PL Stock Report: Dhanuka Agritech (DAGRI IN) - Q2FY23 Result Update – Strong performance in a tough environment - BUY

Dhanuka Agritech (DAGRI IN) - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd.

Rating: BUY | CMP: Rs883 | TP: Rs1,060

Q2FY23 Result Update – Strong performance in a tough environment

Quick Pointers:

§ Volume and price growth of +20%/-6% YoY during 2QFY24.

§ ITI for 1HFY24 stood at 16.4% as against 12.75% in FY23.

DAGRI reported robust results (above our and consensus estimates) with Revenue/EBITDA/PAT growth of 14%/45%/39% YoY amid challenges related to higher channel inventory and cost pressure. Management remains confident of achieving double digit revenue growth in FY24E with 50-100bps YoY improvement in EBITDA margins, given new product introduction. During the quarter company launched two products (TIZOM – Herbicide & SEMACIA - Insecticide) and launched 11 products during 1HFY24. Further, we expect ~Rs800-100mn revenue contribution from technical plant at Dahej in FY25E (commissioned in August’23) with initial loss at EBITDA level due to lower utilization. We broadly maintain our FY24/25E EPS estimates and expect Revenue/PAT CAGR of 13%/11% over FY23-FY25E. Maintain ‘Buy’ with revised TP of Rs1060 (Rs950 earlier) based on 15xFY26E EPS.

§ Gross margins up 630bps YoY to 40.3% led by better product mix: DAGRI reported revenue growth of +14% YoY to Rs6.2bn (PLe Rs6.1bn) primarily led by volume and price growth of +20% and -6% respectively. Superior product mix on the back of higher ITI at 16.4% in 1H’24 (FY23 at 12.75%) coupled with lower cost has in-turn resulted in gross margin expansion of 630bps YoY at +40.3%. Further, management alluded that currently RM cost has been largely stable, with few molecules witnessing upward trend which in-turn should provide some stability to the margin profile going forward. However, higher employee cost and other expenses up by 70bps/50bps YoY have restricted EBITDA margin expansion to +500bps YoY to +22.9%. PAT up by +39% YoY to Rs1.0bn (PLe Rs847mn).

§ Ramping up of new products to drive growth: During 4QFY23, DAGRI had launched a new range of Biological products under the sub-brand name BIOLOGIQ, with an initial portfolio of 3 products. Further, the company launched 3 more products in 1QFY24. These products are currently being sourced from the best third party vendors in the industry. While on the crop protection side, DAGRI launched 2 new 9(4) molecules in 1HFY24 namely Implode- maize herbicide and Mesotrax- selective herbicide for maize and sugarcane and 1 9(4) molecule namely TIZOM - Herbicide for sugarcane crops. The company also emphasized exceptional performance of Decide product, primarily used in the chill crop.

§ Capex plans well on track: Management had earlier guided for Rs3bn capex to be spend over FY22-24 (Rs500mn/Rs1.5bn/Rs1.1bn in FY22/FY23/FY24). Capex is largely towards setting up of formulation unit and 2 MPP’s (Multi-purpose plant) of pesticides in Dahej. The technical unit has been commercialized in August’23 (2QFY24) and DAGRI targets to achieve Rs300-500mn of revenues in FY24 with loss at EBITDA levels, as the plant would be underutilized in FY24. However, management guided to achieve Rs1000mn revenues in FY25E. Going forward, they intend to gradually improve the plant utilization and are in continuous talks with Japanese partners for supply of intermediates. On a longer term they intend to do Rs3bn/PA from the technical plants with EBITDA margins in the range of 12-15%.

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