Target: ₹942

CMP: ₹722.60

In Q2-FY23, Dhanuka Agritech (DAGRI) reported robust performance with revenues/EBITDA/PAT growth of 24 per cent/19 per cent/15 per cent beating our growth estimates. This robust growth was volume-led which jumped about 16 per cent y-o-y, while the rest was attributed to higher pricing. Delayed monsoon in Eastern region impacted growth in Q2-FY23. However, gross margins declined 290 bps y-o-y to 34.0 per cent due to the impact of high cost inventories, rupee depreciation impact on imports, and increased share of institutional/bulk sales. EBITDA margins declined 70 bps y-o-y to 18.0 per cent (18.7 per cent), while EBITDA increased 19 per cent y-o-y to ₹97.5 crore (₹82.2 crore).

Dahej greenfield project is on track and expected to be commissioned by March 2023. It has also started receiving exports enquiries for existing formulation products which can be fructified post Dahej project commissioning. We believe the company will be able to capitalise on the exports demand that would help diversify its revenues from monsoon-led domestic market.

DAGRI’s margins are expected to improve from Q4-FY23 post raw material cost normalisation. New product introductions and ramp-up thereof would also support margins. Despite the company announcing ₹85-crore buyback (at price not exceeding ₹850/share), it has significant cash on the books, and is well placed to undertake any new expansion projects.

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