Buy Dhanuka Agritech; target of Rs 578 Prabhudas Lilladher

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Prabhudas Lilladher's research report on Dhanuka Agritech

Dhanuka Agritech (DAGRI) reported better than expected results driven by high growth in Northern market (sales up 22% YoY). It has hit earnings trough in FY19 with 5% revenue growth and 11% profit decline because of its inability to pass RM cost increase amidst tepid demand environment. FY20 is expected to be a turnaround year for DAGRI where growth would be coming from new launches (6 new launches, ITR @ 17%) and overhauling marketing strategy. DAGRI's fortunes are entirely dependent on the domestic agriculture industry hence earnings volatility is expected to be high depending on the monsoon and performance of the domestic agrochemical industry. We have reduced our revenue/PAT estimates by 3%/14% for FY20E and 3%/7% for FY21E.

Outlook

We expect revenue/EBITDA/PAT to grow at a CAGR of 9%/24%/17% between FY19-21E. Retain our BUY rating with revised target price of Rs 578 based on 18x FY21E earnings.

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