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Rallis India |
Future growth drivers remain intact |
BUY
CMP: Rs 1,313 Target Price: Rs 1,800
n Q3FY11 revenue growth of 31% yoy - driven by strong exports - was ahead of our estimates
n APAT at Rs 337 mn (+14% yoy) was below estimates due to lower than expected EBITDA margins of 18.9%
n Adjust FY11E estimates downward by 7% to Rs 72.3 (from Rs 77.3) while maintain FY12E/FY13E at Rs 96.3 / Rs 120.5
n Entry into seeds business, commissioning of Dahej plant and initiatives to sell pulses are future growth drivers. Maintain BUY
Q3FY11 revenue growth of 31% surprised positively however….
Rallis India Q3FY11 revenues increased by 31% yoy to Rs 2.7 bn and were ahead of
our estimates of Rs 2.4 bn. Though the quarter witnessed untimely rains and floods in
various part of the country, Rallis was able to report strong revenue growth on account
of its focus on strengthening topline and attractive performance of international markets
which helped it report higher exports. Management indicated that some sales have
spilled over to Q4FY11 (we estimate around Rs 300 mn) – following which the company
expects to report strong results in Q4FY11.
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….EBITDA margins at 19% were below our estimates
EBITDA margins at 18.9%, down by 180bps yoy, were below our estimates of 24%.
Company’s focus on topline growth has adversely affected margins. Increase in excise
duty from 8% previous year to 10% in current year and rising raw material prices (crude
link derivatives witnessed price increase) have affected EBITDA margins of the
company. Due to lower than expected EBITDA margins, APAT was below estimates of
Rs 388 mn. Overall APAT increased by 14% yoy to Rs 337 mn. Rallis reported RPAT
growth of 40% over Q3FY10 since company’s previous year results included EO loss of
Rs 55 mn on account of accelerated depreciation and ex-gratia ammortisation of VRS.
AEPS for the quarter stood at Rs 17.3 as against Rs 15.2 previous year.
Downgrade FY11 estimates by 7%, maintain FY12E / FY13E estimates
On account of lower than expected Q3FY11 results, we are downgrading our FY11
estimates by 7% to Rs 72.3 (from earlier Rs 77.3). We maintain our FY12E / FY13E
estimates of Rs 96.3 / Rs 120.5.
Future growth drivers remain intact, maintain BUY
Leveraging its strong distribution network, Rallis is expected to derive benefits from its
recent acquisition of Metahelix (seed company), thus capturing a larger share of the
Indian agri-input pie. We expect added revenues from the seed business to start flowing
in from Q1FY12. Commissioning of Dahej plant by Q4FY11 is expected to drive the
revenues further from Q1FY12E. Its new initiative with parent company - Tata
Chemicals, to sell pulses under brand of I-Shakti will further boost the company’s
revenues and profitability in the near future. Though benefit from all these initiatives is
likely to flow in the next 2-3 years, we believe that the company will be able to maintain
its growth on the back of these various ventures. With strong visibility and earnings
growth of 30%, we maintain our BUY recommendation on the stock
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