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Rallis India Ltd>
  • CMP : 324.7 Chg : -2.80 (-0.86%)
  • Target : 225.0 (0.45%)
  • Target Period : 12-18 Month

20 Feb 2023

Decline in international business leads to overall de-growth

About The Stock

Rallis India is a leading agrochemical company with a presence across agri input value chain and a strong, healthy pipeline of sustainable products.

  • The company has a diversified portfolio, supported by a strong channel network of more than 6,800 dealers and 93,000 retailers
  • In terms of revenue contribution, domestic crop care constitutes 54% of overall revenue followed by international crop care of 30% and the rest from the seeds business

Rallis’ numbers were below I-direct estimates led by erratic rainfall in the domestic market and headwinds in international markets.

  • Revenues remained flat YoY to ₹ 630 crore. Domestic crop care increased 7% YoY while seed segment was down 14%. Geography wise, domestic crop protection business grew ~8%, crop nutrition business by 22% but exports declined 6.5%
  • Gross margins contracted 83 bps YoY to ~39.4%. However, gross margins increased 508 bps QoQ reflecting a softening of raw material costs
  • EBITDA declined 20.9% YoY to ₹ 53 crore. Crop care segment EBITDA increased 134% YoY to ₹ 71 crore while seeds segment EBITDA declined 64% to -₹ 18 crore. Adjusted PAT declined 43.1% YoY to ₹ 22.5 crore
What should Investors do?

The stock appreciated at 2% CAGR in last three years.

  • We maintain HOLD rating with a neutral stance as we await progress on the margins front and capex
Target Price and Valuation

We value Rallis India at 16x FY25E EPS of ₹ 13.9 to arrive at a revised target price of ₹ 225 per share (earlier ₹ 250 per share).

Key Triggers for future price performance
  • Increases in commodity prices such as wheat, paddy and cotton may aid the crop protection business in the coming quarters
  • Backward integration of few technical could help translate into improvement in gross margins
  • Good growth momentum in crop nutrition segment can lead to decent gross margins ahead
Alternate Stock Ideas

Apart from Rallis India, in our chemical coverage we also like Sumitomo Chemical.

  • Trigger for Sumitomo Chemical’s future revenue growth would be increasing CRAMS opportunity from SCC Japan and Nufarm

BUY with a target price of ₹ 570

Key Financial Summary

Particulars FY20 FY21 FY22 5 Year CAGR(FY17-FY22) FY23E FY24E FY25E 3 Year CAGR (FY22-FY25E)
Net Revenue 2,251.8 2,429.4 2,603.9 9.4 2,979.4 3,303.7 3,663.9 12.1
EBITDA 259.4 322.9 274.1 0.8 288.8 384.6 447.3 17.7
EBITDA Margins (%) 11.5 13.3 10.5 - 9.7 11.6 12.2 -
Adj.PAT 176.0 221.5 164.2 -1.1 169.6 230.2 270.2 18.1
Adj. EPS (₹) 9.0 11.4 8.4 - 8.7 11.8 13.9 -
EV/EBITDA 15.8 12.7 15.2 - 15.5 11.4 9.6 -
P/E 24.8 19.7 26.5 - 25.7 18.9 16.1 -
ROE (%) 12.5 13.9 9.7 - 9.4 11.6 12.3 -
ROCE (%) 15.5 18.0 12.7 - 11.4 14.7 16.0 -
Source: Company, ICICI Direct Research



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