Key takeaways from the annual report
Domestic Agrochem industry witnessed a deceleration in FY12 and Rallis
was no exception to this trend (domestic pesticides sales down 3.3%
YoY). During the year, the company opted to focus on cash generation
(reflected in prudent working capital management) over revenue growth.
Also, the company discontinued red triangle products from the portfolio
(10% of sales in FY11) which further weighed on topline growth. The
downtrend was restricted by healthy growth in exports (up 49.5% YoY).
We anticipate the ramp-up in Dahej facility to catapult export growth.
Over the years, Rallis aims to expand its product offerings and scale up
its newly added adjacent businesses (Metahelix Lifesciences and Zero
Waste Agro Organics). The company is on course to transform itself from
a mere agrochem company to a complete agri-service provider.
��
Key Highlights: Rallis India AR - 2012
Competitively placed as a complete agri-service provider
Focus on greener molecules & fast-growing segments along with scaleup
of recent launches to aid topline growth
Commencement of CRAMs business at Dahej facility to catapult sales
from contract manufacturing
Increase in revenue contribution from recent acquisition (viz.,
Metahelix Lifesciences and Zero Waste Agro Organic) is a long-term
growth driver.
Industry Snapshot:
Rising world population and economic growth in developing nations have led
to significantly higher global food demand.
Domestic agrochemical industry declined during the year; global counterpart
grew 17% to USD 44.9bn.
The Indian seed industry, world’s sixth largest (>` 70bn) has grown at 12%
p.a. in the past couple of years compared to 6-7% internationally. In India,
commercial seeds account for only 25% of the potential, providing tremendous
opportunity in this space.
Rallis Poised Agenda: Harvesting growth
Rallis has an extensive network across India through its distributors and retailers,
covering around 80% of India’s districts. Through this network, it supplies
innovative products and services to maximize crop protection and production in
response to evolving needs of farmers. Rallis Kisan Kutumb (RKK) now has
700,000 farmers enrolled and the company has launched “Samrudh Krishi”
program in FY12, as a means to leverage on this database.
Slowdown in Domestic market partially offset by higher growth in Exports
The domestic pesticides sales declined by 3% YoY mainly because the company
discontinued selling red triangle products which contributed 10% of sales in FY11.
Besides, other reasons contributing to a slowdown in the domestic market included
1) poor northeast monsoons, 2) uneven crop harvest and 3) crop holiday in Andhra
Pradesh. However, total pesticides sales grew 9% YoY due to 50% growth in
international business (29% of sales). This is indicative of the strength of Rallis’
well-balanced business model.
Rallis has seven of the country’s top 12 brands. The top five products
contribute 40% of domestic sales.
Ten products launched in FY12 - four herbicides, three insecticides, two fungicides
and one plant growth nutrient - will drive future growth as they achieve scale-up.
The performance of these innovative products is monitored via the innovator turnover
index (ratio of innovative products sales to total sales), which stood at around 11%
during FY12 (20% in FY11). This was lower than the historically acceptable
benchmark of 20%/25% as newly launched products replaced established brands
like Takumi and Applaud.
Key financial highlights (Consolidated profit & loss statement)
Revenue and levies
Income from operations grew 17.4% YoY to ` 12.7bn due to higher revenue growth
in international business (up 49.5% YoY).The domestic business (excluding seeds/
PGN) degrew by 3.3% YoY at ` 8.14bn.
Notably, the company discontinued red triangle pesticides which earlier
contributed 10% of sales. The Pesticides portfolio excluding red triangle products
(on like to like basis) grew 7.4% YoY.
Innovation turnover index was at 11% for FY12 (20% in FY11), mainly because
of exclusion of established brands Takumi and Applaud from the series.
Ten products launched in FY12 — four herbicides, three insecticides, two
fungicides and one plant growth nutrient - will drive future growth as they achieve
scale-up.
Other operating income stood at ` 296.3mn (` 205.4mn in FY11). The increase
was mainly due to higher scrap & sundry sales at ` 143mn (` 78mn in FY11).
Excise duty stood at ` 788.2mn (` 809.1mn in FY11), which is at 6% of sales
(7.1% in FY11).
Raw material: Total raw material costs as a percentage of sales stood flat YoY at
58.3%. Notably, raw material consumed (excluding stock adjustment) declined by
130bps YoY which suggest liquidation of underlying raw material stock.
Other cost heads: Both employee costs and other expenses stood higher by
40bps YoY and 60bps YoY at 7.1% and 18% of sales respectively.
Interest cost: Gross Interest cost rose to ` 140.7mn against ` 39.8mn in FY11.
This was mainly on account of higher interest on fixed term loans at ` 92.7mn (`
30mn in FY11). Included in interest costs is ` 5.2mn related to forex loss (forex
gain of ` 2.67mn - FY11). Average cost of debt stood at 9.5% for FY12 (3.2% in
FY11).
Depreciation: Depreciation costs increased 67.8% YoY to ` 287mn and stood at
5.2% of gross block (` 5,528mn)
Tax expense: Tax rate decreased to 32.6% during FY12, as compared to 31.5%
last year.
Dividend: Interim dividend of ` 1 per share (90% in FY11) was declared in October
2011 and a final dividend of ` 1.2 (110% in FY11) has been provided for, cumulatively
coming to ` 2.2 per share (200% in FY11) on the sub-divided equity share capital
(Previous year: ` 2 per share, i.e. 200%). The final dividend declaration (including
dividend tax) will lead to total outflow of ` 497.2mn (` 452.7mn in FY11).
Key financial highlights (balance sheet)
Source of funds
Equity transactions
Outstanding number of shares for the year remained unchanged at 194.5mn
with a face value ` 1 each, equaling to the equity capital amount of ` 194.5mn.
Reserves and surplus
We note that:
Addition of ` 125mn has been made to the Debenture redemption reserve
as provision for debentures maturing in 2013. This has taken the total
redemption reserve to ` 250mn as of FY12.
General reserves have increased by ` 101.4mn to ` 852.8mn.
Debt
Gross debt has increased to ` 1.54bn (higher by ` 369.2bn YoY).
Further break-up is as follows:
Secured loans stood higher by ` 352mn at ` 1.44bn — bank ODs higher by `
344.9 at ` 650mn.
NCDs: The company has raised ` 750mn in FY11 by issue of 750, 9.05%
secured, redeemable, non-convertible debentures 2010-11 series-I, of `
1mn each, fully paid-up at par on private placement basis.
Unsecured loans increased slightly by ` 17.2mn to ` 102mn — SICOM loans
increased by ` 18.7mn to ` 83mn while other loans have decreased by ` 1.45mn
to ` 19.1mn.
Allocation of funds
Gross block
Gross block stands at ` 5,528mn. It has incurred capex of ` 397mn (GB+WIP)
as compared to Capex of ` 1.54bn in FY11. Also, Asset turnover during the year
stood lower at 2.3x (2.7x – FY11) due to moderate topline growth.
As of FY12, work-in-progress decreased by ` 1.14bn to ` 620.2mn, reflecting
commercialization of the Dahej facility.
Investments
Investment book reduced by ` 29mn to ` 227mn mainly due to divestment of its
investments in Advinus Therapeutics’ NCDs.
Working capital -
In a challenging FY12, the management opted working capital management over
revenue growth.
We observe that non cash working capital has increased by ` 459mn to ` 1087mn
(from 0.58% of sales in FY11 to 0.85% in FY12).
Inventory days have slightly inched up to 80 days (78 in FY11).
Debtor days has shown considerable improvement and reduced to 30 days (36
in FY11)
Creditors (% of sales) have reduced from 92 days in FY11 to 79 days in FY12.
We anticipate the working capital cycle to be maintained at similar levels going
forward.
Valuations
We expect revenue growth from domestic market to moderate in the near term.
Increased cultivation costs and low pest incidence is a cause for deceleration in
volume off-take. Scale-up in Metahelix business and increased contribution from
exports in the interim are growth drivers. The performance of Kharif season in
course shall be an important determinant for future growth in domestic agro business.
At CMP, the stock trades at 18.3x FY13E and 14.6x FY14E earnings. We believe
there is limited upside from these levels and recommend Reduce on the
stock, with target price of ` 144 (15x FY14E EPS).
No comments:
Post a Comment