EQUITIES

Dhanuka Agritech share price up 117% since March, might have more upside potential; check target price

agriculture, farm, farm output, agri reform,

Having surged 117% since March last week, Dhanuka Agritech shares still have some steam left in them. With favourable sector outlook, this agri-inputs stock might just as well climb another 30% from current levels, if brokerage firms are to be believed. Dhanuka Agritech shares ended at Rs 648 per share and even amidst Friday’s volatile share market, this stock continued to gain after a gap down opening. To aid the stock’s already strong performance the firm delivered a 45% jump in profits on-year basis, beating street estimates. Even gross margins were up by a massive 770 basis points.

“Dhanuka Agritech delivered an impressive 19% volume growth in Q4 driven by strong demand in the Rabi season. With low channel inventory, we expect 14% volume growth in FY21 driven by the monsoon,” brokerage and research firm Emkay Global said in a recent note. The brokerage firm is bullish on the stock with a buy rating and a target price of Rs 715 apiece. “We expect DAGRI’s revenue/EBITDA to increase by 14%/21% on the back of strong season and margin improvement. DAGRI has become aggressive in new product launches which are key positive over the medium term,” the report said. Emkay Global has raised its target multiples to 19X.

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The monsoon season this time is expected to be normal which is beneficial for agriculture and sectors associated with it. Along with that Dhanuka Agritech has launched seven new products in the last one year which, according to analysts, could help the firm. “Though its innovation turnover index (ITI) has dipped 500bps YoY to 12%, Dhanuka Agritech expects it to improve significantly via new product launches. The company expects a herbicides portfolio to sustain growth over FY21 (Q4FY20 growth: 33% YoY) driven by labour shortage across key agriculture states of Maharashtra, Haryana, and Punjab,” said analysts at Edelweiss Securities in a report. The brokerage firm expects the stock to jump 30% to reach a target price of Rs 841 per share. 

It is not just the brokerage firms that are upbeat about Dhanuka Agritech’s future prospects, the management too seems confident of posting double-digit growth in the current fiscal with EBITDA margins going up by 100 bps. The recent locust attacks are also being eyed by the firm to increase its sales with products that can cater to such demand. To club with that the firm is expecting a jump in usage of herbicides Punjab, Haryana and Maharashtra as labour shortage hit the states after the recent labour migration.

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