Dhanuka Agritech’s (DAL) has launched two 9(3) products in FY15 and expects to launch 2-3 products per annum...
Dhanuka Agritech’s (DAL) has launched two 9(3) products in FY15 and expects to launch 2-3 products per annum over next 2-3 years. The company launched herbicide ‘Sempra’ in February and is confident it could be a blockbuster product over next 3 years. In-licensed from Nissan Chemicals, Sempra is expected to improve sugarcane crop yields by 8-10%.
We estimate DAL to post sales and PAT CAGR of 20% and 27.4%, respectively, over FY15-17E led by new product launches, strong distribution network and capacity expansion in Rajasthan. The company has robust operating cash flow, minimal debt and healthy RoE/RoCE (>30%) with good dividend payout (>20%). We maintain buywith target price of R600 based on 18xFY17E EPS. The stock is trading at 25x FY16E and 20x FY17E EPS, respectively.
However reports also state key risks like, the crop protection industry faces risk of seasonal weather. Weather can trigger pest infestations as well as affect demand for crop-protection products. In the domestic market, sales are highly seasonal, primarily during the monsoon. Any adverse weather changes will negatively affect DAL’s sales.