Hi Everyone. Requesting your input on analysis conducted for DHANUKA

Dhanuka Agritech Ltd

A company operating in Insecticides, Fungicides and Herbicides sector. These sectors are cyclical sectors but the company due to its asset light model, strategic partnership with global technology leader and product innovation has demonstrated continuous EPS growth. The company is expected to grow by 2.4 times in upcoming 3 year with 34% CAGR

Business Model and Analysis

Overview:

Domestic Player in Pesticide sector where major revenue comes from Herbicides and Insecticides. Southern and Western region contributes to 67% of revenue. The company has partnership with global innovators which helps to release new products. More than 50% of revenue comes from specialised formula sale which makes it non vulnerable to cyclical changes. Dhanuka has solutions for all major crops grown in the country including cotton, paddy, wheat, sugarcane, pulses, fruits & vegetables, plantation crops and others.

Industry Growth:

Industry for pesticide is expected to grow around 6.6% CAGR till 2028. Next year the forecast for rainfall in southwest zone is above normal which is a high sale signal for the company. Indian agriculture industry is poised to grow at 4.5% CAGR till 2028. Indian agriculture industry is shifting towards scientific and modern farming and company tie ups with global innovators help to launch technology advance product in Indian Market.

Capacity Utilisation:

The company has 3 plants in northern region namely in Rajasthan, Gujrat and J&K. Company has setup a new plant in Dahej (Rajasthan). This year the new plant has generated negative returns due to manufacturing of low margin chemicals. The company has extended tie ups to introduce high margin product and produce the same in new plant.

Opportunities:

The biggest opportunity exist in export market where company does not have any presence. The company is planning to set up new plants to act as contract manufacturer and tap export market. The world agrochemical market is expected to grow at 4%CAGR and this will act in addition to current topline. Around US$6Mn worth formula will go off patent by 2030 and this will help company to foray into this products. The companying is venturing into biological products using natural molecular formula by setting up JV with biotech Kimitech. The company has also launched its product range with name of BiologiQ and entered agri biological segment. This segment helps in enhancing crop and soil health

Risk:

The company has biggest threat is from rainfall as Indian agriculture is rain dependant industry. Further volatility in raw material prices poses margin risk. The company success is dependant on strong tieups with global innovators. Changes in this will affect sales growth potential.

Future Expansion:

• Backwatd Integration at Dahej plant: the plant is set up with intention of backward integration and lower raw material prices
• Export Opportunites: The company will be setting up 2 new plants to open up contract manufacturing opportunities and act as intermideary exports.
• Drones Industry: Investment in start up who sales agro drones. The sale of drones has increased 30 times since 21-22
• Agro Biological Segment: Sustainable farming will be new future of farming industry where compnay has already setup JV with global bio tech and has also launched its product in the segment
• DART- The company has established a research centre in Haryana to serve as an R&D centre.

Competion:

The biggest competitor for Dhanuka is PI Industries. PI Industries is a company which in agrochemical sector as well as pharma. PI industries derives 77% of its revenue from exports. Being into export market, PI industries has a OPM of 26% wheras Dhanuka operates at around 18%. PI Industries sales declined YoY in domestic market wheras Dhanuka was able to increase its revenue

Management:

The company is a home run company where Executive Directors are withdrawing salary of around 9% of Net Profit. The management is forward looking and invests in upcoming new technologies and thus has been able to increase EPS YoY. The company has not entered into any material RPT. Promoters hold 70% of share capital and no share is pledged.

Institutional Investor:

Institutinal investor are holding a steady 20% share in the company with DSP (~9%), LIC (~3%), HDFC (~3%) holding

Historical Data and Financials

Profit N Loss Account:

• Sales: The company has showed a consistent sales growth of 10%. The sales comprises of 39% from Herbicides and 29% from Insecticides. Further SouthWestern region contributes around 67% of revenue. Company is maintaining steady growth in highly cyclical industry
• Gross Profit: Company has consistently maintained a margin of 15%+. The industry is affected by varying raw material prices
• Net profit: Company operates at 12% Net profit.

Balance Sheet:

• Company has setup a new plant at Dahej for Backward Integration
• Debtor days is at 73 days and is constant.
• Inventory Days, Cash Conversion Cycle and Working Capital Days all ratios have improved YoY
• Company has very less debt and has a lean balance sheet
• Care Ratings have given a rating of CARE AA, stable Outlook
• Current Ratio of company stands at 21
• Company operates at a very low cash balance and invests its surplus in Bond, Debt and Mutual Funds. During capacity expansion company redeems the instrument to fund its expansion

Cash Flow:

• Has always maintained a positive cash from operations
• Cash flow from operations are sufficient to fund expansion activities. Further any surplus requirement for expansion is funded by selling of investments
• Company paid back its excess cash to shareholders in the form of buyback and dividend
• Co has low CFO/PAT of 0.75 times over a 10 year period

Valuation:

Future Growth:

Sales Growth :

• 24/25- Expected to grow at 11%. The guidance is provided by management and also proved by historical trend
• 25/26- Expected to grow at 15% as Dahej Plant will start generating greater sales
• 26/27- Expected to grow at 15% as bio sustainable projects will be launched resulting from R&D Partnership with Kimitech

Gross Profit:

Gross Profit has been increased by 0.5% yoy till FY 25/26 as Dahej Plant which is currently making EBITDA loss is projected to breakeven by FY25/26

Net Profit:

Conversion rate of 84% from gross profit to net profit is maintained as per historical trend

PE Calculation:

PE of competitor PI Industries is used for calculation of market price estimate

Disc: Not Invested

Anand Rathi Wealth Ltd is a prominent player in the financial services sector, boasting a rich legacy spanning over two decades. Founded on principles of integrity and innovation, the company has established itself as a trusted name in wealth management and investment banking.

With over 20 years of experience , Anand Rathi Wealth Ltd has earned a reputation for reliability. The company offers a comprehensive suite of financial services, including wealth management, investment banking, and advisory services.

Business of Anand Rathi Wealth

They are a leading non-bank wealth solutions firm in India, being ranked amongst the top three non-bank mutual fund distributors in the country. The company offers a wide product portfolio of wealth solutions, financial product distribution, and technology solutions to its clients.

Business Vertical

Private Wealth Segment
This is the main vertical of the business. In this segment, the company caters to the HNI and UHNI (5 to 50 Crs).

As of FY24 this Private wealth vertical

• AUM stood at Rs. 57,807 Crores.
• It caters to 9,911 active client families.
• Serviced by a team of 332 Relationship Managers.

**As of FY24, 60% of their clients have been associated with them for over 3 years , representing 79% of total PW AUM, which shows ARWL’s strength in vintage of both clients and their AUM.

Digital Wealth Segment
This segment is a fin-tech extension of their proposition , to address the large mass affluent segment of the market with wealth solutions delivered through a ‘phygital channel’.

Customer Segment : Mass Affluent having existing financial assets: Rs. 10 lakhs – Rs. 5 crores

They have a unique approach to wealth solutions –

• They deliver service through a ‘phygital channel’ i.e., a combination of human distributor (physical) empowered with technology (digital)
• They seek to build a scalable and profitable model by using this blend of technology capabilities and human interface.
• Also, attempts to build a partner led distribution through whom a packaged investment solution is delivered.

**As of FY24, It has an AUM of 1545 Crs and 4862 clients.

Omni Financial Advisor

This is the company’s strategic expansion for capturing the wealth management environment, which leverages technology to cater to the retail segment through a B2B2C model.

They also provide a technology platform to the Mutual Fund Distributors (MFDs) and to their clients. This is their target segment.

Why is this an advantage for OFA segment?

• Small MFDs lack infrastructure and technology, so they provide them a Mobile led Tech – Infrastructure.
• MFDs have Poor Client Engagement – Sell & Move on model, which OFA provides them with Client Reporting, Transaction & Engagement as a solution.
• MFDs majorly struggle with Client Acquisition & Client Retention, here OFA provides Pre Sales – Sales – Post Sales enablers.

****** As of FY24, this segment comprises 5,994 mutual fund distributors . This segment handles 20.6 lakh clients.

What is Anand Rathi Wealth company’s MOAT?

They cater to HNI and Ultra-HNI which have a capital more than 50L-5Cr, 5Cr-50Cr and 50Cr+ segments these are people who need professional money management and don’t want the hassle to individually invest or give their wealth to an individual to manage.

Here is where Anand Rathi comes into the picture they appoint Relationship managers who are well qualified CA, MBA, Financial Planners etc. which HNI’s love as they get personal attention and those managers work specially for them.

HNIs and UHNIs don’t mind shelling out 3-5% Portfolio management fees as they are ultra rich as well as its hassle free for them due to professionals managing their portfolio.

This is a huge blow on Smallcase/Mutual funds managers where people invest on the basis of low expense ratio etc.

It’s a task for MF companies to keep it competitive to gain more traction. Hence Anand Rathi has an upper hand.

“Visual Effects services undertaken in India for Foreign Productions can claim upto 30% of the Qualifying Expenses (75% of Contract Value) plus an additional bonus of 5% for Significant Indian Content subject to a maximum of INR 300 Million.”

Has anyone analyzed the benefit from these govt rebates and whether Phantom would be eligible for it. Doing just a back of the envelope calculations for FY24, Phantom Mgm’t has guided for a 140 Cr. Sales and assuming they are guiding for a mix of 55-60% from international, that would lead to around 70-80 Cr International revenue they might have 35-40 Cr costs relating to international projects, which may be eligible for rebate under this scheme. Even if we assume instead of max 30 Cr. available they are able to get a 20 Cr. kind of cash rebate of this amount, their Pat from international mix may go up to 40-45 Cr. Add to it domestic mix PAT of say 20-25% margin of 15-17.5 Cr, they might easily end up with a PAT of 55 – 62.5 and PAT Margin of around 40%. What am I missing here.

https://ffo.gov.in/en/filming-in-india/goverment-of-india

Hi @Deepesh_Punetha with reference to your questions i have read the annual reports and will try to address your queries as per my understanding. Obviously management will be in a better position to address the queries

1)The hotel land for orchid mumbai is owned by promoter entity (Plaza hotels) and is given on long term lease to kamat hotels. It is mentioned as owned as technically it is owned by group company but actually it is a leased hotel. Kamat hotels pays royalty charges to promoter entity.

2)Even though agreement will end in 2024 this agreement is extendable for another 30 years so it will be extended.

3)The royalty payable is basically for orchid vile parle mumbai which is based on the percentage of sales as decided by the board. It is basically lease expenses but it is paid as royalty so it would be accounted in other expenses and not as lease as per ind as.For FY23 it was 3 percentage of sales and for FY24 it was increased to 5 percent of sales. Going forward not sure what will this be. Maybe management can provide clarity.

4)Loan was given by kamat hotels to promoter entity (plaza hotels) at 20 percent which was the same rate at which the company had raised ncd’s. The loan was given to enable promoter entity to clear outstanding dues with prudent arc which was taken for construction of a hotel project in nagpur which the promoter entity was undertaking and which was to be handed to listed entity but this project was shelved.

5)The contingent liabilities are mainly income tax issues due to misreporting by the banks of loan settlement as the loans were assigned to arc’s and arc’s also subsequently reported it so as per the company it led to double counting of income by the it department. The company believes these dues are not payable and should be set aside by the courts so hence it has not provided for them. Also some expense disallowances were not admitted by the it department which the management feels is admissible and it is under appeal

In case you received any further update from the company kindly let us know

Overall i feel valuations are attractive and the legacy issues of debt have been resolved. Now the company is on a strong growth trajectory which would kick in from Q1FY25. Moreover expansion would mainly be through the lease route rather than management contract so this would significantly contribute to topline. FY24 was more of a restructuring year for the company so growth will start to kick in from this quarter.