Dhanuka Agritech

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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
DALs 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. DALs 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
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December 24, 2010
Global Agrochemical Industry

There is a great potential in the global agrochemical industry, which has grown from
Global industry is expected to be worth USD196 billion by 2014, with Asian markets accounting for nearly 43 percent of the total revenues
USD25.8 billion in CY2001 to USD41.7 billion in CY2008. There has been a boom in research in the recent years by companies seeking to develop new chemicals and improve existing ones. The industry is expected to be worth USD196 billion by 2014, with Asian markets accounting for nearly 43 percent of the total revenues. The main drives for agrochemicals will be the growing global population and the pressure on limited agricultural land. The worlds population is 6.7 billion and is expected to reach 9 billion by 2050 with around 750 million people born every year. This means more demand for higher food yielding crops in nations like the U.S., Brazil, China, India, Canada, Argentina and Australia, where agrochemicals have built a strong foothold catering to this segment.
Indian Agriculture
With agriculture contributing to approximately 17 percent of the country's GDP and providing livelihood to almost 60 percent of the population, 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, it continues to be the main stay of the Indian economy. Initially it was dominated by family farms, but now large companies that are better aligned across the supply chain characterize it. 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.
Exhibit: Growth Rate of Agricultural & Growth Rate of GDP
10.0% 8.0% 6.0% 4.0% 2.0% 0.0% FY06 GDP Growth Rate Source: CSO, 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, the agricultural sector has to grow at the rate of at least 4 percent. 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, suitable for cultivation of a wide variety of crops. The government is targeting 4 percent growth for the agri-sector from 2005-20 and in order to achieve it, the government is making huge investments in the areas of irrigation, storage and post-harvest infrastructure and connectivity.
Indian Agrochemical Industry

Indian Agrochemical Industry is estimated at about USD1 billion. At the end of FY09, it ranked 2nd in Asia (behind China) and 12th globally
Indian Agrochemical Industry is estimated at about USD1 billion. At the end of FY09, it ranked 2nd in Asia (behind China) and 12th globally. In FY09, overall industry witnessed marginal volume decline, but saw a price increase of 10-12 percent. According to ASSOCHAM, non-judicious use of pesticides is leading to an annual loss of more than Rs. 10,000 billion. Only 20 percent of cultivated area is treated by pesticides.
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, 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 , 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. However, 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, which demands a careful examination and policy action. 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. However, there are large inter-region, inter-state, and inter-crop variations on fertiliser consumption in India. 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.
Exhibit: Consumption, Production & Import of Fertilizers
300 250 In lakh tonnes 200 150 100 50 2002-03 2003-04 2004.05 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
In some areas excessive use of chemical fertilisers has led to degradation of natural resources such as land and water, which needs an urgent attention. On the other hand, 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, which is much lower than the recommended level
much lower than the recommended level. Therefore, there is a need to have twopronged strategy, 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.
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, phosphorous, potash and sulphur) content of fertilisers instead of the earlier system of product-based subsidy. 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.
DAL
December 24, 2010
Investment Rationale
Numerous product mix with product thrust in Agrochemicals DALs 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, dust and granules and establishing its presence with a product portfolio of over 80 products
pesticides formulation and seeds business. Though the volume of seeds business is quiet low compared to total business volume. In the pesticides formulation segment DAL has a wide range of product raging from liquid to powder, dust and granules and establishing its presence with a product portfolio of over 80 products. DAL has also forayed into the agri-retail business by launching seven retail outlets which are based on the concept of franchiser-franchisee. 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.P. Further, DAL is contemplating to set up ten more retail outlets in Gujarat.
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. Jodhpur, Rajasthan. This project has already become operational since 31st. December 2009 with its installed capacity of 1.5 MW. Having invested of Rs.89.2 million the project has generated revenue of Rs.1.786 million in the FY2009-10. DAL also has its presence in the health care segment along with it has a footprint in the real estate segment. Having almost 80 products in its portfolio the highest consumed product is Targa Super, which for the financial year ended FY10, contributed over 14 percent to the over all sales. The other top selling product for DAL is Quizalofop Ethyl, Cartap Hydrochloride, Propargite the demand for which can be attributed to its superior quality on account of technical tie-up with Nissan Chemical Industries Ltd., Japan. In that juncture if one vertical fails to perform the other verticals would negate the downside in topline growth thus, allowing DAL in achieving allocation of optimum risk.
Exhibit: Segmental Revenue
100.00% 80.00% 60.00% 40.00% 20.00% 0.00% FY06 Liquid FY07 Powder, Dust & Granules FY08 FY09 Seeds FY10 Other
Targa Super, which for the financial year ended FY10, contributed over 14 percent to the over all sales. The other top selling product are Quizalofop Ethyl, Cartap Hydrochloride, Propargite
Source: Company, 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. Through intense research and development Dhanuka has been able to deliver Active Pharmaceutical Ingredients and Advanced Intermediates in the field of Cephalosporin Antibiotics.
DAL
December 24, 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. DAL is presently enjoying a dealer base of over 15,000 people and has spread its dealers to penetrate deeper into farming
DAL is presently enjoying a dealer base of over 15,000 people and has spread its dealers to penetrate deeper into farming segment in India
segment in India. DAL is also into the process to educate the farmers in order to increase the production yield. DAL has launched seven new depots to intensify its strong distribution network and to reach to the customer efficiently. DALs 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
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. Dhanuka doctors are specially engaged with task of providing practical demonstration with the help of innovative technique through multimedia and projectors.
Exhibit: Marketing & Distribution Network
Strong dealer base of 15,000
Dhanuka Doctors
Dhanuka Rapid Action Force
Glimpse of sound Marketing & Distribution Network

Sound Farmer contact programme
Technical Support Team
Dhanuka Suvidha Outlets
DAL has embarked upon a new concept of Dhanuka Rapid Action Force (DRAF) which mainly tends towards establishing speciality molecules on different crops. DRAF is operated through development officers and mangers based at different state and working for the development of specialized molecules. DAL has been utilising its strong marketing and distribution network in its way to augment sales growth.
DAL
December 24, 2010
Strategic sales management to capitalise sales growth DALs marketing team is very proficient in terms of relationship management and
DALs 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.
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 15,000
Dhanuka Suvidha Outlets & technical support team
Facilitating DAL to exploit the existing distribution network to augment its sales growth Source: Company Data, 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. 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.
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, Syngenta, Chemtura etc. to bring technological changes to its products Source: Company Data, Kredent Research Advisors
Better access to the market
DAL has joined hands with international companies like Nissan, DuPont, FMC, Nissan etc
DAL has joined hands with international companies like Nissan, DuPont and FMC etc. Nissan Chemical Industries, Japan based company, is engaged in the field of agricultural chemical business and is also on the side of production and distribution of herbicides, insecticides and fungicides. Dupont founded in 1802 in Wilmington, Delaware, USA, DuPont delivers sciencebased solutions for markets that make a difference in people's lives. Today it operates in more than 70 countries worldwide. FMC Corporation is one of the worlds foremost, diversified chemical companies with
DAL
December 24, 2010
leading positions in agricultural, industrial and consumer markets. This 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.
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
Sales
Threefold Strategy
Penetrating Newer Market
Reducing Cost
Source:Company, Kredent Research Advisors
Exhibit: Technical Collaboration Company Product Business Overview Founded in 1802, operating in approximately 90 countries, DuPont offers a wide range of innovative products and services for markets including agriculture, nutrition, electronics etc. Syngenta provides two main types of products: seeds and crop protection. These help growers worldwide raise the quantity and quality of their crops. Mitsui Chemicals focuses on people, society and the global environment from the perspective of the chemical industry and provides a diverse array of products. Company used polluting sulfur dioxide emissions from smelting operations at the Besshi Copper Mine in Niihama, 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, industrial and consumer markets globally
Nissan Chemical Industries
Chemicals
The agricultural chemicals business centers on the production and distribution of herbicides, 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
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
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December 24, 2010
inadequate use of pesticides. In such a situation coming up with new product or modification of the existing product is essentially important. 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. DAL is continuously on the path of active research coupled with latest equipments and capable scientists
intense research and development. DAL is continuously on the path of active research coupled with latest equipments and capable scientists. In 1984 Dhanuka Group established an R&D unit named Dhanuka Agriculture Research Centre (DARC), to carry out in-house field research and process development. DARC is recognized by the Department of Science and Industrial Research, Ministry of Science and Technology, Government of India. Its R&D wing interacts closely with the Central Agricultural Research and teaching Institutes like ICAR, IARI, CRRI, CPRI, TRA, etc. as well as State Agricultural Universities and work in close coordination with them for the generation of scientific data and evaluation of new molecules, organizing of scientific workshops and seminars/ symposia. Over the years DAL shows incremental exposures toward R&D expenses. R&D is gathering data on different existing molecules for label expansion on new crop/pests. In that juncture DAL has generated data on speciality herbicide, Targa Super 5 EC on cotton and ground nuts crops and submitted the same to CIB/RC for their approval.
Exhibit: Research & Development
6
Expenses on Research & Development
Rs in Million
4 3 2 1 0
DAL is showing incremental exposure toward research & development
FY06
FY07
FY08
FY09
FY10
Expenses on Research & Development Source: Company Data, 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 113,040 M.T of powder, dust and granules and 8,675 K.L of liquid
production further. Over the years DAL has increased its capacity significantly and currently standing on the capacity of 113,040 M.T of powder, dust and granules and 8,675 K.L of liquid. DAL is draw round the capex of around Rs.30-50 million and has recently raised Rs 339.08 million by issuing 4.125 million shares on preferential basis to Private Equity strategic fund managed by Lighthouse Funds. 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.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. 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.
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December 24, 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.L Source: Company Data, 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.T Source: Company Data, Kredent Research Advisors
Capacity Expansion Powder, 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, dust in M.T Source: Company Data, Kredent Research Advisors
Company has a portfolio of 80 products and it is continuously adding new brand every year. In the recent year DAL has already launched several products like Dhawa Gold,
Continuously adding new brand every year. In the recent year DAL has already launched several products like Dhawa Gold, Areva, Apple, D-era and Nabood
Areva, Apple, D-era and Nabood along with some product that are still in the pipe line such as Dhanzyme Gold and Luster, a fungicide for Paddy.
10
DAL
December 24, 2010
Exhibit: Launch of products in every year
2009-10 2009-10
Dhawa Gold, Areva, Apple, Dera, Nabood, Dhanzyme Gold and Ad-Fyre
2008-09 2008-09
Kardhah, Fax 0.3% Granules, Fax 5% SC, Wrap-up, Qurate Gold and Samadhan Bordoh etc.
2007-08 2007-08
Dhanutan 5 0% WP, Donmix50% EW, Dhanvan 5000, Zargon etc
2006-07 2006-07
Cursor, Em-1, Markar, Ozone, Hi-Dice etc
Procurement of raw material and reduced dependencies on import DALs key raw material is the technical grade pesticides which it procures from its
DALs 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. 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 42.71 % in FY10
Indigenous 57.29 % in FY10
Stable long-term input price
Agreed Quality
On-demand quantity
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.
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. Alternatively in that juncture DAL has also been able to maintain its cost of production lower in the wake of low dependencies in import.
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December 24, 2010
Exhibit: Reduced dependencies on import

100.00% 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% FY06 Imported Source: Company, Kredent Research Advisors FY07 FY08 FY09 Indigenous FY10
Strong financial performance DAL has reported strong financial performance over the last four years. The sales have grown at a compounded annual growth rate (CAGR) of 17.93 percent over the last four years while the bottom line has recorded a CAGR growth of over 38.91
The sales have grown at a compounded annual growth rate (CAGR) of 17.93 percent over the last four years while the bottom line has recorded a CAGR growth of over 38.91 percent over the same period
percent over the same period. Sales have gone up mainly because of the companys 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. The Return on Equity (ROE) has grown impressively from 38.81 in 2007 to over 46 in 2010 mainly due incremental PAT margin. DALs debt to equity ratio is also on the declining trend which exhibit least dependencies on debt. Net debt equity ratio decreased from 0.98 in FY08 to 0.75 in FY09 and after that decreases to 0.59 in FY10. Interest coverage ratio is also on the increasing trend which registered 4.39x in FY09 to 8.06x in FY10 Recent Update On August 2010, DAL has issued 4.125 million shares on preferential basis at a price of Rs 82.20/share to M/s 2020 Equity Investors Limited (Private Equity strategic fund managed by Lighthouse Funds), thereby raising funds to the tune of Rs. 339.08 million. Before the preferential issue the promoter stake in the company was 89.91
The Return on Equity (ROE) has grown impressively from 38.81 in 2007 to over 46 in 2010 mainly due incremental PAT margin. DALs debt to equity ratio is also on the declining trend
On August 2010, DAL has issued 4.125 million shares on preferential basis at a price of Rs 82.20/share to M/s 2020 Equity Investors Limited (Private Equity strategic fund managed by Lighthouse Funds), thereby raising funds to the tune of Rs. 339.08 million
percent which violated the maximum prescribed limit under clause 40A of the listing agreement. 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. Hence, after the preferential allotment the promoter stake in the business has fallen to 74.99 percent which is within the prescribed limit under clause 40A of the listing agreement
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DAL
December 24, 2010
Key Risk
Turnover dependent on unpredicted weather condition DALs core business is solely dependant on monsoon and unpredicted weather condition which is much more prevalent in the country like India. 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. And also sales of agrochemicals in the domestics retail market are highly seasonal due to monsoons, with majority of the sales materializing between June and October every year.
DALs 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.
Exhibit: Raw material exposure
2,500 2,000 1,500 1,000 500 0 2005-06
Total Raw Material
80% 70% 60% 50% 40% 30% 20% 10% 0% 2006-07 2007-08 2008-09 2009-10
Rs. Millions
% of Imported raw material on Total raw material
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 4,543.31 645.99 14.22 454.03 9.99 9.57 16.53 80.10 8.37 4.84 9.76 0.59 46.91 7.08 1.01 4,407.00 776.30 17.62 343.30 7.79 11.00 29.79 51.65 4.70 1.73 19.75 0.73 41.20 3.07 0.54 7,188.40 902.27 12.55 505.64 7.03 40.16 139.96 285.00 7.10 2.04 41.61 0.86 24.66 5.11 0.64 26,034.70 4,408.90 16.93 906.70 3.48 2.11 37.33 32.40 15.36 0.87 7.82 1.98 4.15 9.22 1.56
Source: Company Data, Kredent Research Advisors Note: Net Sales, EBIDTA, Net Profit, EPS & Interest Coverage Ratio are on Trailing Twelve Months
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Quarterly Result Analysis

For the quarter ended September 2010, DAL reported an increase of 20.67 percent yo-y and 107.51 percent q-o-q in total income to Rs. 1,659.95 million as against
For the quarter ended September 2010, DAL reported an increase of 20.67 percent y-oy and 107.51 percent q-o-q in total income to Rs. 1,659.95 million as against Rs.1,375.56 million reported a year ago. The increase in the sales y-o-y was mainly driven by the strong sales in the domestic market
Rs.1,375.56 million reported a year ago. The increase in the sales y-o-y was mainly driven by the strong sales in the domestic market. EBITDA reported an increase of 16.15 percent y-o-y and 65.56 percent q-o-q to Rs. 210.58 million as compared to Rs. 181.30 million reported a year ago. DAL exhibited incremental exposures towards raw material cost and accounts for 13.32 percent y-o-y and 38.43 percent q-o-q to Rs. 846.85 million as against Rs.747.34 million reported a year ago. DALs exposure toward purchase of trades good is also on the increasing trend and raised to 52.20 percent to Rs.124.12 million as compared to Rs. 81.55 million reported a quarter ago. The net profit for the quarter was up by 35.16 percent y-o-y and 80.86 percent q-o-q to Rs.162.74 million as compared to Rs.120.41million reported a year ago.
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. Millions
Q2FY11

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 1,659.95 1,449.37 210.58 12.69 9.21 201.37 12.13 37.29 14.06 224.60 13.53 0.00 224.60 61.86 162.74 9.80 3.48 Q2FY10 1,375.56 1,194.26 181.30 13.18 7.30 174.00 12.65 0.88 16.43 158.45 11.52 -0.95 157.50 37.09 120.41 8.75 2.67 Q1FY11 799.94 672.75 127.19 15.90 8.91 118.28 14.79 10.28 17.42 111.14 13.89 0.00 111.14 23.58 87.56 10.95 1.89 Figures in Millions
%Chg (y-o-y) %Chg (q-o-q)
20.67 21.36 16.15 -49bps 26.16 15.73 -52bps 4,137.50 (14.42) 41.75 201bps (100.32) 42.61 66.78 35.16 105bps 30.34
107.51 115.44 65.56 -321bps 3.37 70.25 -266bps 262.74 (19.29) 102.09 -36bps 0.00 102.09 162.34 85.86 -114bps 84.13
14
DAL
December 24, 2010
Performance of the Company

Revenue & Revenue Growth
Exhibit: Trend in Revenue & Revenue Growth
7,000 6,000 5,000 Rs. Millions 4,000 3,000 2,000 1,000 0 FY07 FY08
Revenue
300 250 200 150 100 50 0 FY09 FY10 FY11E

Revenue Growth
FY12E
Source: Company, Bloomberg Estimates, Kredent Research Advisors
EBITDA & EBIT Margins

Exhibit: Trend in EBITDA & EBIT Margins
14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% FY07 FY08
EBITDA Margins
FY09
EBIT Margins
FY10
Debt / Equity Ratio (D/E) & Interest Coverage Ratio (ICR)

Exhibit: Debt/Equity Ratio & Interest Coverage Ratio (ICR)
1.2 1 0.8 0.6 0.4 0.2 0 Debt/Equity (x) Source: Company Data, 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, Bloonberg Estimates, Kredent Research Advisors
15
DAL
December 24, 2010
Financials
DALs revenue for the financial year ended FY10, increased by 16.98 percent y-o-y to Rs. 4,455.49 million as compared to Rs. 3,808.74 million reported a year ago, led by
DALs revenue for the financial year ended FY10, increased by 16.98 percent y-o-y to Rs. 4,455.49 million as compared to Rs. 3,808.74 million reported a year ago, 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. Owing to this, EBIT margin also increased by 41 basis point to 12.25 percent from 11.84 percent in FY09. Profit after tax (PAT) for the financial year ended FY10 has increased by 66.47 percent y-o-y to Rs. 387.96 million as compared to Rs. 233.05 millions reported in FY2009. ROE of the company has been on an increasing trend over the last three years mainly due incremental PAT margin. DALs debt to equity ratio is also on the declining trend which exhibit least dependencies on debt. Net debt equity ratio decreased from 0.98 in FY08 to 0.75 in FY09 and after that decreases to 0.59 in FY10. Interest coverage ratio is also on the increasing trend which registered 4.39x in FY09 to 8.06x in FY10.
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 2,303.83 259.82 219.74 9.54 202.68 8.80 163.16 58.95 104.21 149.01 4.52 2.29 -44.49 5.37 9.18 3.91 4.18 1.04 2.01 38.81 14.62 6.19 0.59 FY2008 2,864.94 24.36 327.16 11.42 305.74 10.67 264.03 92.34 171.69 64.75 5.99 3.69 61.10 9.12 10.16 4.11 5.63 0.98 1.91 37.63 12.38 7.15 0.82 FY2009 3,808.74 32.94 478.05 12.55 450.96 11.84 356.17 123.12 233.05 35.74 6.12 5.06 37.17 11.96 6.33 2.67 4.39 0.75 1.81 38.94 14.05 4.36 0.55 Figures in Millions FY2010 4,455.49 16.98 576.97 12.95 545.89 12.25 490.09 102.13 387.96 66.47 8.71 7.92 56.61 16.53 6.49 3.11 8.06 0.59 1.84 46.91 16.54 5.42 0.70
ROE of the company has been on an increasing trend over the last three years mainly due incremental PAT margin. DALs debt to equity ratio is also on the declining trend which exhibit least dependencies on debt
16
DAL
December 24, 2010
Valuation
Historically, over the last five years the company has traded at an average price earning multiple (P/E) of over 8x. Moreover, on an average it has also traded at a one year forward P/E band of 6-12x given its strong five year earnings CAGR of around 62.94 percent. As per Bloomberg estimates, AAL earnings for FY11 and FY12 is expected to grow at 25 percent and 21 percent respectively to Rs.9.76/share and Rs.11.80/share. Hence, 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.9.76/share and Rs.11.80/share. 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, 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 11.80/share. Therefore, we arrive at a one year month price target of Rs.100.26/share, reflecting an upside potential of 25.17 percent from current levels.
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, Bloomberg Estimates, Kredent Research Advisory
17
Mar-11
Jul-06
Mar-07
Jul-09
Jul-07
Jul-08
Jul-10
DAL
December 24, 2010
18
BUY
CMP (Rs): 80.10 One Year Target (Rs): 100.26
Dhanuka Agritech Ltd
DECEMBER 24,2010
DISCLOSURES This document was produced by Kredent Research Advisors Private Limited Kredent. The document is being furnished to Kredent clients for their information purposes only and is not an offer or the solicitation of an offer, to buy or sell a security. This document is not to be relied upon or used in substitution for the exercise of independent judgment. Information and opinions contained herein have been compiled or arrived by Kredent from sources believed to be reliable, but Kredent has not independently verified the contents of this document. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. Kredent accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. We and our affiliates, directors, and employees worldwide may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, 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. It is being furnished to Kredent clients for their information purposes only and may not be reproduced or published in any media, website or otherwise, in part or as a whole, without the prior consent in writing of Kredent. Persons who receive this document should make themselves aware of and adhere to any such restrictions. ADDRESS # 3, Pretoria Street, Kolkata 700071 Tel: +91-33-40002461 / 62 For further queries you can ask us at quey@kredentadvisors.com
DAL
December 24, 2010
Kredent Research Advisors 20

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

Dhanuka Agritech Ltd

INITIAL COVERAGE REPORT

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For Private Circulation Only

December 24, 2010

Dhanuka Agritech Limited (DAL)

Source: Company Data, Kredent Research Advisors

Kredent Research Advisors

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December 24, 2010

Global Agrochemical Industry

Indian Agrochemical Industry

Kredent Research Advisors

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December 24, 2010

S urce In u , K de t R se rch A viso o : d stry re n e a d rs

% Import in total consumption

Source: Company Data, Kredent Research Advisors

Kredent Research Advisors

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For Private Circulation Only

December 24, 2010

Source: Company, Kredent Research Advisors

Kredent Research Advisors

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December 24, 2010

Education & Seminars Source: Company Data, Kredent Research Advisors

Expenses for field assistants

%age growth in Sales

Strong dealer base of 15,000

Dhanuka Rapid Action Force

Glimpse of sound Marketing & Distribution Network

Technical Support Team

Dhanuka Suvidha Outlets

Source: Company, Kredent Research Advisors

Kredent Research Advisors

Please see the disclosures on the last page

For Private Circulation Only

December 24, 2010

Dhanuka Doctors& Dhanuka Rapid Action Force

Sound Farmer contact programme with dealer base of 15,000

Dhanuka Suvidha Outlets & technical support team

Exhibit: Better riching with technical collaboration

Superior product quality

Better access to the market

Kredent Research Advisors

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December 24, 2010

Penetrating Newer Market

Source:Company, Kredent Research Advisors

Seed & crop protection

Nissan Chemical Industries

Hokko Chemical Company Ltd

Japan based chemical company engaged in the production of chemicals

Crop care & seeds

Source: Company, Kredent Research Advisors

Kredent Research Advisors