Dhanuka agritech

[ranvir]

Dhanuka Agritech -

Q3 FY 24 results and concall highlights -

Revenues @ 403 vs 393 cr { volume growth @ 8.5 pc, price growth at (-) 6 pc }

Gross profit @ 155 vs 130 cr ( margins @ 38 vs 33 pc )

EBITDA @ 62 vs 51 cr ( margins @ 15 vs 13 pc yoy )

PAT @ 45 vs 47 cr ( due steep jump in Depreciation cost @ 13 vs 4 cr YoY - on account of the new Dahej facility )

Company operates via 03 manufacturing plants, 41 warehouses, 6500 distributors and over 1000 strong field force

Product wise sales break up (YoY) -

Insecticides - 32 vs 29 pc
Fungicides - 21 vs 20 pc
Herbicides - 35 vs 39 pc
Others ( Plant growth Regulators ) - 12 vs 12 pc

Geography wise sales break up ( YoY ) -

North - 22 vs 22 pc
South - 39 vs 38 pc
East - 12 vs 11 pc
West - 27 vs 29 pc

Company signed a LoI with a Spanish biotech - Kimitec to set up a JV in India to commercialise biological crop protection products. Kimitec operates the largest Biotech Lab for Agro products in EU

Invested in a startup - KissanKonnect - it delivers farm produce directly to consumers through it mobile app and stores network

Significant Gross Margin expansion is due to improved sales from speciality vs generic products

Expecting a high single digit volume growth in Q4 as well

There r 3 types of Biological agro products that the company is working on - Bio Nutrients, Bio Stimulants, Bio Regulators. Some of Kimitech’s products are already approved in India. Company intends to start rolling out these products in the next Kharif season. The Mkt for Bio products is growing very fast @ 15-16 pc CAGR in India. Margins in these products are > company level Gross Margins

For FY 25, a lot of exiting launches are lined up in the Herbicides, Insecticides categories. This should help the company clock double digit revenues with improved margins in FY 25 ( that would be a bumper outcome … IMHO )

Company launched an innovative Japanese product - Decide used against the sucking pests for the chilli crop ( a few years back ). It ended up being a huge hit. Has scaled up well. Another product - Zanet - a fungicide for Tomato crop has been doing very well. On similar lines, company is going to introduce a new Herbicide for the Ground nuts and Soyabeans crops

Company had earlier guided for 80-100 cr of topline from the Dahej pant for FY 25. However, due to a slowdown in the AI mkts ( globally ), company is likely to revise this guidance lower. Still expect Dahej plant to be EBITDA positive inside next 2 yrs. This yr, Dahej plant has clocked an EBITDA loss of around 10 cr for 9M FY 24

Management remains extremely exited about the new and innovative product launches in next FY

Disc: holding, biased, not SEBI registered

[hardik_shah1]

Hi Ranvir,

Any clues on why Dhanuka has not been hit as hard as other Agri chem and Crop protection players.

Basically who are the competitors and whats the edge in the script.

Have never looked at this space in any type of detail before.

[ranvir]

Dhanuka Agritech is a domestic mkt focussed formulator. The two categories in agrochemicals space that have been hit hard in last 1 odd yr are - makers to Active Ingidients ( due steep price falls due accelerated competition from China ) and Formulations exporters ( again due excessive aggression from China )

Dhanuka Agri - being absent from these categories, has been doing well

[Mayank_Jham]

True
The compnay managed to grow in difficult times and erratic monsoon season with major launches and great inventory managment with distributors.

Looking for good set of numbers for upcoming 1-2 quarter because of much stable monsoon season

Investment rationale much dependent on stable monsoon and agrichem demand for short term gains

Pls let me know your thoughts?

[ranvir]

Dhanuka’s domestic focus, capital light business model, active tie ups for in-licensing of molecules, strength in distribution and marketing - all point towards a potentially winning combination

Lats see if the company can live upto its promise

Fingers crossed, invested, biased, not SEBI registered

[devidan.n]

Hi, I noticed that this company is always have CFO/PAT at around 75% over 10 year period. What could be the reason for same?

What is ideal CFO/PAT while evaluating a company?

[Nitya_Shah]

CFO to PAT is a good way to judge quality of earnings. How much of the accounting profit is converted to cashflows shows how well the working capital is managed.

For FMCG large caps, generally CFO/PAT is 100% + due to negative working capital cycle.

For companies like Dhanuka where these cycles are more stretched, a CFO/PAT of 80% + on a 5 yr rolling CAGR basis would be considered impressive

[devidan.n]

Hi Everyone. Requesting your input on analysis conducted for DHANUKA

Dhanuka Agritech Ltd

A company operating in Insecticides, Fungicides and Herbicides sector. These sectors are cyclical sectors but the company due to its asset light model, strategic partnership with global technology leader and product innovation has demonstrated continuous EPS growth. The company is expected to grow by 2.4 times in upcoming 3 year with 34% CAGR

Date of report:	03-05-2024	Competitor PE	34.2	Sector	Agriculture
CMP:	1373	Current PE	25.4	No of Years	39
Market Cap:	6258 Cr	Highest PE	37.8	Key Products	Pesticides
ROCE / ROE	27% / 21.3%	Lowest PE	8.1	Key Competitor	PI Industries

Business Model and Analysis

Overview:

Domestic Player in Pesticide sector where major revenue comes from Herbicides and Insecticides. Southern and Western region contributes to 67% of revenue. The company has partnership with global innovators which helps to release new products. More than 50% of revenue comes from specialised formula sale which makes it non vulnerable to cyclical changes. Dhanuka has solutions for all major crops grown in the country including cotton, paddy, wheat, sugarcane, pulses, fruits & vegetables, plantation crops and others.

Industry Growth:

Industry for pesticide is expected to grow around 6.6% CAGR till 2028. Next year the forecast for rainfall in southwest zone is above normal which is a high sale signal for the company. Indian agriculture industry is poised to grow at 4.5% CAGR till 2028. Indian agriculture industry is shifting towards scientific and modern farming and company tie ups with global innovators help to launch technology advance product in Indian Market.

Capacity Utilisation:

The company has 3 plants in northern region namely in Rajasthan, Gujrat and J&K. Company has setup a new plant in Dahej (Rajasthan). This year the new plant has generated negative returns due to manufacturing of low margin chemicals. The company has extended tie ups to introduce high margin product and produce the same in new plant.

Opportunities:

The biggest opportunity exist in export market where company does not have any presence. The company is planning to set up new plants to act as contract manufacturer and tap export market. The world agrochemical market is expected to grow at 4%CAGR and this will act in addition to current topline. Around US$6Mn worth formula will go off patent by 2030 and this will help company to foray into this products. The companying is venturing into biological products using natural molecular formula by setting up JV with biotech Kimitech. The company has also launched its product range with name of BiologiQ and entered agri biological segment. This segment helps in enhancing crop and soil health

Risk:

The company has biggest threat is from rainfall as Indian agriculture is rain dependant industry. Further volatility in raw material prices poses margin risk. The company success is dependant on strong tieups with global innovators. Changes in this will affect sales growth potential.

Future Expansion:

• Backwatd Integration at Dahej plant: the plant is set up with intention of backward integration and lower raw material prices
• Export Opportunites: The company will be setting up 2 new plants to open up contract manufacturing opportunities and act as intermideary exports.
• Drones Industry: Investment in start up who sales agro drones. The sale of drones has increased 30 times since 21-22
• Agro Biological Segment: Sustainable farming will be new future of farming industry where compnay has already setup JV with global bio tech and has also launched its product in the segment
• DART- The company has established a research centre in Haryana to serve as an R&D centre.

Competion:

The biggest competitor for Dhanuka is PI Industries. PI Industries is a company which in agrochemical sector as well as pharma. PI industries derives 77% of its revenue from exports. Being into export market, PI industries has a OPM of 26% wheras Dhanuka operates at around 18%. PI Industries sales declined YoY in domestic market wheras Dhanuka was able to increase its revenue

Management:

The company is a home run company where Executive Directors are withdrawing salary of around 9% of Net Profit. The management is forward looking and invests in upcoming new technologies and thus has been able to increase EPS YoY. The company has not entered into any material RPT. Promoters hold 70% of share capital and no share is pledged.

Institutional Investor:

Institutinal investor are holding a steady 20% share in the company with DSP (~9%), LIC (~3%), HDFC (~3%) holding

Historical Data and Financials

Profit N Loss Account:

• Sales: The company has showed a consistent sales growth of 10%. The sales comprises of 39% from Herbicides and 29% from Insecticides. Further SouthWestern region contributes around 67% of revenue. Company is maintaining steady growth in highly cyclical industry
• Gross Profit: Company has consistently maintained a margin of 15%+. The industry is affected by varying raw material prices
• Net profit: Company operates at 12% Net profit.

Balance Sheet:

• Company has setup a new plant at Dahej for Backward Integration
• Debtor days is at 73 days and is constant.
• Inventory Days, Cash Conversion Cycle and Working Capital Days all ratios have improved YoY
• Company has very less debt and has a lean balance sheet
• Care Ratings have given a rating of CARE AA, stable Outlook
• Current Ratio of company stands at 21
• Company operates at a very low cash balance and invests its surplus in Bond, Debt and Mutual Funds. During capacity expansion company redeems the instrument to fund its expansion

Cash Flow:

• Has always maintained a positive cash from operations
• Cash flow from operations are sufficient to fund expansion activities. Further any surplus requirement for expansion is funded by selling of investments
• Company paid back its excess cash to shareholders in the form of buyback and dividend
• Co has low CFO/PAT of 0.75 times over a 10 year period

Valuation:

Particular	Current	52W High	52W Low	Historical High	Historical Low	Industry Average
Price	1369	1369	641	1405	17.6
PE Ratio	25.4	25.4	13.4	37.8	8.1	35.96
EPS	53.8	53.8	47.1	53.8	11.42	8.05
Price/Book	5.3	5.4	3	10.1	2	2.8
EV/EBITDA	17.4	17.8	9.6	27.5	6.3	17.97
ROCE	27%	36%	30%	36%	27%	16.3%

Future Growth:

Amt (INR Cr)	20/21	21/22	22/23	23/24E	24/25E	25/26 E	26/27 E
Sales	1,387	1,478	1,700	1836	2038	2344	2695
GP	269	264	279	330	377	445	512
Net Profit	211	209	234	278	317	374	430
EPS	45	45	51	61	70	82	95
PE	16	17	13	22	34	34	34
Price	720	765	663	1342	2380	2811	3233

Sales Growth :

• 24/25- Expected to grow at 11%. The guidance is provided by management and also proved by historical trend
• 25/26- Expected to grow at 15% as Dahej Plant will start generating greater sales
• 26/27- Expected to grow at 15% as bio sustainable projects will be launched resulting from R&D Partnership with Kimitech

Gross Profit:

Gross Profit has been increased by 0.5% yoy till FY 25/26 as Dahej Plant which is currently making EBITDA loss is projected to breakeven by FY25/26

Net Profit:

Conversion rate of 84% from gross profit to net profit is maintained as per historical trend

PE Calculation:

PE of competitor PI Industries is used for calculation of market price estimate

Disc: Not Invested

[ranvir]

Dhanuka Agritech -

Q1 FY 25 concall and results highlights -

Revenues - 494 vs 369 cr, up 33 pc ( massive jump, volume growth was 39 pc !!! )
Gross Margins @ 35 vs 33 pc
EBITDA - 72 vs 44 cr, up 64 pc (margins @ 15 vs 12 pc)
PAT - 49 vs 33 pc, up 48 pc

Guiding for 20 pc topline growth for FY 25

Three of company’s newly launched products - Purge, Lanevo and Mycore - are doing exceedingly well in the marketplace and exceeding even the company’s expectations

Plan to launch two - 9(4) “me too” and two - 9(3) “exclusive” products in current FY

Product wise sales breakup -

Insecticides - 25 pc
Fungicides - 10 pc
Herbicides - 50 pc
Others - 15 pc

Rains have been much better than last year but still not as good as was expected. In July, the rains were erratic affecting the sales of herbicides. IMD forecasts for Aug,Sep are above avg

RM prices are largely stable

Company has approved a stock - buyback worth Rs 100 cr at a price not exceeding Rs 2000 / share

Because of erratic rains in July, expecting low double digit topline growth in Q2

Guiding for an EBITDA margin of 18 pc vs 19 pc in FY 24 ( LY, the margins were exceptionally good )

Currently, 9(3) kind of exclusive molecules ( launched in collaboration with Innovators ) contribute to 25 pc of company’s turnover

Company is working with some innovators to get CMO opportunities to make patented AIs. Nothing has been finalised yet

Currently, the Dahej plant ( making AIs ) is operating in negative EBITDA zone. To start making one more AI from Dahej before FY 25 end. Also exploring opportunities for CMO of patentented molecules from Dahej facility

In collaboration with Kimitech ( Spanish Company ) - should bring in few new Biological products in India by end of FY 25. Bio - agri inputs are a fast growing area and can potentially be a large mkt going fwd ( in long term )

Expect Dahej facility to start making money in FY 27

The patented products ( that the company in-licesnces ) from Innovators contribute to aprox 500 cr of company’s topline at present

Disc: holding, biased, not SEBI registered, not a buy/sell recommendation

[ranvir]

Dahnuka Agritech -

Q2 FY 25 results and concall highlights -

Revenues - 654 vs 618 cr, up 6 pc
Gross Margins @ 42 vs 40 pc
EBITDA - 160 vs 142 cr, up 12 pc ( margins @ 24.3 vs 22.9 pc )
PAT - 118 vs 102 cr, up 16 pc

Guidance for FY 25 - revenue growth of aprox 15-16 pc over FY 24. EBITDA margin improvement of 100 bps ( 1 pc ) over FY 24. Earlier they had guided for a 20 pc topline growth for FY 25 - basically have made a downward revision to their projections

Continuous / Excess rainfall in Aug/Sep resulted in farmers skipping sprays in many crops ( specially insecticides ). Sales return from Q1 also had an adverse effect on the topline growth

There was a continued pricing pressure on product prices ( to the tune of 4-5 pc ) resulting in lower topline growth

Three of company’s newly launched products - Purge ( Japanese herbicide for Groundnut and Soybean ), Lanevo ( insecticide for horticulture crops ) and Myco Super ( biologic - for soil health ) - are doing exceedingly well in the marketplace and exceeding even the company’s expectations. Both Purge and Lanevo are in-licensed from Nissan ( Japan )

Product wise sales breakup in Q2 -

Insecticides - 43 pc
Fungicides - 21 pc
Herbicides - 17 pc
Others - 19 pc

Region wise sales breakup in Q2 -

North - 29 pc
South - 31 pc
East - 12 pc
West - 28 pc

The patented products ( that the company in-licesnces ) from Innovators - contribute to aprox 600 cr of company’s topline at present. Have tie-ups with 10 leading agrochemical companies across the world in order to tap into in-licensing opportunities

Company is currently serving aprox 1 cr farmers through a network of 41 warehouses, 6500 distributors, 80k + retailers

High water levels in reservoirs should support a strong Rabi season this FY - augurs well for the company

Company did not share their launch pipeline for next FY

Company new AI plant at Dahej generated revenues of Rs 8 cr in Q2. Did operate at negative EBITDA levels { aprox (-) 4 cr }

Sales return in Q2 were due to late onset of monsoons and excessive rains. Sales returns were aprox - 100 cr, mostly in the herbicides category ( general levels of sales returns in Q2 are around 50-60 cr )

Volume growth for Q2 was 10 pc. Price growth was (-) 4 pc

Not expecting any significant sales returns in Q3

High inventory build up at the end of Q2 is also due to increased sales returns. Company expects the same to normalise by end of FY 25

Company has been able to hold onto and improve their gross margins is because of good / great performance from their in-licensed speciality portfolio. Price erosion in generic products has been much higher

Zanet ( another in-licensed product launched LY - fungicide used on Potato, Tomato crops ) is also doing very well

All 4 products - Zanet, Lanevo, Myco Super and Purge are exclusively with Dhanuka. The same is likely to continue for medium term

At present - company derives 33 pc of its revenues from In-Licensed products

Company makes 10-15 pc extra gross margins on these exclusive - inlicensed products. Generally, company starts with 3-5 yrs exclusivity agreements with the innovators. The same is extendable after that

Looking for Contract manufacturing opportunities from the Dahej plant. Nothing has fructified as of now. Aim to do a 250 cr revenues from the Dahej plant by end of FY 27

**Other big brands from company’s stable include - Targa Super ( herbicide ), Caldan ( insecticide ), Sempra ( herbicide ), Mortar ( insecticide ) and Decide ( insecticide ).**However, the company did not specify these product’s annual sales except that Targa is the only > 100 cr brand among these. Others have the potential to reach that milestone in medium term

Should start to break even from Dahej once revenues from the facility cross 150 cr

Disc: holding, biased, not SEBI registered, not a buy/sell recommendation

[Chandragupta]

Dahej plant was supposed to be for backward integration. They seem to have changed it now and are going for custom synthesis / CDMO opportunities for Dahej. What is the progress on backward integration?

[ranvir]

I think it was supposed to be a mix of both

They haven’t spoken about captive AIs in last 2 concalls. They have just been guiding about the kind of capacity utilisation that would make it EBITDA may be reached by next FY end