Rallis India - Poised for a better H2 - Elara Capital

Revenues up 11% YoY driven by IB and Metahelix

Post delayed monsoon recovery, Rallis delivered standalone revenue growth of ~8% YoY to INR4,612mn, in-line with our expectations. We believe the growth was driven by ~3% growth in domestic agri-inputs business (~70% of domestic) and 20% growth in IB (~30% of domestic). On a consolidated basis, Rallis registered ~11% YoY growth in revenues aided by ~6x jump YoY in Metahelix revenues.

Gross margins play spoilsport, earnings aided by forex gain

Rallis witnessed another weak quarter operationally, with gross margins contracting ~390bps YoY (INR depreciation and weaker revenue mix towards generics, in our view). However, ~80bps cut in staff costs (due to Turbhe cessation) and ~180bps drop in other expenditure (due to forex gain of INR24mn vs. forex loss of INR67mn) helped curtail OPM contraction to ~130bps YoY. Consolidated earnings registered 5% YoY growth, below estimates, due to lower other income, higher losses in Metahelix and weaker margin.

Metahelix delivers, well on track for a strong year

Metahelix registered a revenue of ~INR194mn (up ~6x YoY) and a loss of INR41mn. We highlight Metahelix H1FY13 revenues have witnessed strong ~53% YoY growth to INR950mn driving us to upgrade our estimates for FY13E revenues to INR1.35bn (INR1.1bn earlier).

Expect better H2, Maintain Accumulate, revise TP up to INR151

While Rallis has delivered modest revenue in H1 given tough times, operationally results have been weak due to lower operating leverage, INR depreciation and higher spends in branding/campaigns. However, with late recovery in monsoons, on-ground situation especially soil moisture and water levels at reservoirs has improved which coupled with low base in H2 (weak Rabi last year) puts Rallis in a relatively promising spot. Notwithstanding repeat of failure of NE monsoons, we expect sharp earnings growth for Rallis in H2 (due to low base) driving P/E re-rating. Hence, we maintain Accumulate with revised TP of INR151 (based on P/E of 18x FY14E EPS).

Source : Equity Bulls

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