Dolat Capital's research report on Dhanuka Agritech
Dhanuka agritech reported a muted 1QFY20 performance, Sales/EBITDA grew by 2.8/25.9% YoY to ` 2.19bn/200mn respectively. PAT de-grew by 8.6% YoY to ` 148mn. Results were below our estimates on all fronts. Gross margins continue to be under pressure as rising prices of certain technicals (Cartap Hydrochloride – technical for ‘Caldan’) could not be passed on. Though gross margins saw a contraction of 110bps YoY to 34.1%, EBITDA margins expanded by 170 bps YoY owing to lower employee costs (down 7.9% YoY) and other expenses (down 7.1% YoY).
Outlook
We are valuing Dhanuka agritech 16x FY21 EPS of ` 32.9, we believe that while a sharp recovery in Margins and profitability is unlikely Dhanuka’s product launches and optimisation of costs and dealer network could provide respite to earnings in FY21. We re-initiate coverage with a Buy rating and a target price of ` 526.
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