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Mar’23 and Jun’23 quarters were extremely bad for almost all the agrochemical companies. First there was excess inventory in the channel and therefore the demand plummeted. Second, the prices have come down sharply resulting in sales returns and inventory losses.
Source: Dhanuka Agritech website
However, Dhanuka Agritech has performed much better and has come out rather unscathed with decent performance in Sep’23 quarter.
We believe, as a contrarian investor with 3-4 years investment horizon, it’s always good to look at spaces which are going through rough patch or facing temporary troubles because that’s where one gets good investment opportunities.
Below, we have shared interesting insights from the Q2 FY 24 con-call of Dhanuka Agritech to understand the current situation and the outlook for the industry.
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Dhanuka Agritech – Insights from Q2 FY 24 con-call of the company
- Dhanuka Agritech is a leading agrochemical company in India, focusing on branded sales in the market. The company’s strength lies in manufacturing and marketing of formulated products
- With four manufacturing units and 41 warehouses across India, Dhanuka caters to around 6,500 distributors and dealers and around 80,000 retailers
- Dhanuka has international collaboration with 10 leading global agrochemical companies from the US, Japan and Europe, which helps us to introduce our latest technology in India
- Dhanuka has also commenced operations at its new chemical plant in Dahej and it started production of bifenthrin technical with effect from 8 August 2023
- In the first 6 months, the volume increase is close to more than 10%, and the value decrease is already there, is about 5.5%
- In Q2, the volume growth was around 20%
– New Products
- Dhanuka has shown good growth during the last quarter; excellent demand for our product Decide introduced in last year as well as some powerful product introduction in the current financial year supported the revenue growth
- Decide is a very versatile insecticide coming from Mitsui Chemicals of Japan to Dhanuka. And this is our 9(3) registration product. And this has done extremely well because of its huge opportunity on the major targeted crop chilli
- During this quarter, the company has launched 2 products. First is Tizom. Tizom is a 9(3) product type for sugarcane crop; Tizom is launched in collaboration with Nissan Chemicals, Japan
- The second product is SEMACIA. SEMACIA is a co-marketing product, a broad-spectrum insecticide with excellent efficacy against lepidopteran insect pest on a range of crops
– Gross margin expansion
- One is the product mix. In Q2, our entire growth is coming from the Lifeline portfolio. And secondly, last year, there was a huge loss on account of the carryover inventory, which is not there in this particular year
– Dahej Plant
- The Dahej plant was capitalized on the 8th of August because production was started on 8th of August. So, in terms of revenue, no revenue in the Q2
- In terms of cost, basically around INR 5 crores, INR 6 crore, which is part of this cost
- In the current plant, we can manufacture up to 4 to 5 products because it is a multipurpose plant. And parallelly, we can manufacture 2 different products
- As per the recent report of CRISIL rating, agrochemical makers will see a 3% drop in revenue in FY ’23, ’24 for the first time in a decade
- Due to falling prices globally, we would see demand for export owing to destocking by global manufacturers and the impact of lower reservoir level on Rabi sowing, especially in southern and western part of India
- We are looking at a good Rabi with rainfalls, especially in South India, and we are also looking at East India as a good opportunity in the next 5 months, or H2 so to say
- We are pretty confident of delivering a similar number by end of the year in terms of top line growth and EBITDA margin growth of 200 bps is looking sure — gross margin upgrade of 200 bps is looking sure
Disclaimer: This is not a recommendation to buy/sell Dhanuka Agritech. The securities quoted are for illustration only and are not recommendatory.
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