Rallis India - Short-Term Woes, but Long-Term Bright; Visit Note ::Edelweiss, link

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We recently met the Rallis India (Rallis) management to gain insights into the domestic agrochemical industry as well as the company’s business. Management attributed the higher channel inventory in the market to delayed monsoon and subdued demand during the ongoing rabi season. It added that the receivables scenario too remains daunting. However, Rallis continued to focus on working capital management, which led to cautious placement of products with dealers. Rallis anticipates the recent crude price correction to spur EBITDA margin in the near term. However, depreciating INR remains a cause for concern. Though the company perceives the near term to be challenging, it is upbeat on long-term growth as well as structural prospects. It envisages the on-the-anvil new launches (during next kharif season) in conjunction with a robust product pipeline to propel growth over 3-4 years. We believe new products launches, margin expansion in seed business and enhanced capacity utilisation at Dahej plant will be growth catalysts.

New launches to propel long-term growth

Rallis launched 3 agrochemical products-Origin, Duton and Hunk-during H1FY15. Response to Origin and Hunk was encouraging; Duton received lukewarm response. The company is planning to launch a few products during the next kharif season, subject to regulatory approval. Management anticipates new launches along with its strong product pipeline for the next 3-4 years to propel domestic business growth.

Seed business: Gaining ground

Management reiterated confidence in the seed business underpinned by its R&D capabilities and robust product pipeline. Rallis’ seed brand Dhaanya commands good recall and Rallis has started receiving advances from dealers, which we perceive as a long-term positive. Management is confident of achieving cumulative seed sales of INR10bn over 5 years (clocked INR4.5bn in past 3 years).

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