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Rallis India, a Tata group company is 2nd largest player in Indian pesticide market with
market share of ~13%. With more than 150 years of experience in servicing rural markets
and a strong product portfolio across pesticides, herbicides, fungicides and plant nutrients for
Indian farmers, Rallis India is a dominant player in the agrochemical industry.
Investment Rationale
Dahej facility to drive Contract Manufacturing – Rallis is setting up a new facility in
Dahej scheduled to be commissioned by Q2FY11 with a capex of Rs 150 crore in Phase-I. The
facility with an annual capacity of 5,000 tonne is expected to generate cumulative revenues
of over Rs 500 crore in its first three years of operations & will further strengthen its
capabilities in contract manufacturing.
Successful New product launches – Rallis has a proven track record in terms of new
registrations & new product launches in the agrochemical market. In past 7 years Rallis has
registered 42 products & launched 31 new products with average turnover index of 29%.
Rallis in FY10 introduced Ergon, a fungicide based on active ingredient kresoxim-methyl
(global market size of ~$400mn). Ergon with its dual functionality, superior cost benefit ratio
has emerged as a preferred product for farmers & a major brand in Rallis portfolio. Moreover,
Rallis has obtained 3-year exclusivity on Ergon, which means no competitor can launch a
similar product thus giving Rallis significant edge over the other domestic players.
Strong Distribution Network – Rallis has factories in five locations in India and a network
of 1,500 distributors that reach more than 40,000 retail counters covering above 80% of
Indian districts. It has the largest agrochemicals capacity in the country (10,000 tonnes per
annum of technical grade pesticides and 30,000 tonne/litres per annum of formulations).
Valuations & Views – With strong double digit topline growth Rallis India continues to
strengthen its position in the domestic agrochemical industry. Rising MSP’s ,increase in
acreage of key crops, normal monsoons we expect the demand for agrochemical to be robust
in the rabi season .Hence, we expect Rallis’ Domestic business to improve significantly going
forward on the back of strong product mix & distribution network. With successful launch of
products like Ralligold & Taarak we expect Rallis to maintain innovation turnover index above
25% going forward. Also commissioning of Dahej facility in Q3FY11, recovery in export
markets & contract manufacturing agreements with global majors, we expect International
business to contribute significantly to the topline. We maintain positive outlook on the
company on the back of strong product mix, ability to launch new products successfully,
commissioning of Dahej facility, key strategic alliances & improved synergies with Tata
chemicals. We recommend a ‘HOLD’ on the stock with a price target of Rs1600, giving an
upside potential of 12% from its current levels
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