Buy Dhanuka Agritech, target Rs 448: Elara Capital

Elara Capital has given a buy recommendation on Dhanuka Agritech with a target price of Rs 448.

Shares of Dhanuka Agritech traded at Rs 357 around 2:50 pm on 22 May, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.

March quarter highlights:

• Dhanuka Agritech revenue increased 4 per cent year-on-year (YoY) to Rs 190 crore, which was slightly above our estimates of Rs 180 crore, said the brokerage.
• Ebitda grew by 5 per cent YoY to Rs 33 crore against our estimates of Rs 25.2 crore while Ebitda margin was flat YoY to 17 per cent, which was ahead of the brokerage's estimates of 14 per cent.
• Finance cost increased significantly by 41 per cent YoY to Rs 30 lakh on higher working capital borrowings. Adjusted PAT fell by 6.6 per cent YoY to Rs 26.8 crore, owing to higher tax outflow and finance cost in comparison to the past year.

Investment rationale:

As per the brokerage, the company's management has guided double-digit revenue growth for FY20 under the assumption of a normal Monsoon.

Ebitda margin is likely to improve by 100-150bp in FY20 as prices in China for some generic molecules have either stabilized or softened, which should reduce pressure on gross margin.

"We cut our earnings per share (EPS) by 8 per cent for FY20E and 4 per cent for FY21E to factor in a higher tax rate at 33 per cent from 28 per cent. We revise our target price to Rs 448 from Rs 466 based on 15 times (unchanged) FY21E EPS of Rs 29.8," said the brokerage.