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New products gaining traction

Product mix driving margin expansion  

Dhanuka Agritech (DAGRI IN) reported lower-than-expected Q3, led by higher-than-anticipated decline in realization and lower-than-anticipated technical sales. Gross margin expansion at 567bps to 38.6% was strong and higher than our estimate of 350bps expansion, driven by better mix of specialty molecules. EBITDA grew 20% to INR 622mn and DAGRI clocked a margin expansion of 224bps to 15.4%. APAT declined 2% to INR 454mn versus our estimate of INR 520mn.

Letter of Intent signed with Spanish company, Kimitec

DAGRI has signed a letter of intent (LoI) with Spain-based Kimitec to leverage opportunities in the Indian biological segment. Kimitec aims to provide farmers with natural alternative of agri-inputs vis-à-vis currently prevalent synthetic chemicals. It has also founded Maavi, the largest biotech innovation hub in Europe dedicated to natural molecules. DAGRI aims to target all the three segments in the biological space, i.e., Nutrition, Control and Stimulants.

The intent is to stimulate plant growth and spike immunity against diseases. DAGRI will start with introducing these products in India but both the parties are also exploring the scope to have: (a) R&D for global markets in India, (b) manufacturing in India and (c) export opportunity to nearby geographies. Biological market is growing at a 15% CAGR in India and Kimitec’s products are super specialty products. Product margin may be higher-than-blended gross margin of DAGRI.

Valuation: Downgrade to Reduce with a higher TP of INR 1,115

DAGRI’s concentrated efforts to push for specialty and in-licensed molecule portfolio amid pricing collapse in the generics space stood out. The efforts may continue to bear fruit in FY25 as well, given superior product positioning for Kharif crops (rice, maize and Soybean). We trim FY24E/25E PAT 4-5% each and introduce FY26E estimates. We roll forward to FY26E as we downgrade DAGRI to Reduce from Accumulate due to a 30% run-up in stock price in the past three months. We assign a higher TP of INR 1,115 (from INR 963), on 15x (13.5x earlier) FY26E EPS of INR 74

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