Rallis India - Q1FY13 Result Update - Dolat Capital

Topline slightly ahead of expectations; dismal operating performance impacts earnings growth

Rallis's recorded revenue growth of 16.2% YoY despite delayed monsoons and slow progress in sowing. This was primarily driven by healthy growth in exports (price increase taken) and increased volume off take in domestic business (price hike benefits to be realized in subsequent quarters). Metahelix revenues stood higher by 32% YoY at Rs.820mn, largely led by its hybrids portfolio. Rallis has launched two new products in the market - Geogreen and Tata Uphaar (PGN in water soluble pouch for vegetable crop).

Consolidated EBITDA margins declined by 250bps YoY to 12% mainly on account of increase in other expenses. This included higher field promotion activities and one-off costs (due diligence related costs of Rs.30-40mn). Raw material costs stood lower by 120bps YoY at 54.9% of sales.

Exceptional items include a) capital gain of Rs.78mn on sale of residential properties and b) forex loss of Rs.50mn.

The company reported net profit of Rs.213mn (excl. exceptional items) reflecting a 6.5% de-growth YoY. Metahelix recorded net profit of Rs.87mn.

We have lowered our FY13E/FY14E earnings estimate by 6.4%/9.3%, reflecting lower profit margins on account of higher promotional expenses on field activities and brand-building efforts.

While the latest weekly data indicates an improvement in sowing across key crops, we expect near-term outlook to be challenging in the domestic agri market on the back of deficient monsoons. Decline in levels of water reservoirs adds to our concern.

Valuation

We expect revenue growth from domestic market to moderate in the near term. Delayed monsoons and low pest incidence could negatively impact volume offtake. Scale-up in Metahelix business and increased contribution from exports in the interim are growth drivers.

At CMP, the stock trades at 16.7x FY13E and 13.8x FY14E earnings. We recommend Accumulate with a revised target price of Rs.130 (15x FY14E EPS).

Source : Equity Bulls

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