Accumulate Dhanuka Agritech Ltd.For Target Rs. 1,417 - Elara Capital
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Proxy play on uptick in agrochem demand
FY25 growth guidance robust
Dhanuka Agritech (DAGRI IN) reported mix Q4 – EBITDA was as estimated but PAT came in lower-than-anticipated, led by higher-thanexpected tax rate. Brand business volume grew 6.5% in Q4, lower than anticipated. The Technical business continued to operate at a low scale and is a loss-making venture for the time being. For FY25, DAGRI has guided for a robust 18% topline growth, driven by new product launches (at least three 9(3) molecules), scale-up of technical business and expectations of normal monsoons driven by La Nina.
Promotional expenses to hinder margin expansion in FY25
DAGRI plans to launch eight new products through FY25-26, which it intends to promote aggressively. Marketing and promotion expenses are expected to increase 100bps as a percentage of sales from 7% to 8%. Also, the benefit of low-cost inventory may ebb in FY25. Hence, despite an 18% topline growth guidance, DAGRI expects FY25 EBITDA margin at 18%, contracting 60bps YoY. But contrarily, we expect flat margin YoY as DAGRI should be able to contain costs, in our view. Higher promotional expenses with high likelihood of product launches should lay a strong foundation for consistent double-digit topline growth in the brand business in the next 3-4 years
Valuation: Revise to Accumulate; TP raised to INR 1,417
DAGRI being a pure-play domestic branded company is a proxy play on any uptick in domestic agrochemical demand. Increased number of new product launches and investments in building up these brands, if supported by favorable climatic conditions, should lead to sustained 15% topline CAGR in the next 3-4 years. High spends in promotional marketing may ensue temporary cost pressure in FY25. Hence, we downgrade FY25E EBITDA/PAT 8%/10% but upgrade FY26E EBITDA and PAT by 6% each assuming partial rationalization of these expenses. We revise DAGRI to Accumulate (from BUY), given the temporary cost pressure. But raise TP to INR 1,417 (from INR 1,287), on raised 18x (from 15x earlier) FY26E EPS of INR 79.
Please refer disclaimer at Report
SEBI Registration number is INH000000933
