Dhanuka’s growth prospects remain firm on product launches, market share gains

While a good monsoon buoyed prospects of agrochemical companies, regular product launches and market share gains have sustained investor confidence for by Dhanuka Agritech Ltd. Revenue growth, higher than the industry average, strong return ratios, and good dividend yield are other key reasons why analysts remain bullish on the company.

Dhanuka Agritech, like most of its peers, saw growth momentum rebound last year helped by normal monsoons. The years before that had seen tepid growth because of weak rains. As a result, Dhanuka has continued to report strong financial performance and seen its stock price more than double in the last one year.

Two consecutive years of good rains have led to higher reservoirs levels, good farmer income, and bright prospects for winter crop sowing which will all benefit the company. The high base, though, must be kept in mind with Dhanuka having reported a 25% growth in revenue during Q3FY20.

Regular product launches are expected to help the company sustain the robust growth trajectory. Having launched four products in the first half, the company is likely to offer two more soon. Given the pace of product launches, analysts are confident about the company's growth prospects.

Dhanuka also has a strong collaboration with global MNCs to market their products in India which it has continued to build on.

“We expect this growth to revive as the company targets to launch 10 new products across all segments in next 2-3 years with a focus on margin accretive products," said analysts at Axis Securities in a research report.

A pan-India presence, strong balance sheet, positive macro-dynamics and favourable agriculture prospects make analysts expect double-digit revenue growth for Dhanuka going ahead.

Meanwhile, the analysts' channel checks during November- December indicated that Dhanuka will outperform the industry.

All these factors have led analysts at Emkay Global to raise their forward estimates too. Forward profit estimates have been raised 9-14% while earnings estimates have been upgraded 12-16% due to the share buyback in FY21.

The company also stands to benefit from the recent agriculture reforms. However, favourable climatic conditions including monsoon hold the key to agricultural prospects in India and thus those of agrochemical companies.