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Research
Dhanuka Agritech - Dolat Capital
Posted On : 2012-02-19 10:18:00( TIMEZONE : IST )
CMP: Rs. 87
TP: Rs. 100
Accumulate
Q3FY12 results miss estimates; disappointing operational performance dents earnings growth
- Topline for Q3FY12 de-grew by 3.7% YoY to Rs. 1.1bn, mainly on account of 6% decline in volume off-take due to poor northeast monsoons.
- Rainfall in key regions of Andhra Pradesh, Karnataka and Maharashtra recorded 40% decline, impacting the revenue contribution from these markets.
- For 9MFY12, herbicides and fungicides portfolio has shown a muted growth of 5% YoY while the insecticides and PGR portfolio grew by 14% YoY.
- Top five products for 9MFY12 contributed 31% to the topline. The company's flagship brand Targa Super contributed 14.6% (YTD) to the topline and witnessed a decline of 61% during the quarter.
- EBITDA margins have declined by 530bps YoY to 11.5% led by higher raw material cost at 52.6% of sales (up 750bps YoY). Lower employee cost (down 40bps YoY) and other expenses (down 190bps YoY) restricted margin contraction to some extent.
- Lower acreages, increasing fertilizer prices and falling produce prices have reduced average farmer's propensity to spend on specialty products. The resulting shift in focus towards generic products has dented EBITDA margin.
- Interest expense fell by 3.4% YoY to Rs. 19mn. Gross debt as of December 2011 stood at Rs. 400mn. Depreciation too declined by 36.5% YoY to Rs. 12mn.
- Tax rate stood lower at 19.5% (Q3FY11: 20.7%). PAT declined by 37% YoY to Rs. 78mn.
Valuation
Long term growth drivers include strengthening its seeds portfolio (scouting for acquisition) and manufacturing selective technicals, leading to backward integration. DAL enjoys high return ratios owing to its asset-light model.
However, given the eminent slowdown in the agrochem industry and slower off-take of high-margin specialty products, we have revised our FY12E/FY13E earnings estimate downwards by 20.5%/19.1%. At CMP, the stock trades at 9x FY12E and 6.9x FY13E earnings. We recommend Accumulate with a revised target price of Rs. 100 (8x FY13E earnings).
