Stock idea:-
Scripscan:Dhanuka Agritech Ltd
Listed on:BSE (507717) & NSE (DHANUKA)
CMP:Rs.520
Target:Rs.806
Expected Returns:56%
Investment Horizon:12-18 months
Portfolio Allocation:5%
The importance of ‘crop protection industry’ for an emerging country can be understood through these factual statements well mentioned in the annual report:
a) mammoth population of which a major segment is deprived of food,
b) second largest farmland, but, with lowest yields
c) Rs.2,50,000 crores worth of crops is destroyed every year by the pests.
Thus, the crop protection industry plays a very crucial role in the primary need of the country; ahead of any other thing including construction, infrastructure, transportation, logistics, etc.
Company: Dhanuka Agritech Ltd., a 30-year old company, commands a moderate market share of 6% of India’s plant protection chemical sector, but it has outpaced the industry for the last four consecutive years. The company is indulged in manufacturing and marketing of agro-chemicals like herbicides/weedicides, insecticides, fungicides, miticides, plant growth regulators or stimulators in various forms – liquid, dust, powder and granules; that entails a range of over 80 brands of Dhanuka products. It has a pan-India existence with its nationwide presence, a network of more than 8,000 distributors or dealers, over 40 warehouses spread across the country; selling to over 75,000 retail spots scattered throughout the country. The company which has technical tie-ups with leading 4 American, 5 Japanese & 2 European companies reaches out to more than 10 mn farmers, their target customers, with its eco-friendly high-quality crop-care products. The company has manufacturing facilities at Gurgaon (formulations), Udhampur (liquids and powder), Sanand (country’s second largest installed capacity for granules facility and one of the leading dusting powder facilities of the country). The company also expects to commission an automated Rs.50 crores plant in Rajasthan to treble its powder and liquid manufacturing facility during Q4 FY15; with an installed capacity of 25,500 KL of liquids and 7,100 MT of wettable/soluble powder.
The company has a state-of-the-art, a Ministry of Science & Technology, Government of India recognized R&D center at Gurgaon and another one at Jalundhar with a strong, reputed team of over 30 senior scientists; having liaisons with Indian Council of Agricultural Research, State Agricultural Universities, National Agricultural Research Institutes, Krishi Vigyan Kendras, Central Insecticides Board & Registration Committee. Moreover, the company, besides engaging prominent professionals, also engages over two thousand ‘Dhanuka Doctors’ as per need temporarily every year, for working closely with farmers on the field including field demonstrations, educational campaigns and group meetings, circulation of product & technology literature and workshops & seminars.
Business: The intensive marketing network and innovative marketing strategies penetrating the rural interiors, improved farm income, rising awareness about the cost-benefit tradeoff of agro-chemicals, wider range of products along with the solutions for almost all problems related to crops and international technical tie-ups have led the company to register healthy growth over the last few years. The factors such as guaranteed minimum prices which have rejuvenated the farmers’ interest in agriculture has resulted the price-rise for the majority of crops in the past four years giving thrust to rural incomes. According to the data provided by the company, India is world’s lowest consumption levels of agro-chemicals; Indian farmers consumes ~0.5 kilograms per hectare as compared to much higher consumption in other countries such as Japan (above 10 kgs), Netherlands (above 8 kgs), France and Italy (above 4 kgs) and Germany, Austria, US and Pakistan (above 2 kgs). In addition, though India has higher percentage usage for insecticides, the country lags behind in fungicides (16% as compared to 26% globally) and herbicides (20% as compared to 48% globally). The rising farm labour prices are lifting herbicides demand thereby replacing manual weeding and Dhanuka with the strong herbicides portfolio would be the biggest beneficiary.
Growth & Outlook: Over the past 3 years, the leading agri-company’s top-line has grown at a CAGR of ~15% to Rs.738 crores in FY14 while the profits have grown ~22% annually maintaining a return on equity of ~29%.During the current year, the Management expects ebitda margins to expand 50-100 bps on account of higher excise refund duty from Udhampur unit and restricting the advertisement budget however, monsoon has been bad this year especially in critical crop growing areas like Punjab and Haryana. Accordingly, the agrochemical industry is facing a challenging time and growth might be subdued. Nevertheless, the leadership position, the widely penetrated distribution network, the stable profitability, virtually debt-free status, low working capital requirement, healthy operating cash-flows and consistent dividends makes it an absolute long-term investment candidate. The Modi Government’s thrust on Agriculture gives a silver lining to the future prospects of the companies like Dhanuka Agritech. We also remain optimistic as the company has launched a couple of new products this year and is all set to launch a few more in FY16 and FY17 which will start contributing materially to the top-line in coming years.
Recommendation:Going forward,we expect the revenues to grow at a CAGR of ~15% to cross Rs.1,100 crores in FY17 and considering the same margin profile, on a conservative basis, despite having scope of a further improvement we expect the profit after tax to be around Rs.144 crores. Assigning a target-multiple of 28 we derive a market cap of Rs.4,034 crores reflecting a 55% upside from current levels, suggesting a target price of above Rs.800 over the next 12-18 months.
BTW:For different stock market related services,rush a mail at my mail id to know more about it.
BTW:For different stock market related services,rush a mail at my mail id to know more about it.
Scripscan:Dhanuka Agritech Ltd
Listed on:BSE (507717) & NSE (DHANUKA)
CMP:Rs.520
Target:Rs.806
Expected Returns:56%
Investment Horizon:12-18 months
Portfolio Allocation:5%
The importance of ‘crop protection industry’ for an emerging country can be understood through these factual statements well mentioned in the annual report:
a) mammoth population of which a major segment is deprived of food,
b) second largest farmland, but, with lowest yields
c) Rs.2,50,000 crores worth of crops is destroyed every year by the pests.
Thus, the crop protection industry plays a very crucial role in the primary need of the country; ahead of any other thing including construction, infrastructure, transportation, logistics, etc.
Company: Dhanuka Agritech Ltd., a 30-year old company, commands a moderate market share of 6% of India’s plant protection chemical sector, but it has outpaced the industry for the last four consecutive years. The company is indulged in manufacturing and marketing of agro-chemicals like herbicides/weedicides, insecticides, fungicides, miticides, plant growth regulators or stimulators in various forms – liquid, dust, powder and granules; that entails a range of over 80 brands of Dhanuka products. It has a pan-India existence with its nationwide presence, a network of more than 8,000 distributors or dealers, over 40 warehouses spread across the country; selling to over 75,000 retail spots scattered throughout the country. The company which has technical tie-ups with leading 4 American, 5 Japanese & 2 European companies reaches out to more than 10 mn farmers, their target customers, with its eco-friendly high-quality crop-care products. The company has manufacturing facilities at Gurgaon (formulations), Udhampur (liquids and powder), Sanand (country’s second largest installed capacity for granules facility and one of the leading dusting powder facilities of the country). The company also expects to commission an automated Rs.50 crores plant in Rajasthan to treble its powder and liquid manufacturing facility during Q4 FY15; with an installed capacity of 25,500 KL of liquids and 7,100 MT of wettable/soluble powder.
The company has a state-of-the-art, a Ministry of Science & Technology, Government of India recognized R&D center at Gurgaon and another one at Jalundhar with a strong, reputed team of over 30 senior scientists; having liaisons with Indian Council of Agricultural Research, State Agricultural Universities, National Agricultural Research Institutes, Krishi Vigyan Kendras, Central Insecticides Board & Registration Committee. Moreover, the company, besides engaging prominent professionals, also engages over two thousand ‘Dhanuka Doctors’ as per need temporarily every year, for working closely with farmers on the field including field demonstrations, educational campaigns and group meetings, circulation of product & technology literature and workshops & seminars.
Business: The intensive marketing network and innovative marketing strategies penetrating the rural interiors, improved farm income, rising awareness about the cost-benefit tradeoff of agro-chemicals, wider range of products along with the solutions for almost all problems related to crops and international technical tie-ups have led the company to register healthy growth over the last few years. The factors such as guaranteed minimum prices which have rejuvenated the farmers’ interest in agriculture has resulted the price-rise for the majority of crops in the past four years giving thrust to rural incomes. According to the data provided by the company, India is world’s lowest consumption levels of agro-chemicals; Indian farmers consumes ~0.5 kilograms per hectare as compared to much higher consumption in other countries such as Japan (above 10 kgs), Netherlands (above 8 kgs), France and Italy (above 4 kgs) and Germany, Austria, US and Pakistan (above 2 kgs). In addition, though India has higher percentage usage for insecticides, the country lags behind in fungicides (16% as compared to 26% globally) and herbicides (20% as compared to 48% globally). The rising farm labour prices are lifting herbicides demand thereby replacing manual weeding and Dhanuka with the strong herbicides portfolio would be the biggest beneficiary.
Growth & Outlook: Over the past 3 years, the leading agri-company’s top-line has grown at a CAGR of ~15% to Rs.738 crores in FY14 while the profits have grown ~22% annually maintaining a return on equity of ~29%.During the current year, the Management expects ebitda margins to expand 50-100 bps on account of higher excise refund duty from Udhampur unit and restricting the advertisement budget however, monsoon has been bad this year especially in critical crop growing areas like Punjab and Haryana. Accordingly, the agrochemical industry is facing a challenging time and growth might be subdued. Nevertheless, the leadership position, the widely penetrated distribution network, the stable profitability, virtually debt-free status, low working capital requirement, healthy operating cash-flows and consistent dividends makes it an absolute long-term investment candidate. The Modi Government’s thrust on Agriculture gives a silver lining to the future prospects of the companies like Dhanuka Agritech. We also remain optimistic as the company has launched a couple of new products this year and is all set to launch a few more in FY16 and FY17 which will start contributing materially to the top-line in coming years.
Recommendation:Going forward,we expect the revenues to grow at a CAGR of ~15% to cross Rs.1,100 crores in FY17 and considering the same margin profile, on a conservative basis, despite having scope of a further improvement we expect the profit after tax to be around Rs.144 crores. Assigning a target-multiple of 28 we derive a market cap of Rs.4,034 crores reflecting a 55% upside from current levels, suggesting a target price of above Rs.800 over the next 12-18 months.
BTW:For different stock market related services,rush a mail at my mail id to know more about it.
BTW:For different stock market related services,rush a mail at my mail id to know more about it.
