The stock of Dhanuka Agritech (DHAG) appears attractive after a 39 percent correction from its 52-week excessive (August 2018), for the reason that its growth tale remains intact. With clearing up of excessive-value inventory and the healthy line-up of the latest products, the corporation is well-placed for development in its margins.
About the enterprise
DHAG is a producer of pesticides, insecticides, fungicides, and herbicides. More than half of its sales include the manufacture of the area of expertise molecules. The enterprise has a pan-India presence, with advertising places of work in all most important Indian states and a community of more than 8,000 vendors. It has technical tie-u.S.With 3 US and four Japanese organizations. It has 3 manufacturing gadgets located at Gurugram (Haryana), Sanand (Gujarat) and Udhampur (J&K).
Healthy running performance
Barring FY19, the organization has maintained a wholesome working performance inside the past few years. Financials in FY19 were impacted due to uncooked cloth price pressure and underneath everyday monsoons. Overall overall performance within the long run has been healthy. The organization has maintained a decent margin profile, with a working margin of around 19 percentage and net margin of around 13 percent. Return on capital (RoC) has been around 20 percent within the beyond few years.
Clearing up of high-priced stock
Owing to steep fluctuations in uncooked material charges, the business enterprise has stocked up uncooked materials at the start of 2018. Towards the center of the yr, product expenses commenced correcting, but the enterprise became caught with high-cost stock, which impacted margin. Most of this stock is now cleared, which makes us agree with that margin at the moment are positioned to improve.
Insulated portfolio and nearby blend
Over half of the corporation’s portfolio comprises of forte molecule production, which to a volume is insulated from vagaries of the climate. The vicinity-clever revenue smash-up stands around 35 percent, sixteen percent, 14 percent and 35 percent from north, east, west and southern areas, respectively. This makes it much less exposed to 1 particular nation and affords stability to increase.
New products to force increase
The employer has launched eleven products in FY18 and around five products in FY19. Of these, almost 9-10 merchandise is yet to gain traction. Acceleration in sales of those products might power topline in the coming quarters.
Debt-unfastened stability sheet
The business enterprise has step by step paid off its debt through the years and has a debt-unfastened stability sheet. This leaves scope for each organic and inorganic growth.
Chinese raw fabric supply state of affairs
Imported raw cloth constitutes 25 percent of overall inputs. Of this, around 33 percentage include imports from China. The employer changed into impacted by means of high uncooked material expenses attributable to the closure of factories in China, which may additionally maintain. However, the control feels that the situation is stabilizing now. Its general raw cloth requirements from China is exceedingly low in comparison to its agrochemical peers. Also, the organization has raised prices of standard products, which ought to cushion margin.
The risk from decrease monsoon
The agrochemical enterprise and call for the employer’s products are distinctly connected to the quantum of rainfall, thereby exposing the employer to the vagaries of nature.
Dependency on international innovators for technical sourcing
DHAG is depending on global innovators for the supply of technical/active components in its key products. Any deliver disruption right here may want to adversely affect its income.
We stay positive about the lengthy-time period potentialities of DHAG, given the healthful track report in the past. We see the business as a strong and growing one, producing a decent go back.