Rallis India's Q2FY20 results (Outperformer) - Broadly in line
Q2FY20 result highlights
- Cons. revenues increased by 14.5% yoy to Rs7.48bn (above our est: Rs6.86bn) largely driven by the international business registering 31%yoy growth on strong demand for existing molecules (metribuzin and acephate). Domestic pesticides and seeds (Metahelix) business grew by 6% yoy and 51% yoy respectively on a low base
- Gross margins declined sharply by 584bps to 36% vs 42% in Q2FY19 (est :40%) on rise in price of key raw materials imported from China and inability of the company to pass on to the farmers.
- Cons. EBITDA declined by 4% to Rs1.18bn (slightly below est: Rs1.2m) despite lower operating expenses (down 290 bps). EBITDA margins declined by 302bps to 15.8% (est: 17.5%)
- Despite lower tax rate (24% vs. 28.8% in Q2FY19), increase in depreciation cost ( up 56% yoy, includes Ind As 116 adj.) led to 6.3% decline in PAT to Rs797m (below est : Rs837m)
Key positives: Steady growth in the international business
Key negatives: Sharp decline in gross margins
Impact on financials: Cut EPS by 7.5% in FY20E and increase EPS by 2.8% in FY21E
Our view
Rallis’s Q2FY20 performance was severely impacted by sharp increase in key raw material prices, despite healthy 31% growth in the export business. Going forward, we believe strong demand in key molecules manufactured by the company, softening of raw material prices and introduction of speciality products will aid 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 could 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 positive Rabi outlook augurs well for Rallis. Maintain Outperformer with target price of Rs187 which is at 16x FY21E EPS
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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