FY21/22e EPS up 12/11% given bright outlook; TP raised to Rs 841 from Rs 587
Dhanuka Agritech (DAL) reported above estimate Q4FY20 numbers driven by strong 18% y-o-y revenue jump (volumes up 19%) riding a strong rabi season. Despite uncertainty related to COVID-19 and its impact on various industries, we believe the agri input industry will reap benefits of a bumper rabi crop and favourable monsoon in FY21. As management is confident about double-digit revenue growth in FY21, we estimate DAL’s various cost measures and gross margin improvement to boost Ebitda margin 100bps to 16.5% in FY21.
With improved visibility amid COVID-19 concerns, we revise up FY21/22e EPS 12%/11%. We also raise multiple to 22x (19x pre-COVID-19) driven by favourable sector dynamics. Maintain Buy with revised TP of Rs 841 (Rs 587 earlier).
Volume-driven growth: DAL’s revenue surged 18% y-o-y driven by strong 19% volume growth. Due to COVID-19 disruption, the company has estimated deferment of sales accounting to Rs 200 mn over Q1FY21. Favourable product mix helped improve gross margin 80bps y-o-y to ~43%. Overall, Ebitda improved 39% y-o-y to Rs 458 mn, while Ebitda margin jumped 300bps y-o-y to 20%.
New products to remain key growth triggers: The company has introduced seven new products over the past one year. With a good pipeline in place, DAL expects to launch 2 more products over FY21.
Outlook: growth visibility—Expectation of a normal monsoon coupled with addition of new products to the portfolio is likely to sustain DAL’s growth trajectory over FY21. Hence, we believe the company is well placed to deliver double-digit revenue growth over FY21. We revise TP to Rs 841, valuing stock at 22x FY22e EPS.