Visit http://indiaer.blogspot.com/ for complete details Rallis India’s 2QFY2011 results were broadly in line with our estimates. Total
sales grew 14.7% to `368cr, which was 10% below our estimate of `407.1cr.
However, EBITDA margin came in at 24.3%, 190bp ahead of our estimates.
Normal monsoon aids growth: Overall domestic industry turned in good
performance on the back of normal monsoons (2% ahead of long-term average).
Sowing across the country has been good, but for few crops like maize and
sunflower, which witnessed decline in area. The domestic agrichemical industry is
expected to have grown at 12-15% during the quarter. Rallis India (RAIL) recorded
18-19% growth in volume during 2QFY2011, while recording price erosion
of 2-3%.
Lower other expense helps improve OPM: For 2QFY2011, RAIL reported lower
gross margin of 41.9% (43.4%) owing to price erosion in key products. The
company however, reported EBITDA margin of 24.3% for the quarter, which was
ahead of our estimate by 190bp and came on the back of high operating
leverage.
Outlook and Valuation: Given that monsoons have been normal, industry is
expected to continue to register healthy growth in FY2011. As a result, with RAIL
being a major player in the domestic market, we expect it to grow at a higher
pace than industry. We maintain our estimates and expect the company to
register a CAGR of 21% and 36% in net sales and profit over FY2010-12,
respectively. Post out-performing the Sensex by 104% over the last one year, at
current levels, the stock is trading at fair valuations of 15x FY2012E EPS. Hence,
we remain Neutral on the stock.
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