Emkay Global
Dhanuka Agritech (Buy)
Target: ₹890
CMP: ₹795.15
We upgrade our earnings estimates for Dhanuka Agritech and retain Buy as we expect the company to continue to outperform the industry and generate robust cash flow. Accordingly, we raise the target price by 25 per cent to ₹890 (Mar’22), based on 19x FY23E EPS, from₹715 (Jun’21).
Our recent interaction with the management affirms our positive view on the stock. Management is confident of outperforming industry growth in Q3 and FY22 despite seeing some deceleration in Nov-Dec’20, partly due to the base effect (25 per cent revenue growth y-o-y in Q3-FY20).
We remain constructive on Dhanuka Agritech in view of: 1) four new product launches in H1-FY21, with two more slated for launch in H2-FY21; 2) above-industry revenue growth - channel checks indicate 5 per cent revenue growth in Q3-FY21 vs. 3-4 per cent for industry; 3) solid cash generation; 4) robust RoE (24-25 per cent over FY21-23); and 5) attractive dividend yield (3.9%/4.3% for FY22/23). Our estimates do not incorporate any demand upside from Agricultural marketing reforms in the medium-to-long term. We upgrade EPS estimates by 12/13/16 per cent for FY21/22/23 due to the share buyback in FY21. We also increase payout ratios to 70 per cent for FY22/23 from 45 per cent earlier.