Unfavourable monsoon impacted Dhanuka Agritech’s sales in Q1 FY2016

Revenues of Dhanuka Agritech increased by a moderate 3% year-on-year to Rs. 1,804 million in the first quarter of fiscal year 2016 as unfavourable monsoon in key regions and downward pricing pressure arrested growth. EBITDA margin was contracted by 235 bps to 14% due to decline in realisations and higher contribution from low-margin generics. Consequently, PAT declined 93% to Rs 186 million. The company has recently launched three new products – cotton herbicide, multi-crop plant growth regulator and paddy insecticide. We are positive about the company’s long-term growth prospects based on a strong existing products portfolio, new product pipeline and robust distribution network. However, its performance will continue to depend on the spatial distribution and frequency of monsoons. We maintain our fundamental grade of 4/5.
 

During the quarter, volume growth of 7% was offset by 4% decline in realisations. Realisations fell on account of a) competitive pressures as competitors reduced prices (passing through lower crude prices), b) higher sale of generics and c) lower farmer affordability due to crop damage by unseasonal rains in Q4 FY 2015 and muted growth in minimum support prices. Despite a near normal monsoon in several states, unfavourable rainfall in the key states of Andhra Pradesh and Telangana, which contribute 20% to Dhanuka’s revenues, impacted growth.