rallis india management meet update aug 2011

7/30/2019 Rallis India Management Meet Update Aug 2011

1/5Emkay Global Financial Services Ltd 1

August 17, 2011

Reco

Buy

Previous Reco

BuyCMP

Rs 167

Target Price

Rs 209

EPS change FY12E/13E (%) NA

Target Price change (%) NA

Nifty 5,036

Sensex 16,731

Price Performance

(%) 1M 3M 6M 12M

Absolute 9 20 32 29

Rel. to Nifty 21 31 44 39

Source: Bloomberg

Relative Price Chart

100

115

130

145

160

175

Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11

Rs

-20

-8

4

16

28

40%

Rallis India (LHS) Rel to Nifty (RHS)

Source: Bloomberg

Stock DetailsSector Agri Input & Chemicals

Bloomberg RALI@IN

Equity Capital (Rs mn) 194

Face Value(Rs) 1

No of shares o/s (mn) 194

52 Week H/L 174/117

Market Cap (Rs bn/USD mn) 33/728

Daily Avg Volume (No of sh) 187041

Daily Avg Turnover (US$mn) 0.7

Shareholding Pattern (%)

Jun-11 Mar-11 Dec-10

Promoters 50.7 50.7 50.7

FII/NRI 6.5 4.2 3.2

Institutions 19.0 21.0 21.1

Private Corp 4.6 3.7 4.1

Public 19.3 20.4 20.9

Source: Capitaline

Rohan Gupta

[email protected]

+91 22 6612 1248

Balwindar Singh

[email protected]

+91 22 6612 1272

We met with the management of Rallis India on 16th

August, 2011. Here

are the key takeaways-

Industry growth to remain buoyant at 12-15% in long run

Domestic agrochemical industry has grown at 12-15% pa in last 3-4 years and the

management sounded confident about the sustainability of such growth in long term (5-

6 years) despite growing base affect. Lower per acre consumption of agrochemicals in

India (less than 1 kg / acre as against 6-10 kgs in various other markets), increasing

affordability factors (thanks to rising MSPs across the crops) of the farmers, increasing

education among the farmers (many programmes being organised by the various

companies to educate the farmers about the adequate use of various agri inputs),

launches of various new products in the market along with many other factors are likely

to contribute to sustainable growth of agrochemicals in the country.

Aggressive initiatives and agri reforms undertaken by few states like Gujarat,

Maharashtra, Chhatisgarh and Bihar have resulted in higher growth in these states.Other states are also likely to step up reforms in their respective states which will drive

growth in agrochemicals.

Higher demand from herbicide to drive growth in agrochemicals

Herbicides comprises of ~20% of agrochemicals market in India (approx Rs 75 bn) while

globally herbicides accounts for 40-50% of total agrochemicals market. With rising

labour cost in India and growing unavailability of labour, mainly driven by NREGA,

farmers are switching from manual weeding to herbicides. Consequently, herbicide is

growing at a faster pace of 25-30% as against industry growth of ~15%. The higher

growth in herbicides is likely to continue on account of increasing labor cost.

Rallis- playing aggressively in launch of herbicide products

Though Rallis has been a late entrant in herbicide markets; it has been recently very

aggressive in launching new products in herbicides. Among the three products launched

in FY12 (Neon (I), Sonic (I) and Vaar (H) and products to be launched in near future

Honcho (H), Cylo (H) and Saras (F)), three are herbicides. Herbicides products

launched in previous year like Tarak are doing well.

Q1FY12 results strengthens our conviction

Rallis India reported consolidated revenues of Rs 3.0bn, +47% yoy, higher than est of

Rs 2.7bn. This was primarily on account of higher than expected revenue contribution of

Metahelix, the seed business, in which Rallis acquired 53.5% stake in December 2010.

Rallis reported consolidated EBITDA of Rs 435mn, +92%yoy, led by higher EBITDA

margins in Metahelix. Consolidated APAT of Rs 231mn, +56% yoy, was higher than est

of Rs 136mn.

We remain positive and maintain BUY on the stock

Our view on the industry / company is broadly in line with managements view. We

expect growth in the agrochemicals industry to remain strong and Rallis being a market

leader in many segments will continue to outperform. We estimate revenue CAGR

(FY10-13E) of 20% and PAT CAGR of 30% with FY12E/FY13E EPS of Rs 8.9 / Rs 11.6.

We have a BUY recommendation on the stock with price target of Rs 209 (18X FY13).

Financial Snapshot Rs Mn

YE-Mar Net EBITDA EPS EPS RoE EV/

Sales (Core) (%) PAT (Rs) % chg (%) P/E EBITDA P/BV

FY10 8,787 1,562 17.8 1,114 5.0 62.2 26.1 32.5 21.5 7.7

FY11 10,657 1,713 16.1 1,264 6.5 29.7 27.2 25.7 19.4 6.4

FY12E 13,086 2,563 19.6 1,722 8.9 36.2 30.3 18.9 13.0 5.2

FY13E 15,520 3,322 21.4 2,249 11.6 30.6 31.5 14.5 9.7 4.1

ManagementM

eetUpdate

Rallis India

Industry growth to remain buoyant


2/5

Rallis India Management Meet Update

Emkay Research 17 August 2011 2

Continues to screen inorganic opportunities in agrochemical space

While sharing its outlook on inorganic opportunities in the sector, management indicated

that they were screening opportunities in domestic / global market in agrochemical space.

Their seed business is likely to be driven by growth in Metahelix with not too much focus on

any further near term acquisition in seeds, since companys strategy is to exploit the

potential of Metahelix in the near future. However agrochemicals, especially chemicals

remains focus area for acquisitions.

Dahej facility to benefit from rising manufacturing cost in China

Potential from recently commissioned Dahej facility can only be captured over a period of

time. Management maintained its cumulative revenue target of Rs5 bn over 5 years from

Dahej. Dahej initially will cater to Active Ingredients (AIs) and primarily to exports market,

however later on rising share of formulations (higher realisations and higher margins

business) will drive its revenues and profitability.

India as a country has ample growth opportunities in agrochemical exports / CRAMs

market. India also has a favorable advantage over China because of rising cost in China

due to factors like rising environment cost, higher power cost and increasing labour cost.

Rallis sees strong growth opportunities in such export markets and Dahej facility is likely totap potential from growing opportunities in future.

Seeds Business- in line with management expectations

Though companys seed business surprised investor community in Q1FY12 (with revenues

of Rs 593 mn, EBITDA margins of 20.6% and PBT contribution of Rs 111 mn) but the same

was in line with managements target. Seeds being seasonal business (Q1 being the best

quarter) and Metahelix, with strong product portfolio of kharif crops performed well in 1st

quarter. However subsequent quarter performance is likely to remain subdued.

Metahelix is likely to launch its BT cotton hybrid CRY 1 in next 1-2 years which should

add to companys performance. However, they did not pegg any number to revenue

potential from this.

Rallis enjoys strong brand positioning & brand loyalty

Rallis enjoys strong brand positioning among its peers in the crop protection market. 8

of the top 12 crop protection products in 2010 were under Rallis brand. This compares

favorably with 2009 when 7 Rallis brands were among top 12.

Brand Positioning in Indian Crop Protection Market

Brand Names Company

Confidor Bayer

Asataf Rallis

Rogor Rallis

Tata Mida Rallis

Contaf Rallis

Antracol Bayer

Thiodon Bayer

Contaf Plus Rallis

Tata Mono Rallis

Tata Fen Rallis

Fujion Rallis

Bilzeb Bayer

Hostathion Bayer

Larvin Bayer

Metacid Bayer

Source: Company presentation, Emkay Research


3/5



Monsoon picks up- bodes well for Rallis

Management indicated that monsoon has picked up pace in the latter half of July resulting

into normal sowings. Paddy sowing is normal in Northern & Eastern India though it has

been delayed in South India. Cotton sowing is normal in North India but it has been delayed

in Gujarat/Maharashtra. Improvement in monsoons towards the second half bodes well for

Rallis and we expect company to benefit from the rising demand for agrochemicals.

Crop Normal area for Area sown 2010 % % of

whole kharif on 15thJuly,2011 Change normal Area

Rice 394 115 115 0% 29%

Pulses 107 36 43 -16% 34%

Sugarcane 45 51 49 5% 114%

Oilseeds 177 99 102 -4% 56%

Cotton 94 59 84 -30% 63%

Oilseeds

Soyabean 96 74 65 14% 77%

Groundnut 56 19 30 -37% 34%

Sesame 18 5 4 9% 26%

Pulses

Red Gr 36 12 19 -37% 34%

Green Gr 26 8 11 -31% 30%

Black Gr 23 8 9 -9% 35%

Source: Company presentation, Emkay Research


4/5



Key Financials

Income Statement Balance Sheet

Y/E, Mar (Rs. mn) FY10 FY11 FY12E FY13E Y/E, Mar (Rs. mn) FY10 FY11 FY12E FY13E

Net Sales 8,787 10,657 13,086 15,520 Equity share capital 130 194 194 194

Growth (%) 5.5 21.3 22.8 18.6 Reserves & surplus 4,115 4,855 6,111 7,798

Expenditure 7,225 8,944 10,524 12,199 Net worth 4,245 5,049 6,306 7,993

Materials Consumed 5,034 6,283 7,669 8,971 Minority Interest 0 21 21 21

Employee Cost 667 696 833 900 Secured Loans 16 1,087 1,087 1,087

Other Exp 1,524 1,762 2,022 2,328 Unsecured Loans 65 85 85 85

EBITDA 1,562 1,713 2,563 3,322 Loan Funds 81 1,172 1,172 1,172

Growth (%) 45.9 9.7 49.6 29.6 Net deferred tax liability (53) 32 32 32

EBITDA margin (%) 17.8 16.1 19.6 21.4 Total Liabilities 4,272 6,275 7,532 9,219

Depreciation 183 175 265 287

EBIT 1,378 1,539 2,298 3,035 Gross Block 3,091 4,057 5,751 6,151

EBIT margin (%) 15.7 14.4 17.6 19.6 Less: Depreciation 1,564 1,743 2,007 2,294

Other Income 275 346 216 233 Net block 1,527 2,314 3,744 3,858

Interest expenses 27 40 54 54 Capital work in progress 1,120 1,695 400 400

PBT 1,626 1,845 2,460 3,213 Goodwill - 1,236 1,236 1,236

Tax 512 580 738 964 Investment 1,402 256 256 256

Effective tax rate (%) 31.5 31.5 30.0 30.0 Current Assets 3,263 4,666 4,968 7,141

Adjusted PAT 1,114 1,264 1,722 2,249 Inventories 1,489 2,289 2,330 2,977

Growth (%) 64.2 13.5 36.2 30.6 Sundry debtors 755 1,064 1,362 1,701

Net Margin (%) 12.7 11.9 13.2 14.5 Cash & bank balance 119 146 108 1,296

(Profit)/loss from JVs/Ass/MI - - - - Loans & advances 886 1,154 1,154 1,154

Adj. PAT After JVs/Ass/MI 1,114 1,264 1,722 2,249 Other current assets 15 13 13 13

E/O items (14) - - - Current lia & Prov 3,041 3,891 3,073 3,672

Reported PAT 1,099 1,264 1,722 2,249 Current liabilities 2,595 3,306 2,510 2,977

PAT after MI 1,114 1,264 1,722 2,249 Provisions 446 586 564 695

Growth (%) 64.2 13.5 36.2 30.6 Net current assets 222 774 1,895 3,469

Total Assets 4,272 6,275 7,532 9,219

Cash Flow Key Ratios

Y/E, Mar (Rs. mn) FY10 FY11 FY12E FY13E Y/E, Mar FY10 FY11 FY12E FY13E

PBT (Ex-Other income) 1,527 1,845 2,460 3,213 Profitability (%)

Depreciation 183 175 265 287 EBITDA Margin 16.5 16.1 19.6 21.4

Interest Provided 23 25 54 54 Net Margin 11.4 11.9 13.2 14.5

Other Non-Cash items 9 (124) (57) 132 ROCE 36.6 35.8 36.5 39.1

Chg in working cap 1,077 (236) (1,136) (518) ROE 26.1 27.2 30.3 31.5

Tax paid -667 -697 -738 -964 RoIC 62.6 53.2 42.2 43.4

Operating Cashflow 2,152 987 848 2,204 Per Share Data (Rs)

Capital expenditure (949) (1,378) (400) (400) EPS 5.0 6.5 8.9 11.6

Free Cash Flow 1,203 -391 448 1,804 CEPS 6.1 7.4 10.2 13.0Other income 8 54 - - BVPS 21.8 26.0 32.4 41.1

Investments 28 (116) - - DPS 1.2 2.0 2.2 2.9

Investing Cashflow 36 -63 0 0 Valuations (x)

Equity Capital Raised 9 - - - PER 32.5 25.7 18.9 14.5

Loans Taken / (Repaid) (744) 849 - - P/CEPS 27.5 22.6 16.4 12.8

Interest Paid (28) (39) (54) (54) P/BV 7.7 6.4 5.2 4.1

Dividend paid (incl tax) (440) (357) (431) (562) EV / Sales 3.5 3.1 2.5 2.1

Income from investments 0 0 0 0 EV / EBITDA 21.5 19.4 13.0 9.7

Others (2) - - - Dividend Yield (%) 1.0 0.6 0.7 1.2

Financing Cashflow -1,205 453 -485 -617 Gearing Ratio (x)

Net chg in cash 35 -1 -37 1,188 Net Debt/ Equity (0.3) 0.2 0.1 (0.0)

Opening cash position 84 119 146 108 Net Debt/EBIDTA (1.0) 0.4 0.3 (0.1)

Closing cash position 119 146 108 1,296 Working Cap Cycle (days) (15) 2 33 40


5/5

Rallis India

Emkay Research 17 August 2011

Recommendation History: Rallis India RALI IN

Date Reports Reco CMP Target

22/07/2011 Rallis India Q1FY12 Result Update Buy 159 209

02/05/2011 Rallis India Q4FY11 Result Update Buy 1,390 1,735

18/01/2011 Rallis India Q3FY11 Result Update Buy 1,313 1,800

27/12/2010 Rallis India Management Meet Update Buy 1,391 1,800

Recent Research Reports

Date Reports Reco CMP Target

09/08/2011 Deepak Fertilisers Q1FY12 Result Update Buy 160 250

09/08/2011 Tata Chemicals Q1FY12 Result Update Accumulate 351 400

02/08/2011 Tamilnadu Newsprint Q1FY12 Result Update Buy 118 180

29/07/2011 United Phosphorus Q1FY12 Result Update Buy 166 215

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rallis india management meet update aug 2011

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