Buy Dhanuka Agritech, target price Rs 1000: Emkay Global

Emkay Global has buy call on Dhanuka Agritech with a target price of Rs 1000. The current market price of Dhanuka Agritech is Rs 751.75. Time period given by analyst is one year when Dhanuka Agritech Ltd. price can reach defined target. .

Dhanuka Agritech Ltd., incorporated in the year 1985, is a Small Cap company (having a market cap of Rs 3493.14 Crore) operating in Pesticides/Agro Chemicals sector.

Dhanuka Agritech Ltd. key Products/Revenue Segments include Agrochemicals, Other Operating Revenue, Scrap and Power Generation for the year ending 31-Mar-2021.


Financials
For the quarter ended 30-09-2021, the company reported a Consolidated Total Income of Rs 445.76 Crore, up 19.98 % from last quarter Total Income of Rs 371.54 Crore and down -1.08 % from last year same quarter Total Income of Rs 450.62 Crore. Company reported net profit after tax of Rs 63.38 Crore in latest quarter.


Investment Rationale
The brokerage assumes coverage on Dhanuka Agritech with a Buy rating and a Mar’23E TP of Rs1,000 (upside 32%). The fair value estimate implies a target P/E multiple of 19x Mar’24E EPS. Our high-conviction Buy on Dhanuka is based on: 1) substantial capex of Rs3bn in FY22E-24E to tap export opportunities; 2) ~13% revenue CAGR in FY22-25E vs. ~7% in FY15-20; 3) debtfree balance sheet with cumulative FCFF generation of ~Rs3.7bn in FY22-25E. Dhanuka’s foray into the export markets through technicals manufacturing is supported by offtake visibility from its strong and long-lasting relationships with global agrochem players, along with the China+1 strategy. The export foray is expected to derisk its current 100% reliance on the domestic market, which is subjected to the vagaries of the monsoons. Downside risks: 1) Since India is a monsoon-dependent agrarian market, the key risk stems from vagaries of the monsoons; 2) For the first time, the company is undergoing significant capex and any delays in operationalizing/stabilizing these new capacities can materially impact our export revenue assumptions.

Promoter/FII Holdings
Promoters held 70.0 per cent stake in the company as of 30-Sep-2021, while FIIs owned 4.7 per cent, DIIs 14.85 per cent.