Rallis India - Q1FY13 - Company holds on to decent revenue growth but monsoon key to recovery in business - GEPL Capital

- Rallis reported a 16% Y-o-Y growth in revenues to Rs.3,383 mn in Q1FY13 against Rs.2,916 mn in Q1FY12. This rate was lower than that normally observed in the April-June quarter due to sluggish progress of monsoon and depressed farmer sentiment.

- EBITDA at Rs.415 mn was 4% lower Y-o-Y due to expenses incurred on marketing, promotion and R&D. Other Expenses were up 38% Y-o-Y at Rs.876 mn in Q1FY13 against Rs.636 mn in Q1FY12. Consequently, EBITDA margin came down from 14.5% in Q1FY12 to 12% in Q1FY13.

- Despite lower EBITDA, PBT was 9% higher Y-o-Y due to a jump in Other Income to Rs.94 mn from Rs.8 mn in the year ago period. Rallis reported a forex loss of Rs.50 mn during the quarter against a forex gain of Rs.3 mn in Q1FY12.

- Aided by higher other income and lower tax outgo, PAT was 4% higher at Rs.242 mn in Q1FY13 against Rs.231 mn in Q1FY12. PAT margin saw a drop of 78 bps to 7.1% against 7.9% in nQ1FY12.

Result Highlights

Satisfactory sales growth spoiled by margin decline

Despite the sluggish off-take in agrochemicals, Rallis recorded a commendable 16% topline growth due to its marketing and brand-building efforts. Rallis also launched two new products during the quarter; viz., GeoGreen (bagasse-based manure) and Tata Uphaar (Plant Growth Nutrient) which aided in volume growth.

Monsoon situation getting from worrisome to grave; offsets increase in MSPs

Although monsoon has reportedly picked up in certain parts of the country, it is still deficient in the Northern and Western parts of the country. This has greatly affected farmer sentiment. Despite increase in MSPs of paddy (16%), cotton (29%), etc., off-take of agrochemicals could get affected as the rabi season has already been delayed. Also there have been lower incidences of weeds this quarter.

International revenues and R&D initiatives key to propel growth

Share of international revenues in total sales has gone up over FY10-12 (33%). This lends a natural hedge to volatile business conditions in India. We expect international revenues to constitute 50% of sales over next 3 years. Also Rallis has 24 crops in BT pipeline & 150 in hybrid pipeline.

Valuation & Viewpoint

At the CMP of Rs.120, Rallis is trading at 13.06x its FY14E EPS. Despite the current challenges facing the company, we believe that the company has a stable business model and a strong balance sheet that would makes it an attractive investment over the long term. However, for the medium term, we reduce our target price to Rs.141 with a HOLD rating.

Source : Equity Bulls

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