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business | IST

Dhanuka Agritech expects 17% margin by FY22-end; plans 10% price hike in November

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MK Dhanuka, MD, Dhanuka Agritech, listed a number of reasons that led to raw material price increase. With inventory still being available with the company at old prices, the price hikes would take a month or two to pass on, and so the company is looking at an average price hike of 10% in November. He also mentioned that the company's margin will be down 150 to 200 basis points from the 19 percent mark stated earlier.

The sector in focus is the agrochemical space and that is on account of the power outages that have taken place in China, and the impact it has had on input costs for agrochemical companies. Kotak wrote a note saying that players like UPL, Dhanuka, Bayer CropScience are likely to be negatively impacted. To discuss this impact in more detail, CNBC-TV18 spoke with MK Dhanuka, MD, Dhanuka Agritech.
He said, “Prices of raw materials, especially those imported from China have increased a lot and there are a number of reasons for these price hikes. First, there is a power shortage in China, due to which the Chinese government has basically restricted the operation of factories in a number of provinces. Factories are running only two days a week. Second, there is an acute shortage of phosphorus and the price of phosphorus has nearly doubled. So, for all organophosphorus products, costing has increased and third, the Chinese government, due to upcoming Olympic games, they want blue sky and hence want carbon emissions to be reduced drastically -and the fourth reason being, logistics - non-availability of containers and so freight prices have gone up 2-3 times. All these reasons have led to raw material price increase.”
Although this has impacted Dhanuka, the impact has not been major because 75 percent of the company’s imports are from Japan, and only 25 percent are from China.
He further said, “We have been trying to pass on the price increases, but since the Kharif season is now over, so the price increases will happen from November onwards, and in October, we don't foresee any price increase. Inventory is there in the pipeline at old prices, and so it will take a month or two to pass on the prices in place to the ultimate customer that is the farmer.”
On margin impact, he stated that margins for the company will not reduce further from 17 percent levels, but will be down 150 to 200 basis points from the 19 percent mark. “So, hopefully, margins would be around the 17 percent mark by the end of this fiscal, that is FY22,” he mentioned.
He also said that price hikes would vary from product to product. "Since there was a hefty increase in prices of organophosphorus products like Glyphosate, which went up to 60-70 percent, we will ultimately have to pass on the glyphosate price hikes. However, there are some molecules where prices have not increased and so the average price increase would be to the extent of 10 percent,” said Dhanuka.
For the entire discussion, watch the accompanying video