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Emkay Global
Dhanuka Agritech (Buy)
CMP: ₹411.55
Target: ₹480
Dhanuka Agritech is engaged in formulation and marketing of plant protection agro-chemicals, including insecticides, herbicides, fungicides and plant growth regulators. The company’s brand portfolio consists of over 80 products.
Our channel checks suggest Dhanuka Agritech is on track to deliver >20 per cent year-on-year revenue growth in Q3FY20/H2FY20 on strong rabi season in its key markets such as Andhra Pradesh, Telangana, Karnataka and Maharashtra, albeit on a low base.
Apart from growth in specialty products (Largo, Chempa and Apply), our checks indicate the generic portfolio has also clocked double-digit growth in the third quarter. High moisture levels have increased herbicide sales in markets including some of the key products (Targa Super).
We expect gross margins to improve marginally quarter-on-quarter with most of its high-cost raw material inventory now consumed. We expect the company to retain some benefits of lower raw materials as rabi demand continues to be strong.
We increase FY20/21E revenue by 4 per cent/2 per cent and profit by 5 per cent/2 per cent factoring in robust rabi season and improvement in EBITDA margins. We maintain ‘Buy’ rating and raise our target price to ₹480, based on 16x December 2021E EPS.
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