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CMP (Rs): 80.10 One Year Target (Rs): 100.26

Dhanuka Agritech Ltd

DECEMBER 24,2010

INITIAL COVERAGE REPORT

STOCK INFO

Company Background
Dhanuka Agritech Limited (DAL) is an integral part of Dhanuka Group and engaged in the field of crop care business and especially it is a well established manufacturer of a wide range of popular pesticides. The core strength of the company lies in its vast pan-India distribution network.

Sector Listing Bloomberg Reuters Sensex (December 24, 2010) Market cap (Rs) (million) No. of Shares (million) Free float (%) Avg. 6 month volume 52 week H/L (Rs) Beta (against Sensex) Face value (Rs) P/E (TTM) Dividend Yield (%)

Agrochemicals BSE DAGRI IN DHNP.BO 20,073.66 4,000 50.019 25.01 74,260 103.38/43.40 0.57 2 8.82 1.75

Investment Rationale
 DAL is exhibiting strong thrust over pesticides formulation and seed business. In

the pesticides formulation segment DAL has a wide range of product raging from liquid to powder, dust and granules and well shuffled it growth path with the help of capacity expansion since its inception. DAL is diversified with its analogous verticals of seeds, real estate, energy and pharmaceutical
 DAL’s marketing team is well synchronized with farmer utilising the concept of

Dhanuka Doctors, Dhanuka Rapid Action Force and showing their expertise by giving product demonstrations and providing technical advice to farmers on specific crop related problems which in turn facilitate DAL to exploit the existing distribution network to augment its sales growth
 DAL has integrated the concept of foreign collaboration with its pesticides and

RELATIVE PERFORMANCE
120 100 80 60 40 20 0 -20 Kredent Research Advisors © Dhanuka & Sensex

seed business and in that juncture DAL has joined with Dupont, Syngenta, Nissan etc to intensify its presence in the pesticides segment

Please see the disclosures on the last page

For Private Circulation Only

DAL

December 24, 2010

Company Background
Dhanuka Agritech Limited (DAL) is an integral part of Dhanuka Group and engaged in the field of crop care business with its distribution network is spread in the interiors of rural India through 27 branch offices, 1,000 plus techno-commercial staff and 15,000 highly dedicated dealers

Dhanuka Agritech Limited (DAL) is an integral part of Dhanuka Group and engaged in the field of crop care business. DAL is a well established manufacturer of a wide range of popular pesticides with core strength lies in its pan-India distribution network. The distribution network is spread in the interiors of rural India through 27 branch offices, 1,000 plus techno-commercial staff and 15,000 highly dedicated dealers. DAL is slated to reach out to more than 10 million farmers with its eco-friendly high quality crop care products. DAL has four pesticides manufacturing units located at Gurgaon and Sohna (Haryana), Sanand (Gujarat) and Udhampur (J&K). It proposed to set up a seed processing plant at its existing factory location at Mandideep in M.P. In addition, a seed processing cum Research Centre is under construction at Turkapalli in A.P.

Product Range
Dhanuka Agritech has a portfolio of around 80 products, including pesticides,
Dhanuka Agritech has a portfolio of around 80 products, including pesticides, fungicides, weedicides, fertilisers, sticking agents, plant growth regulators etc

fungicides, weedicides, fertilisers, sticking agents, plant growth regulators etc. Apart from this DAL also has a presence in the seeds business, real estate and has joined hands with Suzlon Energy to establish windmill. DAL is also slated to establish its footmark in the healthcare industries through Dhanuka Laboratories, which was started in 1998. DAL’s key raw material is the technical grade pesticides which it imports from Japan, China and USA and some of them are purchased from multinational company and from domestic company as well.
Exhibit: Product Portfolio

Dhanuka Agritech Limited (DAL)

Pesticides

Fertilizers

Seeds

Herbicides

Pharmaceuticals
Insecticides

Realty

Fungicides

Energy

Source: Company Data, Kredent Research Advisors

Kredent Research Advisors ©

Please see the disclosures on the last page

For Private Circulation Only

2

but saw a price increase of 10-12 percent.0% FY06 GDP Growth Rate Source: CSO. Argentina and Australia. which has grown from Global industry is expected to be worth USD196 billion by 2014. China. Canada.0% 0. The world’s population is 6. In FY09.000 billion.S. According to ASSOCHAM. The country has a huge potential for growth in agriculture with about 184 million hectares of cultivable The government is targeting 4 percent growth for the agrisector from 2005-20 land and diverse agro climatic conditions. The government is targeting 4 percent growth for the agri-sector from 2005-20 and in order to achieve it.0% 4. it ranked 2nd in Asia (behind China) and 12th globally Indian Agrochemical Industry is estimated at about USD1 billion. overall industry witnessed marginal volume decline. India. Exhibit: Growth Rate of Agricultural & Growth Rate of GDP 10. Only 20 percent of cultivated area is treated by pesticides. Indian Agrochemical Industry Indian Agrochemical Industry is estimated at about USD1 billion. with Asian markets accounting for nearly 43 percent of the total revenues.0% 2. the agricultural sector has to grow at the rate of at least 4 percent. suitable for cultivation of a wide variety of crops. but now large companies that are better aligned across the supply chain characterize it. Kredent Research Advisors FY07 FY08 FY09 Agriculture Growth Rate It is estimated that if the country has to maintain a GDP growth rate of over 8 percent.8 billion in CY2001 to USD41. 10. it continues to be the main stay of the Indian economy With agriculture contributing to approximately 17 percent of the country's GDP and providing livelihood to almost 60 percent of the population. The main drives for agrochemicals will be the growing global population and the pressure on limited agricultural land. it continues to be the main stay of the Indian economy. it ranked 2nd in Asia (behind China) and 12th globally. At the end of FY09. The industry is expected to be worth USD196 billion by 2014. Food sector is highly fragmented but the booming retail chain business is likely to lead to consolidation in this sector and be a force behind the increase of processed food. Brazil.0% 8.7 billion and is expected to reach 9 billion by 2050 with around 750 million people born every year. with Asian markets accounting for nearly 43 percent of the total revenues USD25. the government is making huge investments in the areas of irrigation. where agrochemicals have built a strong foothold catering to this segment.. There has been a boom in research in the recent years by companies seeking to develop new chemicals and improve existing ones. At the end of FY09. This means more demand for higher food yielding crops in nations like the U. Kredent Research Advisors © Please see the disclosures on the last page For Private Circulation Only 3 . 2010 Global Agrochemical Industry There is a great potential in the global agrochemical industry. Initially it was dominated by family farms.7 billion in CY2008.DAL December 24.0% 6. storage and post-harvest infrastructure and connectivity. Indian Agriculture With agriculture contributing to approximately 17 percent of the country's GDP and providing livelihood to almost 60 percent of the population. non-judicious use of pesticides is leading to an annual loss of more than Rs.

potash and sulphur) content of fertilisers instead of the earlier system of product-based subsidy. Exhibit: Consumption. Kredent Research Advisors © Please see the disclosures on the last page For Private Circulation Only 4 . phosphorous. K de t R se rch A viso o : d stry re n e a d rs Fertilizers Industry Chemical fertilisers have played a vital role in the success of India's green revolution and consequent self-reliance in food-grain production. After a stagnation for five After a stagnation for five years the per hectare fertiliser consumption in the country has shown a consistent increase during the last four years from 130kg/ha during 2004-05 to around 175 kg/ha in 2008-09 years the per hectare fertiliser consumption in the country has shown a consistent increase during the last four years from 130kg/ha during 2004-05 to around 175 kg/ha in 2008-09. there is a need to have twopronged strategy. Therefore. Kredent Research Advisors In some areas excessive use of chemical fertilisers has led to degradation of natural resources such as land and water. However. Fertilizers Subsidy The new nutrient-based fertiliser subsidy policy in India has decontrolled phosphatic The new nutrient-based fertiliser subsidy policy in India has decontrolled phosphatic and potassic fertilisers and fixed the amount of subsidy based on the nutrient and potassic fertilisers and fixed the amount of subsidy based on the nutrient (nitrogen.DAL E ib A ro e icals's sh xh it: g ch m are in th to In ia c em al in u e tal d h ic d stry C m a Ind s he ic l u try O e th rs P ts ain A roch m ls g e ica D ye P m rs oly e In rg n C e o a ic h m Sa op O a ic C e rg n hm P rm ce tica ha a u ls S tth yn etic F re ib Fe rtilize rs 0 2 2 3 3 3 6 8 1 1 December 24. the association between fertiliser consumption and food grains production has weakened during the recent years due to imbalanced use of nutrients and deficiency of micro-nutrients. On the other hand. there are large inter-region. inter-state. which demands a careful examination and policy action. 2010 1 5 1 5 1 6 1 8 4 6 8 1 0 12 1 4 1 6 1 8 2 0 S urce In u . and inter-crop variations on fertiliser consumption in India. which is much lower than the recommended level much lower than the recommended level.05 2005-06 2006-07 2007-08 2008-09 (E) 0 45 40 35 30 25 20 15 10 5 0 Consumption Production Import % Import in total consumption Source: Company Data. However. which needs an urgent attention. The policy allows the farmers to choose the right combination of fertilisers for their crop to achieve the right balance of nutrients in the soil profile. still one-fourth of the districts use less than 50 kg/ha of fertilisers. which is Still one-fourth of the districts use less than 50 kg/ha of fertilisers. Almost the entire increase in consumption of fertiliser in the recent years was met from import as domestic production has been almost stagnant or even declined in some years since 2002-03. Production & Import of Fertilizers 300 250 In lakh tonnes 200 150 100 50 2002-03 2003-04 2004. one to monitor districts with high intensity of consumption and take corrective actions to reduce environmental degradation and on the other hand to promote fertiliser consumption in low-use districts to improve crop productivity.

00% FY06 Liquid FY07 Powder.2 million the project has generated revenue of Rs. Kredent Research Advisors Diversifying into pharmaceutical segment DAL has also ventured its journey in pharmaceutical segment through Dhanuka Laboratories Ltd and enjoying a strong clientele. Cartap Hydrochloride. This store concentrates on marketing of agri-product and services and runs under the brand name of Dhanuka Suvidha which are currently operational in the state of U. DAL has diversified its business by foraying into energy sector with the help of Suzlon Energy Ltd DAL has diversified its business by foraying into energy sector with the help of Suzlon Energy Ltd to widen its horizon of its business in the village Rattan Kabans Distt. which for the financial year ended FY10. which for the financial year ended FY10.00% 60. The other top selling product are Quizalofop Ethyl. Having invested of Rs. Kredent Research Advisors © Please see the disclosures on the last page For Private Circulation Only 5 . Exhibit: Segmental Revenue 100.P.786 million in the FY2009-10. DAL has also forayed into the agri-retail business by launching seven retail outlets which are based on the concept of franchiser-franchisee. Having almost 80 products in its portfolio the highest consumed product is Targa Super. December 2009 with its installed capacity of 1. Cartap Hydrochloride. Further. This project has already become operational since 31st. The other top selling product for DAL is Quizalofop Ethyl.00% 20.5 MW. Rajasthan. contributed over 14 percent to the over all sales. dust and granules and establishing its presence with a product portfolio of over 80 products pesticides formulation and seeds business. In the pesticides formulation segment DAL has a wide range of product raging from liquid to powder.1. dust and granules and establishing its presence with a product portfolio of over 80 products. DAL is contemplating to set up ten more retail outlets in Gujarat. contributed over 14 percent to the over all sales.. Japan.89.00% 0. In that juncture if one vertical fails to perform the other verticals would negate the downside in topline growth thus. Jodhpur. 2010 Investment Rationale Numerous product mix with product thrust in Agrochemicals DAL’s product portfolio is segregated into two main verticals which mainly consist of In the pesticides formulation segment DAL has a wide range of product raging from liquid to powder.00% 40. Through intense research and development Dhanuka has been able to deliver Active Pharmaceutical Ingredients and Advanced Intermediates in the field of Cephalosporin Antibiotics. DAL also has its presence in the health care segment along with it has a footprint in the real estate segment.DAL December 24. Though the volume of seeds business is quiet low compared to total business volume. Dust & Granules FY08 FY09 Seeds FY10 Other Targa Super. Propargite Source: Company.00% 80. Propargite the demand for which can be attributed to its superior quality on account of technical tie-up with Nissan Chemical Industries Ltd. allowing DAL in achieving allocation of optimum risk.

DAL is also into the process to educate the farmers in order to increase the production yield.000 people and has spread its dealers to penetrate deeper into farming segment in India segment in India. Dhanuka doctors are specially engaged with task of providing practical demonstration with the help of innovative technique through multimedia and projectors.000 Dhanuka Doctors Dhanuka Rapid Action Force Glimpse of sound Marketing & Distribution Network Sound Farmer contact programme Technical Support Team Dhanuka Suvidha Outlets Source: Company. DAL has been utilising its strong marketing and distribution network in its way to augment sales growth. Exhibit: Marketing & Distribution Network Strong dealer base of 15. 2010 Brand building through widespread distributional network DAL is coordinating well with farmers through its well established distribution network and has placed itself at an advantageous position to withstand the uncertainties due to monsoons and regional seasonality. Kredent Research Advisors Expenses for field assistants %age growth in Sales DAL has incorporated the concept of Dhanuka Doctor in order to ensure judicious mix of pesticides and to mitigate lack of awareness among farmer DAL has incorporated the concept of Dhanuka Doctor in order to ensure judicious mix of pesticides and to mitigate lack of awareness among farmer.000 people and has spread its dealers to penetrate deeper into farming DAL is presently enjoying a dealer base of over 15. DAL has launched seven new depots to intensify its strong distribution network and to reach to the customer efficiently. Kredent Research Advisors DAL has embarked upon a new concept of Dhanuka Rapid Action Force (DRAF) which mainly tends towards establishing speciality molecules on different crops. DAL is presently enjoying a dealer base of over 15.DAL December 24. DRAF is operated through development officers and mangers based at different state and working for the development of specialized molecules. DAL’s team is specially trained before each season to answer queries from the farmers and channel partners. Exhibit: Incremental Exposures to Marketing & Distribution Network 80 70 Rs in million 300 250 200 150 100 50 2006 2008 2009 2007 2010 0 60 50 40 30 20 10 0 Education & Seminars Source: Company Data. Kredent Research Advisors © Please see the disclosures on the last page For Private Circulation Only 6 .

Delaware. Kredent Research Advisors Foreign Collaboration leading to superior product quality and brand building DAL has joined hands with several technological partners and is consistently adopting newer technologies in pursuit of making Indian agriculture more profitable and DAL has joined hands with several technological partners and is consistently adopting newer technologies in pursuit of making Indian agriculture more profitable and rewarding for the farmers rewarding for the farmers. DuPont delivers sciencebased solutions for markets that make a difference in people's lives. DuPont. is engaged in the field of agricultural chemical business and is also on the side of production and distribution of herbicides. Exhibit: Strategic Sales Management Dhanuka Agritech Sound Marketing & Distribution Network Farmer Dhanuka Doctors& Dhanuka Rapid Action Force Sound Farmer contact programme with dealer base of 15. insecticides and fungicides.000 Dhanuka Suvidha Outlets & technical support team Facilitating DAL to exploit the existing distribution network to augment its sales growth Source: Company Data. Today it operates in more than 70 countries worldwide. USA. Japan based company. Syngenta. diversified chemical companies with Kredent Research Advisors © Please see the disclosures on the last page For Private Circulation Only 7 . Chemtura etc. DuPont and FMC etc. Nissan Chemical Industries. Exhibit: Better riching with technical collaboration Dhanuka Agritech Manufacturing of products Technical Collaboration Superior product quality DAL has joined hands with several technology partner such as Dupont. Kredent Research Advisors Better access to the market DAL has joined hands with international companies like Nissan. Through integrating these technologies Dhanuka have ensured superior products quality and access to speciality molecules which in turn helped the company to find better access in the market.DAL December 24. 2010 Strategic sales management to capitalise sales growth DAL’s marketing team is very proficient in terms of relationship management and DAL’s marketing team is very proficient in terms of giving advice on right use of technology and about specific crop related problems which in turn facilitate DAL to capitalise the existing distribution network to augment its sales growth showing their expertise by giving product demonstrations and providing technical advice to farmers on right use of technology and about specific crop related problems which in turn facilitate DAL to capitalise the existing distribution network to augment its sales growth. to bring technological changes to its products Source: Company Data. Dupont founded in 1802 in Wilmington. FMC Corporation is one of the world’s foremost. Nissan etc DAL has joined hands with international companies like Nissan. FMC.

electronics etc.DAL December 24. society and the global environment from the perspective of the chemical industry and provides a diverse array of products. industrial and consumer markets. Mitsui Chemicals focuses on people. DuPont offers a wide range of innovative products and services for markets including agriculture. This technical collaboration facilitates DAL to adopt threefold strategy which mainly consists of increasing sales. insecticides and fungicides for the Japanese and overseas markets Hokko Chemical Company Ltd Chemicals Japan based chemical company engaged in the production of chemicals Chemtura Crop care & seeds The Chemtura Crop Protection business has been successful across the globe for many years and has historically experienced continual growth and record success Source: Company. operating in approximately 90 countries. nutrition. 2010 leading positions in agricultural. penetrating newer market and reducing cost thereby achieving optimum allocation of risk and increasing profitability Sales Threefold Strategy Penetrating Newer Market Reducing Cost Source:Company. Company used polluting sulfur dioxide emissions from smelting operations at the Besshi Copper Mine in Niihama. These help growers worldwide raise the quantity and quality of their crops. Ehime Dupont Diversified Syngenta Seed & crop protection Mitsui Chemicals Chemicals Sumitomo Chemicals Chemicals FMC Corporation Chemicals FMC Corporation is a diversified chemical company serving agricultural. Syngenta provides two main types of products: seeds and crop protection. Kredent Research Advisors Exhibit: Technical Collaboration Company Product Business Overview Founded in 1802. Exhibit: Threefold Strategy Increasing Technical collaboration facilitates DAL to adopt threefold strategy which mainly consists of increasing sales. penetrating newer market and reducing cost thereby achieving optimum allocation of risk and increasing profitability. industrial and consumer markets globally Nissan Chemical Industries Chemicals The agricultural chemicals business centers on the production and distribution of herbicides. Kredent Research Advisors Strong thrust over Research & Development (R&D) segment Strong R&D capabilities and investments in R&D will be critical for Indian agriculture especially in the situation where the production yield is dropping in line with Kredent Research Advisors © Please see the disclosures on the last page For Private Circulation Only 8 .

Kredent Research Advisors Capacity expansion along with new product launches augurs well DAL is on the capacity expansion path and utilising its capacity to augment its Over the years DAL has increased its capacity significantly and currently standing on the capacity of 113. Government of India. The said fund will be utilised to acquire small size technical manufacturing company and part of funds would be used for expansion of its production facility at Sanand and also looking for renewal of its facility DAL is contemplating to raise Rs.675 K. CPRI. It can be done through Coming up with new product or modification of the existing product is essentially important which can be done through intense research and development. In 1984 Dhanuka Group established an R&D unit named Dhanuka Agriculture Research Centre (DARC). dust and granules and 8. Kredent Research Advisors © Please see the disclosures on the last page For Private Circulation Only 9 . Ministry of Science and Technology. DAL is draw round the capex of around Rs.040 M. etc. Thus going forward capacity expansion will help DAL in further leveraging its brand and increasing market share which for the financial year ended FY10 stands at over 6 percent of the organized market. TRA. Over the years DAL shows incremental exposures toward R&D expenses.T of powder. as well as State Agricultural Universities and work in close coordination with them for the generation of scientific data and evaluation of new molecules. IARI.750 million through FPO which will be utilised to acquire small size technical manufacturing company and part of funds would be used for expansion of its production facility at Sanand and also looking for renewal of its facility at Guragaon at Guragaon. In that juncture DAL has generated data on speciality herbicide. DAL is continuously on the path of active research coupled with latest equipments and capable scientists. organizing of scientific workshops and seminars/ symposia.L of liquid production further.08 million by issuing 4. DAL is continuously on the path of active research coupled with latest equipments and capable scientists intense research and development.675 K. to carry out in-house field research and process development. R&D is gathering data on different existing molecules for label expansion on new crop/pests. Its R&D wing interacts closely with the Central Agricultural Research and teaching Institutes like ICAR. DARC is recognized by the Department of Science and Industrial Research.L of liquid. dust and granules and 8.DAL December 24. 2010 inadequate use of pesticides. Exhibit: Research & Development 6 Expenses on Research & Development Rs in Million 4 3 2 1 0 DAL is showing incremental exposure toward research & development 5 FY06 FY07 FY08 FY09 FY10 Expenses on Research & Development Source: Company Data.125 million shares on preferential basis to Private Equity strategic fund managed by Lighthouse Funds.T of powder. Over the years DAL has increased its capacity significantly and currently standing on the capacity of 113. CRRI.30-50 million and has recently raised Rs 339. In such a situation coming up with new product or modification of the existing product is essentially important. Targa Super 5 EC on cotton and ground nuts crops and submitted the same to CIB/RC for their approval.040 M.

Areva. a fungicide for Paddy. Kredent Research Advisors Capacity Expansion Powder. In the recent year DAL has already launched several products like Dhawa Gold. Continuously adding new brand every year.L Source: Company Data. Apple. dust in M. Dust & Granules 120000 100000 80000 60000 40000 20000 0 300% 250% 200% 150% 100% 50% 0% -50% 2005-06 2006-07 2007-08 2008-09 2009-10 Growth rate Capacity expansion of powder.T Source: Company Data.DAL December 24. Apple. In the recent year DAL has already launched several products like Dhawa Gold. 2010 Capacity Expansion of Liquid 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 250% 200% 150% 100% 50% 0% -50% 2005-06 2006-07 2007-08 2008-09 2009-10 Growth rate Capacity expansion of Liquid in K. Kredent Research Advisors Number of units of seeds sold 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 60% 50% 40% 30% 20% 10% 0% -10% 2005-06 2006-07 2007-08 2008-09 2009-10 Growth rate Number of unit of seeds sold in M. D-era and Nabood Areva. Kredent Research Advisors Company has a portfolio of 80 products and it is continuously adding new brand every year. Kredent Research Advisors © Please see the disclosures on the last page For Private Circulation Only 10 . D-era and Nabood along with some product that are still in the pipe line such as Dhanzyme Gold and Luster.T Source: Company Data.

Hi-Dice etc Procurement of raw material and reduced dependencies on import DAL’s key raw material is the technical grade pesticides which it procures from its DAL’s key raw material is the technical grade pesticides which it procures from its foreign collaborator in order to establish itself as a sustainable long term player foreign collaborator in order to establish itself as a sustainable long term player. Kredent Research Advisors © Please see the disclosures on the last page For Private Circulation Only 11 . 2007-08 2007-08 Dhanutan 5 0% WP. Dera.71 % in FY10 Indigenous 57. Em-1. 2010 Exhibit: Launch of products in every year 2009-10 2009-10 Dhawa Gold. Kredent Research Advisors DAL is also well poised to expand its path forward as it has considerably reduced its DAL is also well poised to expand its path forward as it has considerably reduced its exposure towards importing of its key raw material. In the initial year of its operation DAL used to import over 70 percent of its key raw material but over the year its has been able to cap its import at 42 percent. Apple. Fax 0. Nabood. Donmix50% EW.29 % in FY10 Stable long-term input price Agreed Quality On-demand quantity Source: Company. exposure towards importing of its key raw material. Dhanvan 5000. Alternatively in that juncture DAL has also been able to maintain its cost of production lower in the wake of low dependencies in import. This long term association with foreign player guarantees stable long-term input price agreed quality and on-demand quantity. Exhibit: Strategic implementation using Indigenous raw material Raw material Import 42. Wrap-up.3% Granules. Areva. Dhanzyme Gold and Ad-Fyre 2008-09 2008-09 Kardhah. Kredent Research Advisors Cursor. Fax 5% SC. Zargon etc 2006-07 2006-07 Source: Company.DAL December 24. Ozone. Markar. Qurate Gold and Samadhan Bordoh etc.

91 The sales have grown at a compounded annual growth rate (CAGR) of 17.125 million shares on preferential basis at a price of Rs 82.00% 90.00% FY06 Imported Source: Company.20/share to M/s 2020 Equity Investors Limited (Private Equity strategic fund managed by Lighthouse Funds).91 The Return on Equity (ROE) has grown impressively from 38.98 in FY08 to 0.20/share to M/s 2020 Equity Investors Limited (Private Equity strategic fund managed by Lighthouse Funds).81 in 2007 to over 46 in 2010 mainly due incremental PAT margin. The Return on Equity (ROE) has grown impressively from 38. Hence.00% 0. DAL has issued 4.00% 70.125 million shares on preferential basis at a price of Rs 82.00% 50. 339. thereby raising funds to the tune of Rs. 339.93 percent over the last four years while the bottom line has recorded a CAGR growth of over 38.00% 20.91 percent over the same period percent over the same period. DAL has issued 4.39x in FY09 to 8.08 million.00% 30.08 million percent which violated the maximum prescribed limit under clause 40A of the listing agreement.00% 60.00% 40. Net debt equity ratio decreased from 0.59 in FY10.81 in 2007 to over 46 in 2010 mainly due incremental PAT margin. Before the preferential issue the promoter stake in the company was 89. Kredent Research Advisors FY07 FY08 FY09 Indigenous FY10 Strong financial performance DAL has reported strong financial performance over the last four years.DAL December 24.00% 80.75 in FY09 and after that decreases to 0. As per the said agreement the promoter stake in the business is capped at 75 percent while DAL promoter stake in the business was approximately 90 percent. Sales have gone up mainly because of the company’s deeper penetration into the urban and rural India through its strong marketing and distribution network. Revenue from windmill project has also contributed to its topline growth. 2010 Exhibit: Reduced dependencies on import 100. thereby raising funds to the tune of Rs. DAL’s debt to equity ratio is also on the declining trend which exhibit least dependencies on debt.99 percent which is within the prescribed limit under clause 40A of the listing agreement Kredent Research Advisors © Please see the disclosures on the last page For Private Circulation Only 12 . DAL’s debt to equity ratio is also on the declining trend On August 2010.93 percent over the last four years while the bottom line has recorded a CAGR growth of over 38. after the preferential allotment the promoter stake in the business has fallen to 74. The sales have grown at a compounded annual growth rate (CAGR) of 17. Interest coverage ratio is also on the increasing trend which registered 4.00% 10.06x in FY10 Recent Update On August 2010.

82 1. Inadequate rain fall would impact a lot on the agri-produce and farmer will be left with little money to invest in crop protection thus in turn will affect the companies top line.98 4.56 Source: Company Data.188.96 285.59 46.034.76 0.04 41.84 9.408.00 29.48 2.11 37.000 1.99 14.16 139.73 41.27 12.08 1.87 7.00 7. Net Profit. DAL’s core business is solely dependant on monsoon and unpredicted weather condition which is much more prevalent in the country like India DAL is prone to foreign exchange fluctuation The company is exposed to the foreign exchange fluctuations risk which mainly arises from incremental exposure towards import.66 5.64 7.70 3.10 2. Exhibit: Raw material exposure 2. Kredent Research Advisors Note: Net Sales. Kredent Research Advisors Comparative Valuation Exhibit: Comparative Landscape Particulars Total Income EBIDTA EBIDTA Margin (%) Net Profit Net Profit Margin (%) Diluted EPS (Rs) BVPS (Rs) CMP (24-December-2010) P/E (x) P/BV (x) Interest Coverage Ratio (x) Debt/Equity (x) ROE (%) EV/EBIDTA (x) EV/Total Income (x) Figures in Millions Dhanuka Agritech Sabero Organics Excel Crop Care Nagarjuna Fertilizers 4.54 7. with majority of the sales materializing between June and October every year.75 0.07 0.64 26.99 9.30 17.53 80.73 19.15 9.11 0.79 51.20 3.40 902.03 40.65 4.03 9.91 7.30 7.000 500 0 2005-06 Total Raw Material 80% 70% 60% 50% 40% 30% 20% 10% 0% 2006-07 2007-08 2008-09 2009-10 Rs.79 11.22 454.22 1.407.37 4.55 505. 2010 Key Risk Turnover dependent on unpredicted weather condition DAL’s core business is solely dependant on monsoon and unpredicted weather condition which is much more prevalent in the country like India.DAL December 24.93 906.70 4.36 0.62 343. EPS & Interest Coverage Ratio are on Trailing Twelve Months Kredent Research Advisors © Please see the disclosures on the last page For Private Circulation Only 13 .86 24.10 8. EBIDTA.31 645.61 0.33 32.543.90 16.40 15.01 4. And also sales of agrochemicals in the domestic’s retail market are highly seasonal due to monsoons. Millions % of Imported raw material on Total raw material Source: Company.00 776.500 2.500 1.57 16.70 1.

86 -114bps 84.37 210. DAL exhibited incremental exposures towards raw material cost and accounts for 13.51 percent q-o-q in total income to Rs.375.36 16. The increase in the sales y-o-y was mainly driven by the strong sales in the domestic market.65 0.80 3.58 12. 2010 Quarterly Result Analysis For the quarter ended September 2010.14 13. 210.37 12.85 million as against Rs.90 8. The net profit for the quarter was up by 35.86 162.45 11.95 157.34 million reported a year ago.375.56 percent q-o-q to Rs.21 201.06 224. Kredent Research Advisors Kredent Research Advisors © Please see the disclosures on the last page For Private Circulation Only 14 .09 162.55 million reported a quarter ago.50 37.18 7.43 percent q-o-q to Rs.95 1.1.120. 846.88 16.78 35.15 percent y-o-y and 65.137.53 0.43 158.375.41 8.60 13.75 127.79 10.30 174. EBITDA reported an increase of 16. DAL’s exposure toward purchase of trades good is also on the increasing trend and raised to 52. Millions Q2FY11 Source: Company.56 10.75 201bps (100.52 -0.56 million reported a year ago.16 15. 181.13 Source: Company Data.32 percent y-o-y and 38.56 million reported a year ago.194.91 118.659.00 224.19 15.44 65.60 61.25 -266bps 262.41million reported a year ago.15 -49bps 26.42) 41.28 17.74 9.89 Figures in Millions %Chg (y-o-y) %Chg (q-o-q) 20.67 Q1FY11 799.162.56 1.51 percent q-o-q in total income to Rs.28 14. DAL reported an increase of 20.16 percent y-o-y and 80. 1.14 23. DAL reported an increase of 20.32) 42.747.74 million as compared to Rs.16 105bps 30.37 70.30 13.50 (14.56 -321bps 3.29) 102.61 66.95 million as against Rs.26 181.30 million reported a year ago. Kredent Research Advisors Exhibit: Quarterly Profit & Loss Account Particulars Total Income Total Expenditure EBITDA EBITDA Margin (%) Depreciation EBIT EBIT Margin (%) Other Income Interest PBT & Extraordinary Items PBT Margin (%) Extraordinary Items Profit before Tax & Extraordinary Items Tax Profit After Tax (PAT) PAT Margin (%) Diluted EPS Q2FY11 1.74 (19. 1.00 111.67 percent yo-y and 107.42 111. Exhibit: Trend in EBITDA & EBITDA Margin 250 200 150 100 50 0 Q2FY10 EBIDTA 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Q3FY10 Q4FY10 Q1FY10 EBITDA Margin Rs.89 0.86 percent q-o-q to Rs.659.95 million as against For the quarter ended September 2010.34 107.1.34 85.73 -52bps 4.12 million as compared to Rs.00 102. The increase in the sales y-o-y was mainly driven by the strong sales in the domestic market Rs.DAL December 24.58 million as compared to Rs.58 87.51 115. 81.67 21.00 12.94 672.67 percent y-oy and 107.659.75 2.48 Q2FY10 1.09 120.95 1.13 37.20 percent to Rs.09 -36bps 0.29 14.449.124.69 9.

0% 12.0% 0.0% 2.8 0.DAL December 24.000 3.000 Rs.000 1. Millions 4.0% FY07 FY08 EBITDA Margins FY09 EBIT Margins FY10 Source: Company. Kredent Research Advisors Debt / Equity Ratio (D/E) & Interest Coverage Ratio (ICR) Exhibit: Debt/Equity Ratio & Interest Coverage Ratio (ICR) 1.6 0. Bloomberg Estimates.0% 10. Kredent Research Advisors ICR 9 8 7 6 5 4 3 2 1 0 Net Profit & NPM Margin Exhibit: Trend in Net Profit & NPM 700 600 500 400 300 200 100 0 FY07 FY08 Net Profit 12 10 8 6 4 2 0 FY09 FY10 FY11E NPM (% ) FY12E Source: Company D ata.2 1 0.0% 6.000 0 FY07 FY08 Revenue 300 250 200 150 100 50 0 FY09 FY10 FY11E Revenue Growth FY12E Source: Company.0% 4.2 0 Debt/Equity (x) Source: Company Data. Kredent Research Advisors Kredent Research Advisors © Please see the disclosures on the last page For Private Circulation Only 15 .4 0.000 5.000 2.0% 8.000 6. Kredent Research Advisors EBITDA & EBIT Margins Exhibit: Trend in EBITDA & EBIT Margins 14. Bloonberg Estimates. 2010 Performance of the Company Revenue & Revenue Growth Exhibit: Trend in Revenue & Revenue Growth 7.

11 5.97 12.49 5. 4.74 10.808.96 11. ROE of the company has been on an increasing trend over the last three years mainly due incremental PAT margin.75 1.33 2.74 32.42 0.455.98 576.36 0.69 64.54 5. 3.74 million reported a year ago. Financials DAL’s revenue for the financial year ended FY10.808. Exhibit: Financials Particulars Total Income Growth (%) EBITDA EBITDA Margin (%) EBIT EBIT Margin (%) PBT Tax PAT PAT Growth (%) PAT Margins (%) Diluted Earning Per Share (EPS) EPS Growth (%) Book Value Per Share (BVPS) P/E (x) P/BV (x) Interest Coverage Ratio (x) Net Debt / Equity Ratio (x) Current Ratio (x) ROE (%) ROA (%) EV/EBITDA (x) EV/Total Income (x) FY2007 2.808.17 123.91 37.96 66.05 12.10 9.12 10.82 219.49 16.81 38.96 million as compared to Rs.19 0.84 percent in FY09.DAL December 24. 3.68 8.05 35. 2010 . Net debt equity ratio decreased from 0.80 163. led by on account its constant efforts to tap markets for every single opportunity on account its constant efforts to tap markets for every single opportunity as India remain land of opportunities and has great potential for pesticides.13 387.09 102.12 233.39 0.17 11.16 11.42 305.37 9.67 264. Profit after tax (PAT) for the financial year ended FY10 has increased by 66.49 million as compared to Rs.70 ROE of the company has been on an increasing trend over the last three years mainly due incremental PAT margin.04 2. DAL’s debt to equity ratio is also on the declining trend which exhibit least dependencies on debt.81 14. Kredent Research Advisors Kredent Research Advisors © Please see the disclosures on the last page For Private Circulation Only 16 .52 2.06 37.83 259. Owing to this.11 8.94 478.55 450.67 4. DAL’s debt to equity ratio is also on the declining trend which exhibit least dependencies on debt Source: Company Data.98 1.39x in FY09 to 8.03 92.25 percent from 11.95 104.36 327.71 7.59 1.94 14.18 3.74 million reported a year ago.29 -44. Interest coverage ratio is also on the increasing trend which registered 4.74 6.69 61.75 in FY09 and after that decreases to 0.01 38.84 46.47 8.15 0.01 4.89 12.91 4.21 149.18 1.95 545.05 4.82 FY2009 3.62 6.25 490. 233.63 12. 387.54 202.864. EBIT margin also increased by 41 basis point to 12.12 5.303.49 3.455.16 4. increased by 16.16 58.34 171.98 percent y-o-y to Rs.06x in FY10.98 percent y-o-y to Rs.63 0.92 56. increased by 16.05 millions reported in FY2009.74 9.06 0.59 FY2008 2.75 5.61 16.59 in FY10.55 Figures in Millions FY2010 4.94 24.84 356.455.47 percent y-o-y to Rs.98 in FY08 to 0. 4.99 3.49 million as compared to Rs. led by DAL’s revenue for the financial year ended FY10.96 6.53 6.91 16.38 7.

we believe market to assign a forward P/E of over 8.5x (we have assigned a lower PE keeping in view with recent market sentiment) with an EPS of over 11. 2010 Valuation Historically. over the last five years the company has traded at an average price earning multiple (P/E) of over 8x.9.80/share.DAL December 24. Hence. given the expected growth rate of 25 percent in FY11 and 21 percent in FY12 percent in FY12 coupled with the negativity hovering with the mid-cap stocks.100.9. given the expected growth rate of 25 percent in FY11 and 21 AAL earnings for FY11 and FY12 is expected to grow at 25 percent and 21 percent respectively to Rs. we arrive at a one year month price target of Rs. Moreover.11.76/share and Rs. AAL earnings for FY11 and FY12 is expected to grow at 25 percent and 21 percent respectively to Rs. on an average it has also traded at a one year forward P/E band of 6-12x given its strong five year earning’s CAGR of around 62. Therefore. Hence.80/share.11. reflecting an upside potential of 25.26/share.17 percent from current levels. Bloomberg Estimates.76/share and Rs. As per Bloomberg estimates.80/share. Kredent Research Advisory Kredent Research Advisors © Please see the disclosures on the last page For Private Circulation Only 17 Mar-11 Jul-06 Mar-07 Jul-09 Jul-07 Jul-08 Jul-10 . Exhibit: One Year Forward P/E Band 120 110 100 90 80 70 60 50 40 30 20 10 0 Mar-06 Nov-06 Nov-07 Mar-08 Mar-09 Nov-09 Mar-10 Nov-10 5x Nov-08 Price 10x 9x 8x 7x 6x Source: Company Data.94 percent.

DAL December 24. 2010 Kredent Research Advisors © Please see the disclosures on the last page For Private Circulation Only 18 .

of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company (ies) discussed herein or have other potential conflict of interest with respect to any recommendation and related information and opinions. Information and opinions contained herein have been compiled or arrived by Kredent from sources believed to be reliable. to buy or sell a security.26 Dhanuka Agritech Ltd DECEMBER 24. Pretoria Street. in part or as a whole. and buy or sell the securities thereof. express or implied. Kolkata – 700071 Tel: +91-33-40002461 / 62 For further queries you can ask us at quey@kredentadvisors. without the prior consent in writing of Kredent. but Kredent has not independently verified the contents of this document. website or otherwise. The document is being furnished to Kredent clients for their information purposes only and is not an offer or the solicitation of an offer. completeness or correctness of the information and opinions contained in this document. It is being furnished to Kredent clients for their information purposes only and may not be reproduced or published in any media. have long or short positions in. This document is not to be relied upon or used in substitution for the exercise of independent judgment.2010 DISCLOSURES This document was produced by Kredent Research Advisors Private Limited ‘Kredent’. accuracy. ADDRESS # 3. no representation or warranty. Persons who receive this document should make themselves aware of and adhere to any such restrictions. is made as to and no reliance should be placed on the fairness. Kredent accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. directors.com Kredent Research Advisors © Please see the disclosures on the last page For Private Circulation Only . and employees worldwide may: (a) from time to time. We and our affiliates. Accordingly.BUY CMP (Rs): 80.10 One Year Target (Rs): 100.

2010 Kredent Research Advisors © 20 For Private Circulation Only .DAL December 24.