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¾ Rallis’ higher dependency on domestic agrochem markets
(70% of revenues) will lead to moderation in earnings in near
term due to declining farm incomes & shrinking farm
profitability
¾ During FY08-11, Rallis witnessed revenue / PAT CAGR of 17%/
43%, respectively. However near term growth to moderate at
Revenue / PAT CAGR of 21% / 15% during FY11-13E
¾ Potential ramp up in recently acquired seed business coupled
with Dahej plant (catering to exports) is likely to contribute
to revenue growth in long term
¾ Downgrade FY12/13E EPS estimates by 12.8%/22% to Rs 7/8.5
and lower target multiple to 14x from 18x. Downgrade to Hold
from BUY with target price of Rs 120 (previous Rs 197)
Higher dependency on domestic markets might lead to moderation in
earnings in the short term
Rallis is largely domestic agrochemical focus company with revenue contribution of
~70% from domestic markets and balance from exports. Higher agrochemical
consumption with growing preference for branded products has helped Rallis to report
revenue CAGR (FY08-11) of 17% while improved product portfolio driving EBITDA
margins resulted into PAT CAGR of 43%. We believe pressure on farmers’ profitability
is likely to squeeze affordability for agrochemicals and put pressure on company’s
earnings in the near future.
Ramp up of seed business and Dahej plant to support long term growth
Acquisition of seed company - Metahelix has helped Rallis to capture the opportunity in
fast growing seeds market. Rallis is confident of boosting its revenues from Metahelix
from Rs ~1 bn at present to Rs 4-5 bn over next 3-4 years on back of its strong brand
equity and distribution network. Company’s Dahej plant (largely to cater exports market)
was commissioned in Q1FY12 and it is currently operating at 40-50% capacity
utilization. Planned ramp up at Dahej plant to 100% by end of FY13 is also likely to
support revenue growth for the company.
Reduce earnings and target price, downgrade to HOLD
Due to increasing pressure on domestic farm incomes and shrinking farm profitability,
we have cut our FY12/13 EPS estimates by 12.8%/22% to Rs 7.0/8.5, respectively in
anticipation of increasing pressure on margins and growth in near term. Rallis witnessed
significant re-rating in FY11 to P/E of 14x from 8 x in FY08-10 driven by higher earnings
growth and improved return ratios (RoE 27%). However with recent moderation in
earnings we have trimmed our target multiple to 14x from 18x. Subsequently we reduce
our target price from Rs 197 to Rs 120 and downgrade the stock from BUY to HOLD.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
¾ Rallis’ higher dependency on domestic agrochem markets
(70% of revenues) will lead to moderation in earnings in near
term due to declining farm incomes & shrinking farm
profitability
¾ During FY08-11, Rallis witnessed revenue / PAT CAGR of 17%/
43%, respectively. However near term growth to moderate at
Revenue / PAT CAGR of 21% / 15% during FY11-13E
¾ Potential ramp up in recently acquired seed business coupled
with Dahej plant (catering to exports) is likely to contribute
to revenue growth in long term
¾ Downgrade FY12/13E EPS estimates by 12.8%/22% to Rs 7/8.5
and lower target multiple to 14x from 18x. Downgrade to Hold
from BUY with target price of Rs 120 (previous Rs 197)
Higher dependency on domestic markets might lead to moderation in
earnings in the short term
Rallis is largely domestic agrochemical focus company with revenue contribution of
~70% from domestic markets and balance from exports. Higher agrochemical
consumption with growing preference for branded products has helped Rallis to report
revenue CAGR (FY08-11) of 17% while improved product portfolio driving EBITDA
margins resulted into PAT CAGR of 43%. We believe pressure on farmers’ profitability
is likely to squeeze affordability for agrochemicals and put pressure on company’s
earnings in the near future.
Ramp up of seed business and Dahej plant to support long term growth
Acquisition of seed company - Metahelix has helped Rallis to capture the opportunity in
fast growing seeds market. Rallis is confident of boosting its revenues from Metahelix
from Rs ~1 bn at present to Rs 4-5 bn over next 3-4 years on back of its strong brand
equity and distribution network. Company’s Dahej plant (largely to cater exports market)
was commissioned in Q1FY12 and it is currently operating at 40-50% capacity
utilization. Planned ramp up at Dahej plant to 100% by end of FY13 is also likely to
support revenue growth for the company.
Reduce earnings and target price, downgrade to HOLD
Due to increasing pressure on domestic farm incomes and shrinking farm profitability,
we have cut our FY12/13 EPS estimates by 12.8%/22% to Rs 7.0/8.5, respectively in
anticipation of increasing pressure on margins and growth in near term. Rallis witnessed
significant re-rating in FY11 to P/E of 14x from 8 x in FY08-10 driven by higher earnings
growth and improved return ratios (RoE 27%). However with recent moderation in
earnings we have trimmed our target multiple to 14x from 18x. Subsequently we reduce
our target price from Rs 197 to Rs 120 and downgrade the stock from BUY to HOLD.
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