Dhanuka's revenues up 2% in Q4 2013

Indian agrochemical company Dhanuka Agritech's (Dhanuka's) revenues were muted due to low sales of fresh stock but EBITDA margin outperformed in Q4FY13, on account of write-back of provisions related to dealer discounts, and pushed up earnings. Though estimates for FY14 and FY15 are unchanged, Dhanuka's performance going ahead will depend on a normal monsoon.

Existing inventory with dealers resulted in low demand for fresh stock

Q4 revenues grew by just 2.1 % y-o-y to Rs 1.3 bn. The demand for pesticides such as Targa Super was low in Q4 due to a) deficient rainfall in Q3 in large agricultural states such as Punjab, Haryana, Gujarat, Uttar Pradesh and central Maharashtra; and b) cyclone Neelam, which affected the paddy crop harvest in some southern states. Low demand led to inventory build-up with the dealers which, consequently, affected sales of fresh stock by manufacturers.

New product launch has received good response

In Q3FY13, Dhanuka launched Lustre - a fungicide for application on paddy, chilly, grapes and groundnut- in select regional pockets of southern India; this is in tie-up with DuPont and will be exclusively marketed by Dhanuka in India. As per the management, Lustre has received encouraging response and the company now plans to introduce it across India in Q1FY14. The successful acceptance of the product will be value accretive in the longer run and remains a key monitorable.

EBITDA margin higher than expected due to write-back of provisions

Dhanuka's EBITDA margin of 18.3 % was higher than their expectations. This is on account of write-back of provisions related to dealer discounts. Though the operating margin expanded by 77 bps y-o-y (697 bps q-o-q), PAT was flat y-o-y due to higher tax outgo; tax outgo was higher due to lower provisioning in the first three quarters. Going forward, the tax outgo is slated to increase owing to diminishing tax benefits at the company's Udhampur plant; this plant was entitled to 100 % income tax holiday until FY13 and 30% income tax holiday over FY14-18.

The company maintains their FY14 and FY15 revenues and earnings estimates.