Visit http://indiaer.blogspot.com/ for complete details Rallis - BUY - An emerging agri-solutions leader
In a recent meeting with us, the management of Rallis (RALI) said the company’s new initiatives
(herbicides, complex fertiliser products and tech-based farmer services) will drive sustained revenue
growth at 20% annually in the domestic markets. Additionally, the launch of operations in its Dahej
plant should strengthen its presence in the CRAMS market, and new customer acquisitions could add
~5% to topline growth during the next three years. We recommend BUY with a 12-month target price
of Rs1,597, offering 13% upside from current levels.
Stellar monsoon supports 2QFY11 earnings: Thanks to a good monsoon, key crops for RALI saw strong
growth in acreage (cotton and paddy up 7–8% YoY, pulses up 20% YoY). This also bodes well for rabi
acreage growth, as groundwater levels would have improved significantly. With the company running
negative working-capital and debt levels at nearly zero, interest expense was negligible during the quarter.
Focus on product innovation should support 25%+ earnings growth: True to its earlier commitment
to maintain market-relevant products, management continues to derive 30%+ of its revenues from products
introduced in the past 12 months. Additionally, it is piloting new products (beyond agro-chemicals) and
services to farmers (such as SMS updates on market prices, weather forecasts, etc), which should help RALI
attract new customers to its solutions-centric model (as opposed to its peers’ product-centric model).
A large acquisition poses risks: The company could explore inorganic growth opportunities, especially in
international markets, given its cash position of ~Rs1.5bn. With global markets almost stagnant in
agricultural growth, a large acquisition would stretch management bandwidth and could prove expensive.
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