Stock Pick from Agrochemicals Sector

            HERE IS WHY

•          Strong product pipeline gives strong revenue visibility
•          Better acceptance of its products among farmers
•          Consistent dividend payment history

With asset light model and a strong presence in the growing agrochemical space makes Dhanuka Agritech (DAL) a strong candidate to include it in one’s portfolio on a long term basis. Besides this, there are other factors that make DAL our Choice Scrip for the current issue.

DAL is engaged in manufacturing a wide range of pesticides covering herbicides/ weedicides, insecticides, fungicides, miticides, plant growth regulators / stimulants in various forms such as liquid, dust, powder and granules and reaching out to more than 10 million farmers. The company has a pan-India presence through its marketing offices in all major states in India, with a network of more than 7,500 distributors/ dealers selling to over 70,000 retailers across India.

Moreover, the company’s strong pipeline of six exclusive products over the next three years is likely to be a booster for the company in terms of revenue and profi tability. This is what attracts us the most as these launches are bound to propel the company’s growth into the next orbit as it will result into an increase in the market share for the company. Thus, a vibrant distribution network, tie-ups with innovators and launch of new products place DAL in a sweet spot to capture emerging opportunities in domestic agrochemicals market. DAL is expected to launch the above six products registered under Section 9(3) of Th e Insecticide Act, 1968. It is said that products registered under Section 9(3) generally enjoy higher margin, good brand recall and lesser credit period. Hence, a strong pipeline of products under this section will rejuvenate DAL’s prospects and financials dramatically.

That apart, innovation has also played a unique role for the company’s growth. DAL has established a strong rapport with farmers through Dhanuka Doctors, wherein the company’s personnel educate farmers about safe and judicious use of agrochemicals through DAL’s initiative called ‘Dhanuka Kheti Ki Nayi Takneek’. Th e ‘doctors’ are well-trained to deliver the message and techniques of modern farming to the farmers at their door-steps. DAL has inked pacts with three US and four Japanese players and has tied up for 20 products currently, which contributes around 47 per cent to revenues for FY14. The company enjoys long lasting relationships with global partners most of whom have been active for more than a decade. This gives the company revenue visibility going forward. Technical tie-ups with global innovators give DAL access to specialty products which generally enjoy higher EBITDA margin as well as brand recall.

DAL has a well-diversified revenue stream in terms of products as well as geography. The company has a strong portfolio of over 80 products and is geographically diversified in all regions across the country. With strong product pipeline and innovation as its forte, we recommend a buy on the stock with a target of `480 from a one year perspective.