Fantastic data digging mahesh!
In probability , we are looking at an eps of 16-18 range for FY14, like Hitesh mentioned.
Disc: invested.
Raj Panda…last year in rabi dhanuka did 272 cr. revenues with Ebitda margin of 14.72 %…this year if rabi is good as is widely expected, then it might report at least 15-20 % growth in revenues which takes us to 2H revenues of 312-326 cr…assuming just a 15 % margin, it takes us to Ebitda of 47-49 cr which will translate to a pat of 29-31 cr. which when combined with 1H pat gives us an eps of 15.7-16.07…
However, one thing to note is that Dhanuka’s rabi season is relatively stronger and if we take historical data and assume lowest 45.36 % contribution fom rabi season to total yearly revenues then it takes us to 345 cr. revenue in rabi for fy14…if this happens then eps estimates could scale up further even with just 15 % Ebitda margin…
More promising is future prospect with lustre already launched and sempra coming in fy14 with third herbicide for oilseeds and pulses from Nissan under registration formalities likely to be launched in coming years, revenue scale-up in first good monsoon year (like current year) post FY15 could be sharp and with even higher margins…and with capex mostly taken care of with internal accruals and incremental capex likely to be funded with internal accruals + gurgaon land sale (not now but post fy17), FCF generation will be beauty to watch over coming years…now how well management shares FCF with shareholders will be key thing to watch…
Feel free to get back to me in case of any query.
Rgds.
Discl. - hold and still accumulating at cmp
thanks mahesh.
for anyone contemplating investment, he should go through the fy 13 AR and go through the concalls of last two quarters provided on researchbytes or else most of research reports provide highlights of management commentary.
I had initially invested here based on the undervaluation theme but now it seems the stock could be a good portfolio bet as well… management commentary shows a lot of confidence. The pipeline seems quite strong and with an asset light business model and practically negligible debt, things could be interesting if growth continues as expected.
Regarding debt, since the promoters have 75% stake they would themselves be interested in higher div payout bcos they would be lining their own pockets while being shareholder friendly.
Thanks Hitesh,
I too had entered with a undervaluation theme in mind but now as I read more, am also seeing more brighter side to the story, specially at this price. I like the fact that they have a distributor strength of 7k selling to 70k retailers, I guess we can consider it to be a strong moat in this business.
Thanks mahesh for the detailed post as always. I had one question , can you explain the controversy regarding the registration of novel product with insecticide board which was discussed in last conf call ? What is it about ? What has changed? I wasn’t able to understand the issue properly,
Hi Raj,
As far as my knowledge is concerned, the court order is regarding granting registration for import of formulation w/o registering its technical…almost all 9 (3) products in India are registered via this route… but what court has ordered is it has set out a level playing field for indigenous manufacturers and importers wherein CIB is told to formulate guidelines with this regard and stop issuing fresh registration untill such guidelines are formulated…
In simple words, atpresent, technical grade of all indigenous manufacturers are tested thoroughly but such conditions are not present for importers…court has directed to test technical grade of imported products as thoroughly as is done with indegenous and for this importer will have to provide technical grade sample of each imported consignment…till such guidelines are issued, all fresh registrations are told to be withheld…
Rgds.
Yes Hitesh…agree, Dhanuka could be a good portfolio bet for the long term…if it keeps outperforming peers consistently, then it could very well get rerated…ground feedback has turned very positive on this co. with company now starting to expand its reach to even extreme remote areas which were not so far explored…company seems to know its strength very well and recent appointment of Mr. Bachchan as brand ambassador and scaling up of ground staff (FO, DD & Marketing) over last two years seems to be on that line…visibility has increased very well and end consumers i.e. farmers seem to be very well served and targeted with wide portfolio of products…even staff is now encouraged in many ways to deliver which was not the case so far in Dhanuka…all these has started over last two years and thats a heathy sign…
Rgds.
Some more data points for members' ref.:
Productwise breakup of sales over last two years :
|
Q2FY14 |
Q1FY14 |
Q4FY13 |
Q3FY13 |
Q2FY13 |
Q1FY13 |
Q4FY12 |
Q3FY12 |
Q2FY12 |
Q1FY12 |
|
|
Herbicides |
22 % |
63 % |
28 % |
18 % |
18 % |
54 % |
35 % |
23 % |
26 % |
49 % |
|
Insecticides |
52 % |
25 % |
49 % |
54 % |
57 % |
34 % |
45 % |
49 % |
51 % |
32 % |
|
Fungicides |
14 % |
7 % |
13 % |
17 % |
13 % |
6 % |
12 % |
15 % |
13 % |
6 % |
|
Others |
12 % |
5 % |
10 % |
11 % |
11 % |
6 % |
8 % |
13 % |
10 % |
11 % |
Regionwise Breakup of Sales :
|
Q2FY14 |
Q1FY14 |
Q4FY13 |
Q3FY13 |
Q2FY13 |
Q1FY13 |
Q4FY12 |
Q3FY12 |
Q2FY12 |
Q1FY12 |
|
|
South |
33 % |
11 % |
31 % |
48 % |
27 % |
21 % |
18 % |
44 % |
21 % |
32 % |
|
West |
32 % |
43 % |
28 % |
20 % |
26 % |
47 % |
32 % |
17 % |
41 % |
37 % |
|
North |
22 % |
36 % |
23 % |
15 % |
26 % |
13 % |
27 % |
18 % |
18 % |
18 % |
|
East |
12 % |
10 % |
14 % |
15 % |
13 % |
13 % |
19 % |
15 % |
14 % |
11 % |
Maheshji,
A small observation on the above breakup of productwise and regionwise data which you have provided.
Q1 productwise - has always seen maximum sale of herbicides
Q1 regionwsie - dominated by West
Q3 regionwise - dominated by South ( mainly insecticides)
In the wake of recent cyclone and floods in major areas like Andhra Pradesh, do you think it is going to affect the numbers in Q3 .
Vijay
Hi Vijay,
There are two aspects to this : 1st …last two rabi seasons have not been that fantastic and therefore base is muted…and 2nd…this time kharif has been exceptionally good and farmers will get remuneration of their efforts in Q3 which, in all probability will be great, and therefore farmers will be willing to spend relatively more on inputs this season…
Andhra floods in particular will have its impact on the entire industry but timing of floods was such that still there is time to prepare soil for rabi…floods would have covered areas with excessive sands which could hamper sowing and pockets could get affected because of this but at worst the sales for Q3 might be single or lower double digit growth because the base is low as also other regionscould partly compensate for the loss because of fruitful remuneration received by farmers for their kharif produce.
Rgds.
Some more data points on Dhanuka....I am doing detailed research work on Dhanuka andfor assessing the company from varied angles, whatever data points I generate I am putting on here for members' ref. so that simultaneously, members can also assess them and provide their views :
|
Q3FY13 |
Q3FY12 |
Q3FY11 |
Q3FY10 |
Q3FY09 |
|
|
YoY Sales Growth |
26 % |
- (4 ) % |
19 % |
23 % |
20 % |
|
EBITDA Margin |
11.33 % |
11.54 % |
16.84 % |
14.81 % |
14.74 % |
|
PAT Margin |
8.36 % |
7.08 % |
10.81 % |
8.82 % |
6.43 % |
|
Q1FY14 |
Q1FY13 |
Q1FY12 |
Q1FY11 |
Q1FY10 |
|
|
YoY Sales Growth |
54 % |
13 % |
17 % |
30 % |
- (5) % |
|
EBITDA Margin |
15.15 % |
14.57 % |
16.66 % |
16.95 % |
14.24 % |
|
PAT Margin |
10.43 % |
10.36 % |
10.63 % |
10.79 % |
7.78 % |
|
Q2FY14 |
Q2FY13 |
Q2FY12 |
Q2FY11 |
Q2FY10 |
|
|
YoY Sales Growth |
23 % |
6 % |
14 % |
23 % |
36 % |
|
EBITDA Margin |
17.24 % |
14.67 % |
14.57 % |
14.59 % |
13.29 % |
|
PAT Margin |
12.64 % |
11.50 % |
10.80 % |
9.58 % |
8.88 % |
|
Q3FY13 |
Q3FY12 |
Q3FY11 |
Q3FY10 |
Q3FY09 |
|
|
YoY Sales Growth |
26 % |
- (4 ) % |
19 % |
23 % |
20 % |
|
EBITDA Margin |
11.33 % |
11.54 % |
16.84 % |
14.81 % |
14.74 % |
|
PAT Margin |
8.36 % |
7.08 % |
10.81 % |
8.82 % |
6.43 % |
|
Q4FY13 |
Q4FY12 |
Q4FY11 |
Q4FY10 |
Q4FY09 |
|
|
YoY Sales Growth |
1.50 % |
1.50 % |
13 % |
21 % |
69 % |
|
EBITDA Margin |
18.30 % |
17.57 % |
16.14 % |
15.47 % |
12.06 % |
|
PAT Margin |
13.44 % |
14.01 % |
10.67 % |
9.53 % |
5.50 % |
|
1HFY14 |
FY13 |
FY12 |
FY11 |
FY10 |
FY09 |
FY08 |
|
|
EBITDA Margin |
16.41 % |
14.56 % |
15.02 % |
15.79 % |
14.40 % |
14.38 % |
13.61 % |
|
PAT Margin |
11.77 % |
11.00 % |
10.79 % |
10.36 % |
8.88 % |
6.87 % |
6.78 % |
|
Finance Costs |
1.46 cr. |
3.52 cr. |
5.48 cr. |
6.46 cr. |
6.77 cr. |
10.27 cr. |
5.42 cr. |
From above posts5 things are evident :
1)…Company has exhibited good control over debt despite expansion in its ground presence as also expansion via its new plant at Rajasthan which is still underway.
2)…PAT margin expansion is largely contributed by reduction in Finance costs.
3)…EBITDA margins are well maintained and improved in higher double digits which is a good sign as, so far, company has only one 9 (3) exclusive product viz., Targa Super with others being generics and tie-up products.
4)…Q4 has been traditionally best in terms of Profit Margins.
5)…Over last two years Q3 margins have suffered on account of second lag of poor kharif percolating down to subdued sentiments amongst farmers as also weather issues.
|
Last 5 Years' Avg. Rabi Contribution to Revenues |
FY13 Rabi Contribution to Revenues |
FY12 Rabi Contribution to Revenues |
|
|
Dhanuka |
48.57 % |
46.32 % |
45.36 % |
|
Rallis |
45.21 % |
44.47 % |
43.05 % |
|
PI Ind. |
42.26 % |
38.87 % |
41.23 % |
|
Insecticides |
41.13 % |
37.56 % |
34.68 % |
Detailed analysis of all major listed crop protection companies reveals that Dhanuka has, so far, exhibited highest contribution coming from rabi season followed by Rallis, with lowest Rabi contribution exhibited by Insecticides India. Given above is last 5 years' average Rabi season contribtion to yearly revenues of each of the four companies as also FY13 and FY12 specific contribution.
This could be because Rallis and Dhanuka have most broad spectrum of products available which can cater to the needs of farmers for each of the season viz., Kharif & Rabi. In case of a good rabi, which has not been the case over last few years, Dhanuka & Rallis could be the biggest beneficiaries.
Dhanuka’s growth and financials look good, but I have a few fundamental questions to get clarity on the business model and other generic questions:-
-
How much of Dhanuka’s revenue comes from marketing/distributing products of MNCs and how much comes from its own in-house brands?
-
I saw a few comments saying that the co. has asset-light model. But the company also has expanded manufacturing capacities. Is the manufacturing meant for its own in-house products or is it for developing products for other companies and selling in Indian market - what is the break-up?
-
The company seems to be a typical family-managed business. Any idea about the track record of the promoters and the management?
-
I read in some news that the Co. might acquire a seed manufacturing company to expand its portfolio. Any development on this front?
-
Being a net importer and its high dependence on raw material imports I feel the company faces a huge forex risk in addition to inflation risk. What if the rupee climbs to 68 or 70 levels? Do you foresee any major impact?
sridhar V,
You can go through the fy 13 AR and the last two quarterly results concalls to get answers to all the queries you raised. Most of them are answered there. Plus there will be some more insights.
regards
hitesh.
Hi Sridhar,
Please find replies to your queries in bold below :
- How much of Dhanuka’s revenue comes from marketing/distributing products of MNCs and how much comes from its own in-house brands?
Since you are coming from understanding the business model of PI Ind., you first need to grasp the business model of Dhanuka well as its not like PI even in domestic Agri-input segment…In PI you have clear demarcation of in-lincensed products (products which are in exclusive tie-up with MNC innovators), co-marketeing products (products which are not exclusive with PI but are innovative products) and generic products…In case of Dhanuka, they only demarc two product lines viz., Speciality and Generics…Speciality products are those products which are innovative and have not passed their full lifecycle and generics, as you know doesn’t need explanation and are same for PI and Dhanuka.
Dhanuka only had one in-licensedproduct Targa Super so far in its existence history and all other innovative products are either co-marketed or are under tie-up (direct or indirect) with innovators…for ex., bispyribac sodium (PI’s nominee gold) which is now sold by Dhanuka (under tie-up with PI) since last year is considered a speciality product by Dhanuka.
Rgdg. in-house brands, Dhanuka repackages almost all speciality products under its own brand names and sells it to farmers.
Such Speciality products (including Targa Super) constitutes ~60 % to revenues of Dhanuka. targa Super alone forms almost 22-24 %of DhanukaRevenues.
- I saw a few comments saying that the co. has asset-light model. But the company also has expanded manufacturing capacities. Is the manufacturing meant for its own in-house products or is it for developing products for other companies and selling in Indian market - what is the break-up?
Manufacturing facilities that you are talking about is actually formulation facilities where products, technical, AI and other RM which are procured by Dhanuka are formulated and packaged under various sizes under its own brand names for selling to Indian farmers. Dhanuka is not a contract manufacturer nor it has any facility to manufacture tecnicals.
- The company seems to be a typical family-managed business. Any idea about the track record of the promoters and the management?
As i told in previous post in this thread also, the promoters and management are typically old-fashioned unorganised players wrapped in an organised package…they have baniya-type business skills and are focussed on their core business…Mr. RG Agarwal, chairman and co-promoter of Dhanuka enjoys good reputation and has a highly credible brand image amongst business circles. Rgdg. track-record, so far the management seems to have performed decently even when we comapre it to peers. Future initiatives also seem good to let it sustain relatively higher growth in times to come.
- I read in some news that the Co. might acquire a seed manufacturing company to expand its portfolio. Any development on this front?
Company had plans but they were put off as promoters felt that seeds is totally different kind of business then crop protection and they would be better off in concentrating on their own crop protection business where they have good expertise.
- Being a net importer and its high dependence on raw material imports I feel the company faces a huge forex risk in addition to inflation risk. What if the rupee climbs to 68 or 70 levels? Do you foresee any major impact?
I had my concerns on this and felt that in Q2 margins might suffer because of this but the way Q2 is managed, my concerns are minimised quite a bit…RM price increases are almost passed on to farmers by the industry in general and the way Dhanuka has sustained high margins I don’t see it a major threat unless Rupee has a sharp appreciation to 75-77 levels and such sharp appreciation coincides with a bad monsoon year…in such a case entire industry will suffer and not only Dhanuka…one thing that needs to be remembered is that innovative products which constitue major chunk of PI, Dhanuka and Rallis revenues have a high imported RM content and this is true for all the companies that introduce innovative products in India…
Feel free to get back to me in case of any further query.
Rgds.
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PE investor Lighthouse starts buying from the open marketat INR 155after initial investment made three years before at ~INR 80…signals good time to come for Dhanuka…
Rgds.
Hi Mahesh,
Thanks for your updates on Dhanuka. They are a real help.
You must have read the Kaveri ‘bad seeds’ going on currently. From your experience, do you think such events could also happen in the agro-chemicals industry?
)- HG
Hi HG,
Before a pesticide product is introduced in Indian markets, it has to go through various efficacy studies across varied geograpical pockets of India for atleast 3-4 years…sometimes it takes even longer 5-6 years…
also, India is not part of innovation, i.e., only those products are introduced in Indian markets which are well tested and often half in their lifecycle in other markets (countries); both, generics and innovative…
thirdly, agrochemicals are the last thing a farmer procures after spending amounts on all other inputs and machinery…nowadays because of shortage of labour, trend towards use of herbicides is increasing but that spend also is not primary but secondary…this is the main reason why India scores amongst lowest consumption of agchem even when compared to other developing nations…
rgdg. kaveri i am not aware as i don’t track it closely, but if the problem is with seeds which should not be in case of organised players, it will not be good as the word of mouth spreads very fast…also, co. should have taken corrective action quickly and should not have escalated the matter that it comes in print and electronic media…donald and other members tracking the company closely might be in a better position to take the feedback from ground/company and communicate…
rgdg., agchem, chances of such incidents are extremely remote and one can be assured of the capability of three players Rallis, PI and Dhanuka to handle any eventuality with utmost care and caution…the same can’t be said for Insecticides India…
Rgds.
Thanks for the reply! Also wanted to ask - what would be a fair valuation multiple for Dhanuka? It is running up quite fast.