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Q3FY11 sales positively surprises, PAT marginally lower‐than‐expected: Rallis
India’s (Rallis’) net sales has shown growth of ~31% YoY to Rs2,735m (our
expectation was Rs2,595m), mainly led by a strong volume growth (more than
~25%) YoY during Q3FY11. Agrochemical prices are stable on YoY basis. However,
we believe that prices have improved on QoQ basis mainly on account of higher raw
material prices. Rallis has achieved commendable sales growth despite unseasonal
rains during the quarter. Rallis’ EBITDAM has declined by 180bps YoY to 18.9% on
account of higher raw material prices. Raw Material/Sales ratio has gone up by
60bps YoY to 58.7%. Adjusted PAT grew by ~14% YoY to Rs337m (our expectation
was Rs367m).
Business update: During the quarter, the company has acquired 53.5% stake in
Bengaluru‐based seeds research company “Metahelix Life Sciences’ for Rs995m,
funded largely through internal accruals.Rallis is setting up an additional
manufacturing facility in Dahej, Gujarat (SEZ unit) with a capex of Rs1,500m which is
expected to come on‐stream for commercial production during Q4FY11.
Valuation: At the current one‐year forward P/E, stock is trading at higher than its
historical forward trading average on the back of improving return ratios and higher
growth prospect. We strongly believe that on the back of a strong growth, brand
value (as a Tata group company), net debt‐free and higher return ratios, Rallis will
continue to trade higher, going forward. Further, Rallis is trading at either par or
discount as compared to peers like Bayer (global as well as India) and Syngenta (14x‐
18x) on the basis of one‐year forward trailing P/E despite having higher PAT, CAGR
and RoE. We maintain our ‘BUY’ rating on the stock, with the target price of Rs1,850
(15x FY13E). We have not considered any value of its land bank of ~110acres (85
acres in Hyderabad and ~25 acres in Mumbai) and strategic investment in Advinus in
our estimates.
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