Rallis India's Q4FY18 results (Outperformer) - Profitability declines
Q4FY18 result highlights
- Rallis reported consolidated revenue growth of 6.5%yoy to Rs3.7bn (est:Rs4bn) led by healthy traction in the domestic pesticides as well as export business, while growth in seed business was soft at 7.6%yoy to Rs220m on a low base.
- Despite 133bps improvement in gross margins to 46%, higher employee costs (up 14.9% yoy) and higher other expenses(up 23%yoy) led to 19.2%yoy decline in consolidated EBITDA to Rs336m (est:Rs539m) .EBITDA margins declined by 290bps to 9.1%.
- Despite lower interest cost and depreciation, higher tax rate (22.5% vs 1.6% in Q4FY17) and lower other income, further restricted PAT growth. Overall PAT declined by 37% yoy to 196m (est Rs323m).
Key positives: Healthy traction in domestic pesticides and exports business, Improvement in gross margins
Key negatives: Decline in EBITDA margins
Impact on financials: Earnings estimates unchanged
Our view
Rallis’s performance in FY18 was impacted by GST implementation in (H1FY18) coupled with sharp rise in raw material prices (H2FY18). Despite challenges, Rallis reported healthy revenue growth in Q4FY18, however increase in fixed overheads impacted margins. In the near term (Q1FY19), we expect the revenue growth momentum to continue with new product launches and normal monsoons supported by Rallis’s strong distribution network, while, price hikes in pesticides (undertaken in Dec’17/Jan’18), and lower inventory write-offs in seed business would lead to recovery in margins. Moreover, commercialisation of new products under contract manufacturing and recovery in global agrochemicals demand will drive the exports business growth. In the long term, change in regulatory environment (supporting the indigenous manufacturers and promotion of environment friendly products) will augur well for the Rallis’ domestic business. Exports business is expected to have hit the inflection point, with the commercialisation of new products and recovery in key markets like Brazil. We maintain Outperformer on the stock with a target price of 293 which is at 22x FY20E EPS of Rs13.2/sh
Rallis India Limited is engaged in the business of manufacture and marketing of Agri Inputs. The Company has its manufacturing facilities in India and sells both in India and across the globe. The Company's segments include Agri-Inputs and Others. The Agri-Inputs segment consists of Pesticides, Plant Growth Nutrients (PGN) and Seeds. The Other segment consists of Polymer. The Company's Non-Pesticide Portfolio includes Agri Services. Its Agri Services portfolio consists of the organic manure product GeoGreen, Samrudh Krishi (SK) initiative, MoPu (More Pulses) initiative and agri implements. The Company's products for crop protection, such as fungicides, including Contaf, Contaf Plus, Master and Fujione; weedicides, including Fateh, Tata Metri, Tata Panida, and insecticides, including Tata Mida, Reeva, Asataf and Manik. The Company also offers various category of products, including hybrid maize, hybrid paddy, hybrid pearl millet, mustard and wheat.
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