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
Date of report: | 03-05-2024 | Competitor PE | 34.2 | Sector | Agriculture |
---|---|---|---|---|---|
CMP: | 1373 | Current PE | 25.4 | No of Years | 39 |
Market Cap: | 6258 Cr | Highest PE | 37.8 | Key Products | Pesticides |
ROCE / ROE | 27% / 21.3% | Lowest PE | 8.1 | Key Competitor | PI Industries |
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:
Particular | Current | 52W High | 52W Low | Historical High | Historical Low | Industry Average |
---|---|---|---|---|---|---|
Price | 1369 | 1369 | 641 | 1405 | 17.6 | |
PE Ratio | 25.4 | 25.4 | 13.4 | 37.8 | 8.1 | 35.96 |
EPS | 53.8 | 53.8 | 47.1 | 53.8 | 11.42 | 8.05 |
Price/Book | 5.3 | 5.4 | 3 | 10.1 | 2 | 2.8 |
EV/EBITDA | 17.4 | 17.8 | 9.6 | 27.5 | 6.3 | 17.97 |
ROCE | 27% | 36% | 30% | 36% | 27% | 16.3% |
Future Growth:
Amt (INR Cr) | 20/21 | 21/22 | 22/23 | 23/24E | 24/25E | 25/26 E | 26/27 E |
---|---|---|---|---|---|---|---|
Sales | 1,387 | 1,478 | 1,700 | 1836 | 2038 | 2344 | 2695 |
GP | 269 | 264 | 279 | 330 | 377 | 445 | 512 |
Net Profit | 211 | 209 | 234 | 278 | 317 | 374 | 430 |
EPS | 45 | 45 | 51 | 61 | 70 | 82 | 95 |
PE | 16 | 17 | 13 | 22 | 34 | 34 | 34 |
Price | 720 | 765 | 663 | 1342 | 2380 | 2811 | 3233 |
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
Subscribe To Our Free Newsletter |