Investors looking for opportunities in the agrochemical sector may find the stock of Delhi-based Dhanuka Agritech appealing, particularly for those with a two to three-year investment horizon. Analysts suggest that the company is well-positioned for sustained growth, bolstered by several favorable factors. The global agrochemical market is anticipated to recover, and Dhanuka’s innovative new products, alongside improved monsoon conditions in India, are expected to drive demand for crop protection solutions.
Currently trading at ₹1,501, Dhanuka Agritech’s stock is valued at 29 times its FY24 earnings, and projected earnings for FY25 and FY26 suggest a more attractive multiple of around 24 and 19 times, respectively. These valuations are notably lower than those of larger competitors like PI Industries, making Dhanuka an interesting option for investors looking to capitalize on a recovery phase in the agrochemical sector.
Dhanuka Agritech has a rich history dating back to 1980, when it began operations by acquiring a distressed unit. Over the decades, the company has developed robust manufacturing and research capabilities, operating four formulation manufacturing units across India. A significant development in 2023 was the commissioning of its technical manufacturing plant in Dahej, which is expected to enhance profitability and operational efficiency. The first full-year impact of this facility is anticipated in the current fiscal year, providing an additional boost to the company’s output.
On the research and development front, Dhanuka has established a facility in Gurgaon, focusing on generating scientific data and evaluating new chemical formulations. The company has also formed partnerships with global innovators, which will facilitate the introduction of new products in India and other markets. With a distribution network exceeding 6,500 distributors and 75,000 dealers, Dhanuka effectively serves diverse markets across India, with the South and West regions accounting for a significant portion of its revenue.
The company’s growth trajectory appears strong, driven by a recovery in global agrochemical prices and domestic demand. This rebound is expected as the market stabilizes following a period of price volatility due to excessive supply from China. Good monsoon seasons in India are likely to further enhance domestic volumes, positively impacting revenue and operating profit margins. Although exports currently contribute less than 20% of total revenue, stable global prices are projected to support growth in this segment as well.
The Dahej plant is a pivotal asset for Dhanuka, having commenced production recently. As FY25 marks the first full year of operations, the company anticipates significant efficiencies and cost savings from this backward integration. Additionally, the recent launch of three new products, including Lanevo, Purge, and Mycore Super, is expected to contribute to revenue growth, with the company targeting mid-single-digit market shares in these segments.
Dhanuka’s financial health also stands out, with a strong balance sheet and negligible debt. The company has maintained a comfortable cash flow from operations, even amid challenges typical of the inventory-intensive agrochemical industry. While revenue growth was flat in FY24, improved product mix and operating profit margins reflect a positive trend. Management is optimistic about achieving mid-teen revenue growth in FY25 and approximately 20% growth in FY26, alongside margin improvements.
However, potential risks remain, including delays in ramping up operations at the Dahej plant and the pace of recovery in the global agrochemical market. Despite these challenges, the overall outlook for Dhanuka Agritech appears promising, making it a stock worth considering for investors eyeing the agrochemical sector in the coming years.
