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We believe Rallis offers the best exposure to secular growth in the agrochemical space in India
with strong parentage, established brands and a strong balance sheet. We initiate coverage of
Rallis with a Buy rating and target price of Rs210.
Indian agrochemical volumes to hit a 12-13% CAGR over the next five years
We forecast Indian agrochemical volumes will achieve a 12-13% CAGR over the next five years
as a result of rising farm income, increased awareness and current under penetration. Our
interactions with dealers and companies indicate that farmers are increasingly adopting modern
agricultural practices, compelled by rising labour costs, among other factors.
Rallis has created strong brands and profitability
The Indian-branded agrochemicals market has been traditionally dominated by subsidiaries of
global majors like Syngenta, Bayer and Monsanto. However, Rallis has been able to create top
brands. According to recent surveys, the company has seven of the top 12 brands in the industry.
Rallis’s profitability (FY11 ROE of 27%) has been significantly higher than those of domestic
peers, and it had a 52% EBITDA CAGR during FY08-11. The company improved its performance
from net loss of Rs510m in FY08 to net profit of Rs1.26b in FY11.
Dahej ramp-up to aid growth; we forecast FY12-14 EPS CAGR of 21%
We forecast branded India sales to grow at 13% CAGR over FY12-14, and overall revenue to
grow at 21% CAGR aided by ramp-up in export business from Dahej plant. Even with reduced
EBITDA margins, EPS CAGR should be a healthy 21% over FY12-14. We forecast ROE to
remain high at 25%+ for next three years.
Premium valuation should continue given growth and profitability
Rallis has outperformed the Sensex handsomely over last two years, and is quoting at a premium
to domestic peers and closer to multinationals. Given the high-growth prospects, and high return
ratios, we expect the premium valuation to continue. We derive a DCF-based price target of
Rs210 based on a WACC of 12.3% and intermediate revenue growth of 15%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We believe Rallis offers the best exposure to secular growth in the agrochemical space in India
with strong parentage, established brands and a strong balance sheet. We initiate coverage of
Rallis with a Buy rating and target price of Rs210.
Indian agrochemical volumes to hit a 12-13% CAGR over the next five years
We forecast Indian agrochemical volumes will achieve a 12-13% CAGR over the next five years
as a result of rising farm income, increased awareness and current under penetration. Our
interactions with dealers and companies indicate that farmers are increasingly adopting modern
agricultural practices, compelled by rising labour costs, among other factors.
Rallis has created strong brands and profitability
The Indian-branded agrochemicals market has been traditionally dominated by subsidiaries of
global majors like Syngenta, Bayer and Monsanto. However, Rallis has been able to create top
brands. According to recent surveys, the company has seven of the top 12 brands in the industry.
Rallis’s profitability (FY11 ROE of 27%) has been significantly higher than those of domestic
peers, and it had a 52% EBITDA CAGR during FY08-11. The company improved its performance
from net loss of Rs510m in FY08 to net profit of Rs1.26b in FY11.
Dahej ramp-up to aid growth; we forecast FY12-14 EPS CAGR of 21%
We forecast branded India sales to grow at 13% CAGR over FY12-14, and overall revenue to
grow at 21% CAGR aided by ramp-up in export business from Dahej plant. Even with reduced
EBITDA margins, EPS CAGR should be a healthy 21% over FY12-14. We forecast ROE to
remain high at 25%+ for next three years.
Premium valuation should continue given growth and profitability
Rallis has outperformed the Sensex handsomely over last two years, and is quoting at a premium
to domestic peers and closer to multinationals. Given the high-growth prospects, and high return
ratios, we expect the premium valuation to continue. We derive a DCF-based price target of
Rs210 based on a WACC of 12.3% and intermediate revenue growth of 15%.
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