Strong Q4 Revenue Growth, Buy This Agri Input & Chemical Stock For 43.26% Returns: Emkay Global

Emkay Global, the brokerage firm, in its latest research report on the Dhanuka Agritech Ltd, recommend buying the stock for a target price of Rs 1,000 for 12 month targeted period.

Stock Outlook

The Current Market Price (CMP) of the stock is Rs 698.05 after falling 1.33%. The stock today opened at Rs Rs 720. Looking at the targeted price and the CMP of the stock, the stock has the potential to gain 43.26% returns in 12 Months (1 Year). The hare price touched the 2 week low at Rs 662.75 on 24th February 2022 and the 52 week high at Rs 1,053.90 on 06th July 2021. In the last one year, the stock has fallen close to 20%.

Revenues grew by 16% YoY

According to the Emkay Global Research, "Dhanuka Agritech delivered a healthy performance in Q4FY22, beating consensus EBITDA/PAT estimates by 11%/20%. Revenues grew by 16% YoY, beating street estimates by 4%. Operating profit, on the other hand, grew by only 1% due to RM cost inflation and a 33% rise in other expenses YoY. Top-line growth of 16% was driven by 11% volume growth and the rest through pricing gains. Despite flat EBITDA, Q4 PAT grew by 12% YoY, aided by higher other income (due to insurance claim) and a lower effective tax rate. Dhanuka Agritech 's topline performance was driven by encouraging double-digit growth across all the regions, except South, which fell ~3% YoY due to cyclones and black thrips attacks. Herbicides registered a robust ~39% YoY growth, followed by Fungicides/Others/Insecticides, up ~22%/~16%/4% YoY. Management has guided for double-digit topline growth in FY23, aided by expectations of a normal monsoon in H1FY23 and a buoyant commodity price environment, which will encourage farmers to use high-quantity crop protection products. Management expects EBITDA margins to remain at the same level as FY22 (17.8%). Dhanuka Agritech 's greenfield expansion project is progressing as per the schedule and is expected to be commissioned by FY23-end with material revenue contribution from FY24. Additionally, it has established a biological products division and a new exports division to support revenue growth in the future. We remain optimistic about DAGRI's growth prospects on the back of ongoing Rs3bn capex to foray into exports and for new initiatives such as biologicals and drones."

Emkay Global Liked and Dislikes

Brokerage liked:

1) Strong Q4 revenue growth driven by volumes amid challenging market conditions.
2) Growing focus on high-value specialty products driving mix improvement.
3) Healthy new product launch pipeline with target to launch 7 new products in FY23E.
4) Investment in new high-growth areas to sustain growth momentum in the future.

Brokerage didn't like:

1) Slow pace of cost pass-through.
2) Lagging innovation momentum.

Emkay Global's Comment and views on the stock Target Price and Risks

"We believe that Dhanuka's healthy new product pipeline will keep up growth momentum in the domestic market, while Dahej greenfield capex will help the company to tap the export opportunity. For FY23/FY24, we have revised our revenue estimates by 2.4%/0.8%, EBITDA estimates by 6.9%/2.8% and earnings estimates by 5.6%/1.7%, factoring in new product launches and improving the mix. We maintain Buy with an unchanged Mar'23E Target Price of Rs1,000, implying FY24E P/E of 19x. Key assumptions: 1) 10.75% cost of equity, 2) 10% PAT CAGR in FY25-35E, and 3) terminal growth rate of 5% starting from FY35E," Emkay Global research has said.

Commenting on the downside risk, the brokerage has said, "Due to increased working capital requirements, we have factored in additional borrowings, which may lead to a slight moderation in earnings. If management fails to deliver on the guidance, our earnings estimates will witness further moderation."

About The Company - Dhanuka Agritech Ltd

Dhanuka Agritech Limited is one of India's leading agro-chemical Company. The company manufactures a wide range of agro-chemicals like herbicides, insecticides, fungicides, and plant growth regulators in various forms liquid, dust, powder and granules. It has a PAN-India presence through its marketing offices in all major states across India. The 3 manufacturing units with 39 warehouses and a network of over 8 branch offices across the Indian geography caters to 6500 Distributors & around 75,000 Dealers. Dhanuka's workforce of more than 1000 techno-commercial staff, supported by a strong R&D division and a robust distribution network helps Dhanuka to reach out to approximately 10 million Indian farmers with its products and services. Dhanuka's R&D division has world-class NABL Accredited Laboratories and has International collaboration with the world's seven leading agrochemical Companies from the US, Japan and Europe which helps them to introduce the latest technology in Indian farmlands.

Disclaimer

The stock has been picked from the brokerage report of Emkay Global. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.