Nuvama Institutional Equities has issued a ‘buy’ recommendation for Dhanuka Agritech Ltd after a recent meeting with the company’s Managing Director, M K Dhanuka, and Executive Director, Harsh Dhanuka. The brokerage firm anticipates a 38% potential upside for Dhanuka Agritech within the next 12 months, setting a price target of ₹1,089, compared to the stock’s closing price of ₹790 on Wednesday.
On Thursday, Dhanuka Agritech’s stock saw a significant surge, rising nearly 6% to touch a new 52-week high of ₹836.45 per share on the BSE. Technical analysts noted a price volume breakout, with the stock maintaining its position above ₹820.
Key takeaways from the management meet include:
- Improved Demand Scenario in Q2FY24: The overall demand scenario witnessed significant improvement in July, driven by the recovery of monsoon in the northern and western regions. Herbicide sales saw a substantial increase with the return of monsoon.
- Challenges from Prolonged Dry Weather in August: August experienced continued weakness due to prolonged dry weather, leading to a significant inventory of herbicides. However, demand for insecticides remained favorable due to increased humidity and pest-related issues.
- Impact of Monsoon on Rabi Crop Outlook: The management highlighted the importance of a pickup in the monsoon in September to overcome the extended dry spells in August. The state of the monsoon in September will significantly influence the outlook for the rabi crop.
- Focus on New Product Launches: Dhanuka Agritech continues to emphasize new product launches. It recently introduced three novel molecules and anticipates these products contributing approximately ₹500 million in revenue in FY24.
- Gradual Ramp-Up of Dahej Plant: The company opened a new manufacturing plant in Dahej in August, focused on intermediates and technicals. The facility is expected to gradually ramp up its operations, with additional funding enabling the commissioning of more units over time.
- Expectation of Margin and Revenue Growth in FY26: While the initial contribution to revenue in FY24 is expected to be ₹500 million due to lower utilization and negative operating leverage, revenue is projected to increase to ₹1.2–1.3 billion in FY25 as utilization improves. The company anticipates negligible EBITDA contribution in FY25 and anticipates a ramp-up in revenues in FY26.
- Commitment to Shareholder Rewards: The management intends to distribute dividends and engage in stock buybacks to reward shareholders, with excess cash flows expected to support these initiatives.
Dhanuka Agritech’s stock price closed at ₹824.35 per share, marking a 4.20% increase on Thursday. Nuvama Institutional Equities’ ‘buy’ recommendation highlights the positive outlook for the company, although it acknowledges the potential impact of adverse monsoon conditions on demand in the agriculture sector.