GEPL Capital has selected Dhanuka Agritech as fundamental pick. It has recommended 'Buy' with target of Rs 710 for next 12 months. The broking house gave the following fundamental outlook:
> Strong product portfolio will help to achieve consistent top line growth Dhanuka has unique product portfolio which help them to put on high growth path. Dhanuka has segmented different crop solution among Herbicides, Fungicides and insecticides. The company has strong brands among herbicides like Targa, Nabood, Ozone, Dhanutop, Dhanuzine etc. Dhanuka also have strong brand among fungicides like Vitavax Power, Sheathmar, Cursor, Dhanucop etc. for insecticides brand lineup contains Ghatak, Dhanpreet, Apple, Dunet, Omete etc. These strong brands have higher rural penetration as well as best selling brands among the segments. Dhanuka products are also considers the cost effective products among the segments which help company to achieve higher volume growth. Rising use of the fertilizers and pesticides help company to grow over the longer run. Managing director of the company Dhanuka has guided to grow 10%, irrespective of shortfall in the rains.
> Robust business structure help to achieve the highest penetration Dhanuka is having strong business structure which help company to achieve strong volume growth. The company has reached more than 10 mn farmers. The company has marketing offices in all the major states in India with the network more than 7,500 distributers/ dealers to over 70,000 retailers. This strong foundation helps to achieve highest rural penetration and ease to achieve volume based business. The company has technical tie-ups with 3 US and 5 Japanese companies which also makes them a global competitive agrochemical company. Dhanuka has an aggressive marketing strategy with a sales team of more than 500 full time employees and more than 1,000 Dhanuka Doctors. The company conducts training programs for farmers by giving product demonstrations, providing technical advice on right use of products and about specific crop related problems at their door-step through Dhanuka Doctors. The company has mobile soil and water testing laboratories in Public Private Partnership. Dhanuka has 83 brands and keeps adding new brands every year.
> Robust Financials makes Dhanuka lucrative Consistent growth in the top line also backed by operating margin improvement makes Dhanuka more lucrative. Consolidated EBIT margins have improved to 16.6% in FY15 from 14.3% in FY12. This shows that company has improved in operating efficiency. Net profit margin has also improved from 8.89% in FY12 to 13.4% in FY15. RoE of the company has improved from 24.52% for FY 14 to 25.7%in FY15.This rising RoE creates a great opportunity for the investors. We believe that margin improvement will continue in the upcoming period. This will gives rise in RoE and RoCE values. We believe that this will create a great opportunity for the investor for longer term horizon.
> At CMP of Rs 595, Dhanuka Agritek is trading at 24.28x its FY16 EPS of Rs 24.40 which is at an attractive valuation. With 15% sales CAGR, strong margin improvement and strong return ratios. We expect stock to trade at 29.1x its FY16E EPS of Rs 24.40. We assign a Buy rating on the stock with a price target of Rs 710 in next 12 months which is more than 19.3% upside from current levels.
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