Thread by @ValueEducator

Detailed Analysis of Dhanuka Agritech- A domestic formulation player who is entering into the patented agrochemicals CRAMS business

CMP - ₹790

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1. COMPANY OVERVIEW
• Dhanuka Agritech was present only in the formulations part of the value chain and was primarily a domestic business. The company right now is doing capex at Dahej where it will manufacture technicals and intermediates for the first time.

Therefore, the company will have presence in all parts of the value chain except the KSMs when their capex at Dahej comes online. This can be seen in the image below:

• The key formulation brands of the company in herbicides, insecticides and fungicides are as shown below:

2. DISTRIBUTION NETWORK
• The company has a pan India presence with warehouses in all major states in India. The company has 4 manufacturing facilities and 41 warehouses which cater to around 6500 distributors and dealers and 80,000 retailers.

This network helps the company to reach out to around 10 million Indian farmers with their products and services.

• The company does not make any kind of placement with the dealers and distributors as per their policy. The company supplies materials to dealers and distributors

as per their demand which is connected with the requirement of the farmer. This leads to lower channel inventory for the company.

3. MARKETING
• The company extensively spends on marketing as shown in the chart:

• The company does TV advertisements aggressively and online farmer interactions to promote their key products. The company has tied up with upcoming digital platforms such as Agrostar, Dehaat, Gramophone and Plantix which helps them sell their products online to the farmers.

• The company has restructured its marketing organization as mentioned by the company management in their Q3FY23 concall:

4. COLLABORATION WITH MNCs
• The company entered into its first technical collaboration with DuPont in 1992 for manufacturing formulations and since then, it has entered into technical collaborations with various MNCs in the American, European and Japanese markets as shown below

• As per these collaborations, Dhanuka receives the active ingredient from the MNCs under purchase contracts. It also receives the product know-how as well as the right to manufacture and market these products in India.

• This arrangement provides Dhanuka a wider product basket which helps them to tackle a wide range of pests and the MNCs benefit from the increased off-take of their products due to Dhanuka’s pan-India presence.

5. PRODUCTS LAUNCHED OVER TIME
• The images summarize the products launched by the company during FY11- FY22:

• These products which are the branded formulations of the company have been launched with the help of the technical collaborations of the company with the global MNC players. These products belong to categories such as insecticides, fungicides, herbicides,

plant growth regulators, bio pesticides and others. The products launched are a mix of 9(3) and 9(4) registrations and in-licensed products.

• In the year FY23, the company got approvals from CIBRC for the following products:

6. DRONES BUSINESS
• The company has taken the following initiatives for their drones business:
a)They invested ₹20 crores in a startup called IoTechWorld Avigation which is a leading drones manufacturer for Agriculture, Survey, Surveillance, Logistics & other applications.

b)The company signed an MoU with Govind Ballabh Pant University of Agriculture and Technology to jointly conduct research in co-production of chemicals and another MoU with Chaudhary Charan Singh Haryana Agricultural University, Hisar for the same purpose.

The company has signed more of such MoUs and the focus of the majority of them is around the application of pesticides through drones.

7. CAPEX PLAN
• The company has planned a capex of ₹300 crores at Dahej. This is a greenfield project for the company for which it had acquired 1,37,000 sq.m land in 2013. This project will be overseen by Mr Kapildev Gajanan Vatse who is the Vice President of the company.

• The rationale for this capex was:
a)To set up a technical manufacturing unit as a part of doing backward integration and reducing the dependence on imports.

b)The company plans to export the products made in this plant to companies in the Japanese, American & European markets

The company has long-term associations with the companies in these markets which will help them in developing their export business.

• In Phase-I, the company has set up a formulation unit and in Phase-II the company plans to set up an MPP where they plan to manufacture

synthetic pyrethroids, herbicides & intermediates. The Phase-II capex was expected to come online in March 2023 but due to delay in the delivery of plant & machinery from the supplier even after booking in advance, the company management has revised their guidance to July 2023.

• The company expects to get ₹50 crores from their Dahej plant in FY24 which will be the first year of operation. The company is expecting peak revenues up to ₹350 crores on their investment to kick in by FY25 or FY26.

• The Dahej capex will be funded primarily via internal accruals as a company has a more than ₹300 crores of cash balance as mentioned by the company management in their Q2FY23 concall.

• The company is planning to do some capex over and above the Dahej capex in FY24. They are right now working on a capex plan for FY25 which they plan to announce in their Q1FY24 concall.

8. FUTURE OUTLOOK
• The company is ready to launch their new range of biological products under the sub brand ‘Biologic’ with an initial portfolio of 6 products. This will allow Dhanuka to offer sustainable and environment friendly solutions to the farmers.

• The company has started getting queries for their current portfolio from the international market. The company plans to use these leads to export products from its Dahej plant to the international market. The company has hired an Export Manager and they plan to ramp up their

export business in both regulated and unregulated markets. The company will invest for registrations in regulated markets and leverage their formulation capabilities for the unregulated markets.

• The company wants to manufacture specialty molecules/ patented molecules of their Japanese Partners and for this reason , they are doing a capex at Dahej for technicals. Dhanuka basically wants to demonstrate its capabilities of manufacturing technicals by doing this

investment and hence, initially they will start with the production of generic molecules. The company plans to arrange a plant visit for their Japanese customers.

• The capacity expansion project for the technical plant at Dahej is on track and the production is expected to

commence from 3rd week of July. The company will complete trial production before commencing the commercial production.

• The company will initially start with the manufacturing of Bifenthrin technical once they get their technical plant up and running. Bifenthrin technical

will be used for captive consumption and will be supplied to players in the domestic and international markets.

• The company is in continuous discussion with their Japanese customers for manufacturing of their patented molecules and they expect to get a project going forward

due to their long-standing relationships.

• The company’s focus right now is more on the Drones and precision agriculture business which are the frontier technologies in the agro industry right now. The company is also working to develop nutrition and bioproducts which have a

high demand right now among the farmers. Therefore, the company is not focusing on the seeds business right now as it has a lower priority for the company than the other areas mentioned earlier. The company however will explore the seeds business when the time is right.

• The company had launched their insecticide formulation Mortar a few years back for controlling insects like stem borer and leafhopper in paddy. They plan to expand the application to sugarcane crops which are attacked by the insect sugarcane borer. Paddy stem borer,

Paddy leafhopper and sugarcane borer have market size as large as ₹4000 crores. The product Mortar of the company competes with the Rynaxypyr of FMC in this segment.

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