This agrochem stock tripled since March; is there more steam left? Brokerages tell if you should buy

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Published: July 23, 2020 12:05 PM

Dhanuka Agritech has seen a sharp spike in share price, beating the benchmark indices as market participants bank on renewed demand for agri-input products amidst a pandemic.

Given the migration of labor to rural India and a normal monsoon, analysts at Edelweiss predict a strong demand for agrochemicals.

Dhanuka Agritech shares are trading at a price of Rs 875 per share, rallying 190% from March low. The agrochemical manufacturer has seen a sharp spike in share price, beating the benchmark indices as market participants bank on renewed demand for agri-input products amidst a pandemic. As a testament to that, Dhanuka Agritech even reported a mammoth 227% surge in net profits in the April-June quarter on the back of increasing sales, which were largely spillover from the preceding quarter, and some advancements. However, brokerages seem to be mixed on where the stock will go from here.

Given the migration of labor to rural India and a normal monsoon, analysts at Edelweiss predict strong demand for agrochemicals. This could help Dhanuka Agrictech improve its quarterly numbers going forward. “Going forward, with the prediction of a normal monsoon, we expect the growth momentum to sustain and margin to improve in coming quarters,” the brokerage firm said while pinning a BUY call on the stock with a target price of Rs 1,079 per share. Dhanuka Agritech’s herbicide portfolio rose 60% from the previous year aided by a shortage of labour across the agriculture states of India.

Dhanuka Agritech shares have outperformed the BSE Midcap index over the last three months. The company remains optimistic about growth and is looking to achieve a 20% growth this fiscal. In the April-June quarter, Dhanuka Agritech launched two products and is looking to add to the tally this fiscal year. “We believe that Dhanuka Agritech has built a portfolio of innovative products over FY14-20, which are yet to scale up and an exciting pipeline over medium term,” said Antique Stock Broking in a note. The brokerage firm has revised EPS estimates upward by 5% for the current financial year. “We maintain ‘BUY’ with revised TP of Rs 970 (earlier Rs 900) based on 20xFY22E EPS,” it said.

But, not everyone is optimistic about the stock, given the current rally. “Despite factoring in higher earnings growth we downgrade the stock to HOLD given a very sharp run-up in stock price,” said Prabhudas Lilladher in a report. The brokerage does remain hopeful that the stock will continue to find support at higher levels, aided by the proposed Rs100 crore buyback at a maximum price of Rs1000 per share. The April-June quarter numbers are the best quarterly results ever posted by the company. The risk-reward balance, after the 190% rally, has turned unfavourable, according to Kotak Institutional Equities. The brokerage firm said that the stock is trading at an expensive 23X forward EPS, which is above their revised Fair Value of Rs 650 per share.

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