Rallis India's Q1FY20 results (Outperformer) - Broadly in line, exports drivegrowth
Q1FY20 result highlights
- Cons. revenues increased by 8.7% yoy to Rs6.23bn (est :Rs6.24bn) largely driven by the international business registering 12%yoy growth on strong demand for existing molecules (metribuzin and acephate) .Growth in the domestic pesticides business remained soft owing to delayed monsoons and weak kharif sowing. Seed business (seasonally strong qtr) registered 2.6% growth driven
- Gross margins declined by 147bps to 38.1% on cost pressures and unavailability of key raw materials imported from China.
- EBITDA margins improved by 70bps to 15.2% on lower operating expense. Cons.EBITDA stood at Rs948m (slightly below est: Rs968m), up 14%yoy.
- Lower tax rate (22.3% vs. 27.8% in Q1FY19) led to 24% yoy growth in PAT to Rs676m (above est : Rs624m)
Key positives: Steady growth in the international business
Key negatives: Weak performance of the domestic pesticide business
Impact on financials: Marginally increase EPS by 0.5% /0.3% in FY20/FY21E
Our view
Rallis’s Q1FY20 performance was driven by exports which registred healthy 12% growth while delayed monsoons and decline in crop acreage lead to muted growth in the domestic pesticides business,. Going forward, pick up in monsoons along with various initiatives undertaken by the company like introducing speciality products, easing of credit norms to dealers supported by strengthening of distribution network will aid in recovery. Rallis has embarked a capex of Rs 8bn over the next 5 years to increase capacities in existing and new molecules and also to backward integrate. In the long run, Rallis’s aggressive capex outlay and various strategic initiatives undertaken by the company will help the company transition to a high growth phase. Management expects its export business to drive growth in its bid to alter the domestic-export revenue mix from 70:30 currently to 60:40 in the coming years. Introduction of several measures focused on improving farm income by govt and normal monsoons in key geographies augurs well for Rallis. Maintain Outperformer with target price of Rs182 which is at 16x FY21E EPS of Rs11.3/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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