Rallis India's Q3FY18 results (Outperformer) - Profitability declines
Q3FY18 result highlights
- Rallis reported revenue growth ahead of our expectation, however EBITDA and PAT was below our expectation.
- Standalone: Rallis’ standalone revenue increased by 17.6% yoy to Rs3.57bn (est: Rs3.46bn) led by healthy traction in the domestic pesticides as well as export business. Gross margins declined by 433bps to 42% due to higher raw material costs, while EBITDA margins declined by 287bps despite stable fixed overheads and employee costs. EBITDA declined by 5.2% to Rs467mn (est: Rs568m). Lower tax rate ((13.9% vs 16% in Q3FY17) restricted further decline in PAT. PAT declined by 2.8% to Rs330m (est :Rs352mn)
- Consolidated: Rallis’ cons. revenue increased by 18.6% to Rs3.9bn (implying ~31% growth in seed business revenues), however EBITDA and PAT declined by 37% and 2% to Rs412m and Rs249m respectively. Higher inventory write-offs in the seeds business led to decline in profitability.
Key positives: Strong revenue growth
Key negatives: Decline in Gross Margins
Impact on financials: EPS cut by 9.2%/3.8% to factor in decline in profitability, we introduce FY20e EPS of Rs11.8sh. TP rollover to FY20E EPS multiple, raised to Rs304/sh.
Our view
Rallis reported strong double-digit volume growth in Q3FY18, however increase in price of imported technicals weighed negatively on gross margins. In the near term (Q4FY18), we expect the revenue growth momentum to continue with healthy rabi acreage 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. Maintain Outperformer, with increased TP of Rs304
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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