Dhanuka Agritech Q2 Results Review - Stellar Performance; Innovation Products To Drive Growth: Axis Securities

Axis Securities Report

Dhanuka Agritech Ltd. posted its strongest numbers in Q2 FY24. The company beat our and industry estimates on all fronts despite the macro headwinds. Revenue missed our estimate by 41% (up 14%/67% YoY/QoQ). Ebitda margins elevated due to better operating performance to 23% against 18%/12% YoY/QoQ.

This led to overall growth in Dhanuka Agritech’s profit after tax which came in at Rs 102 crore, up 39%/208% YoY/QoQ, beating our estimates by 86%.

Outlook:

Dhanuka saw channel inventory easing out in July 2023 after good rainfall across the country. Prices of pesticides have stabilised or are trending upward in certain segments.

With refilled reservoirs and improved groundwater levels, Q3 FY24 and Rabi season looks promising for Dhanuka Agritech.

Valuation and recommendation:

Dhanuka Agritech has introduced new molecules. With these new introductions, we believe the company will add good volumes in the topline moving ahead.

The management anticipates the company’s gross margins to improve in Q3 FY24 onwards.

We have, therefore, revised our estimates upwards and revised our multiple upwards to 15 times FY25E which brings a target price of Rs 960/share, implying an upside of 14% from the current market price.

Key risks to our estimates and target price

• Global recessionary environment, especially a long recession, which could affect demand for upstream players.

• The impact of El Nino on Indian agriculture can affect the demand for PIs products.

• Delay in capex and commercialisation of new molecules could affect growth. Stress on return on capital employed in initial phases of acquisition.

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