 cr on Keshwana facility and rest 32 cr would be spent in FY15. The facility is likely to be operational by Q4FY15 however the company needs 3-6 more months to stabilize operations. Hence can expect revenues from Q2FY16 only

- The company has robust pipeline. It has launched 5 products in FY14 – 1 9(3) and plans to launch 2-3 9(3) in FY15 (one by early Q2)

- Though insecticides remain the highest contributor to sales at 43% (FY13- 49.3%), notably improvement is in contribution from herbicides which has increased to 32% of FY14 sales (FY13 – 28%), followed by fungicides which is 14% (13.2%). Rest is made up by plant nutrients and other products

- 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

Future growth would be driven by both recently launched products, which are showing good traction and healthy pipeline, 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. We are introducing FY16E numbers and also rolling forward our multiple to FY16. We assign a HOLD rating with a price target of Rs 343, based on 13x FY16E EPS of Rs 26.4, an upside of 15%