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RALI reported weak 2Q results, with net profit flat YoY. Seed business delivered
below expectations in a seasonally weak 2Q. Pesticides off-take also slowed as
good monsoons led to lower incidence of pest attack. On the positive side, Dahej
is ramping up well and is expected to achieve full utilization by Jan '12. Working
capital levels have increased as exports from Dahej entail higher inventories and
receivables. We cut our estimates and reduce PT to Rs180.
Pesticides, seeds growth fare below expectations. According to management,
good South-West monsoon resulted in lower occurrence of pests, which
adversely impacted off-take of pesticides in 2Q. Management expects a good
rabi (winter) crop season, which should drive a pickup for pesticides in 2H.
Metahelix seeds business was weaker than expected and reported loss of
Rs47MM, as acreage under millets (key product for Metahelix) declined.
Dahej plant ramping up well. After initial delays, Dahej plant is now fully
operational and management expects it to reach full capacity by Jan-12. As per
management, there is good interest from global customers, and 3-4 new
contracts are likely to be signed over next 6 months.
Increasing debt, working capital. Net gearing increased marginally from 0.2x
at Mar-11 to 0.26x in Sep-11 as RALI increased its stake in Metahalix from
60% to 73%. Receivables in 2Q increased to 50 days (from 35 days), which will
continue going forward as exports from Dahej ramp up. However, compared to
peers, overall operating cycle for RALI still remains best in class
Q2 result highlights: Revenues increased 18% YoY driven by launch of 9 new
products. EBITDA margins declined 160bps YoY due to higher raw material
costs (+290bps), EBITDA grew 10% YoY. Net profits came in flat YoY, pared
by higher interest cost and depreciation on commissioning of the Dahej plant.
Maintain Overweight. We cut FY12/13E EPS estimates by 12%/10%,
factoring in weak 2Q and higher interest and depreciation. We lower our Sep-12
PT to Rs180 (from Rs185), based on 16x Sep-13E P/E. RALI has outperformed
the Sensex by 30% YTD. We believe RALI needs to demonstrate ramp up of its
seeds operations and deliver on guidance for Dahej to sustain the re-rating.
Strong domestic market positioning and balance sheet strength should help
sustain premium valuations v/s peers. Key risks include further slowdown in
pesticides, inability to scale up seeds business and miss in guidance for Dahej.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
RALI reported weak 2Q results, with net profit flat YoY. Seed business delivered
below expectations in a seasonally weak 2Q. Pesticides off-take also slowed as
good monsoons led to lower incidence of pest attack. On the positive side, Dahej
is ramping up well and is expected to achieve full utilization by Jan '12. Working
capital levels have increased as exports from Dahej entail higher inventories and
receivables. We cut our estimates and reduce PT to Rs180.
Pesticides, seeds growth fare below expectations. According to management,
good South-West monsoon resulted in lower occurrence of pests, which
adversely impacted off-take of pesticides in 2Q. Management expects a good
rabi (winter) crop season, which should drive a pickup for pesticides in 2H.
Metahelix seeds business was weaker than expected and reported loss of
Rs47MM, as acreage under millets (key product for Metahelix) declined.
Dahej plant ramping up well. After initial delays, Dahej plant is now fully
operational and management expects it to reach full capacity by Jan-12. As per
management, there is good interest from global customers, and 3-4 new
contracts are likely to be signed over next 6 months.
Increasing debt, working capital. Net gearing increased marginally from 0.2x
at Mar-11 to 0.26x in Sep-11 as RALI increased its stake in Metahalix from
60% to 73%. Receivables in 2Q increased to 50 days (from 35 days), which will
continue going forward as exports from Dahej ramp up. However, compared to
peers, overall operating cycle for RALI still remains best in class
Q2 result highlights: Revenues increased 18% YoY driven by launch of 9 new
products. EBITDA margins declined 160bps YoY due to higher raw material
costs (+290bps), EBITDA grew 10% YoY. Net profits came in flat YoY, pared
by higher interest cost and depreciation on commissioning of the Dahej plant.
Maintain Overweight. We cut FY12/13E EPS estimates by 12%/10%,
factoring in weak 2Q and higher interest and depreciation. We lower our Sep-12
PT to Rs180 (from Rs185), based on 16x Sep-13E P/E. RALI has outperformed
the Sensex by 30% YTD. We believe RALI needs to demonstrate ramp up of its
seeds operations and deliver on guidance for Dahej to sustain the re-rating.
Strong domestic market positioning and balance sheet strength should help
sustain premium valuations v/s peers. Key risks include further slowdown in
pesticides, inability to scale up seeds business and miss in guidance for Dahej.
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