Buy Rallis India :: ICICI Securities, PDF link

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Challenges faced by Indian agri industry: Opportunity for agro-chemicals
Currently, a lot of challenges are being faced by the domestic agriculture
sector, which comes as an opportunity for the agro chemical industry.
Some of the challenges include (i) Constant sowable land: In India, the net
sown area has remained almost constant at ~140 million hectare (ii)
Fragmented land holdings: the acreage of land holdings per Indian farmer
has reduced over time (from 1.33 hectare per holding in FY01 to 1.15
hectare per holding in FY11), thereby leading to challenges over
economies of scale and greater farm mechanisation (iii) mounting crop
losses (amounting to ~| 90,000 crore annually) due to non-usage of crop
protection chemicals. Thus, with under-penetration of the crop protection
segment domestically and the government’s thrust on augmenting crop
yields, there exists a compelling case for augmenting the usage of crop
protection chemicals. Rallis India, being one of the leaders in this
segment, is well poised for an exciting growth journey ahead.
Presence across value chain
Rallis is present across the agricultural value chain ranging from hybrid
seeds (through its subsidiary Metahelix) to plant growth nutrients to
organic manure & soil conditioners (through its subsidiary Zero Waste
Agro Organics) to crop protection (agro chemicals). Metahelix
manufactures and markets hybrid seeds with ~60-65% exposure to the
Kharif season. Metahelix’ revenue has grown at a CAGR of 59% in FY12-
14. With a good product profile coupled with a strong R&D set up, we
expect revenues of Metahelix to grow at a CAGR of 25% in FY14-17E to
| 439 crore in FY17E (| 225 crore in FY14). Hence, with Metahelix traction
and a strong base business, we expect consolidated revenues to grow at
a CAGR of 16.7% over FY14-17E to | 2755.3 crore in FY17E.
Contract manufacturing; new area of thrust; robust growth outlook
Rallis also has a notable presence in the contract manufacturing segment
wherein it manufactures chemicals and formulations for other reputed
industry players. It is developing its new Dahej SEZ unit for the purpose
of contract manufacturing. In FY14, Rallis clocked a topline of ~| 250
crore from this segment. With the commissioning of the Dahej facility
(partially) we expect this segment to grow at a CAGR of 20% in FY14-17E.
Sound financials, lean balance sheet; well poised for growth
Rallis has a lean balance sheet with minimal leverage and strong return
ratios with FY14 RoCE & RoE at 21% & 28%, respectively. The company
also has a relatively better working capital cycle with net working capital
days at 23 days in FY14 vis-à-vis industry average of ~44. We have
valued Rallis at 24x P/E on an average FY16E and FY17E EPS of | 12.6
and arrived at a target price of | 302. We have a BUY rating on the stock.
We believe the current stock price correction post Q2FY15 results
provides a good opportunity to enter the script with a long term
investment horizon.

LINK
http://content.icicidirect.com/mailimages/IDirect_RallisIndia_Q2FY15.pdf