Sharekhan has maintained its positive view on Dhanuka Agritech in its research report dated October 16, 2014. "Any short-terms decline in the share price of the company can be used as an opportunity to accumulate the stock at lower levels", says the report.
"The management of Dhanuka Agritech has lowered its growth guidance for FY2015 to 10-15% from the earlier range of 20-25% due to a weak monsoon in the kharif season. The south-west monsoon for the country as a whole remains weak, with the cumulative rainfall during the year remaining 12% below the long period average (LPA). Consequently, a much higher rainfall deficit (of 21%) in north-west India (a key area for the company) has further weakened the consumption of agrochemcials. The lowering of the guidance is likely to remain a key hangover in the near term for the stock.
However, the long-term growth prospects of the company remain intact because the company has a robust pipeline of exclusive products (which have a relatively higher margin) and non-exclusive products which will help it to regain its growth trajectory and improve its margin. The company is planning to launch two to three new products every year which will help it achieve a decent growth and maintain the margin at the current level. Recently, the company launched exclusive products, Mortar (an insecticide) and Sakur (a weedicide for soya bean, pick-up in sales will be in the kharif season of 2015). The company is waiting for the registration of molecule Sempra (a weedicide) which will be the game changer in terms of profitability and volume.
Taking our cue from the management guidance, we have also revised downwards our rough-cut earnings estimates for FY2015 and FY2016 to the range of 10-12%. However, any short-terms decline in the share price can be used as an opportunity to accumulate the stock at lower levels. At the current market price the stock is trading at 18.8x and 14.9x FY2015 and FY2016 estimated earnings. We maintain our positive view on the stock with a time frame of two to three years", says Sharekhan research report.
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