Rallis India - Muted Quarter; Result Update Q2FY15 :: Edelweiss, PDF link

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Rallis India’s (Rallis) Q2FY15 consolidated revenue and PAT of INR6.4bn (up 6.6% YoY) and INR0.73bn (down 8.1% YoY) belied our estimate of INR6.7bn and INR0.88bn respectively, primarily on account of adverse weather conditions. Below-expected sales and gross margin in agrochemical business, led to lower-than-expected performance. Key positives were: (1) seed business revenue surged ~85% YoY; (2) encouraging response to newly launched three agrochemical products; (3) non-agrochemical portfolio contribution up 200-300bps YoY to 35% of consolidated revenue. Key negatives included: (1) agrochemical sales grew by mere 2% versus 10% YoY estimate; (2) inability to pass on higher cost in agrochemical business; however, hiked prices of select products; and (3) working capital is a bit stretched. However, management continued to focus on better cash management. Rallis indicated that delayed monsoon impacted industry’s Q2FY15 agrochemical sales. However, rainfall picked up from September which is a positive for Rabi crop. Rallis has launched one variety of maize seed for the upcoming Rabi crop. We believe higher contribution from newly launched products, margin expansion in seed business and enhanced capacity utilisation at Dahej plant will propel the company’s growth. However, we maintain ‘HOLD’ in view of stretched valuation. We remain positive on long-term growth prospects of Rallis.

Agrochemical sales disappoint, seeds surprised positively

Consolidated revenues grew 6.6% YoY, primarily led by 2.3% and 84.9% YoY growth in agrochemical and seed sales, respectively. Gross margin catapulted by 100bps versus our estimate 280bps due to the inability to pass on higher costs. Consolidated PAT fell 8.1% YoY to INR0.73bn.

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https://www.edelweiss.in/research/Rallis-India--Muted-Quarter;-Result-Update-Q2FY15/27304.html