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Prabhudas Lilladher
Rallis India (Buy)
CMP: ₹239.90
Target: ₹270
With virtually insignificant revenues in FY11 from seeds, Rallis has clogged a turnover of ₹310 crore in FY15, further growing to ₹530 crore at 33 per cent CAGR by FY17E. Rallis is still having margins in single digits vis-à-vis other seed companies where margin profile is about 20 per cent. Rallis’ learning curve in the seed business and better product awareness created among farmers over the last four seasons leaves significant room for operating leverage between FY15-FY17E.
Though the initial ramp-up at Dahej has been slow, management commentary in the annual report is encouraging, with slew of projects in different stages of execution. We strongly believe that the shift in manufacturing base from China and Japan will benefit Indian CRAM companies such as Rallis.
Rallis has successfully turned around its seed subsidiary (Metahelix) and has shown remarkable performance in exports. We expect the seed business and exports to aid growth over the next two years, thus, diversifying it from the domestic crop protection business to some extent. Rallis is a positional structural story and the best diversified play in the aro-value chain currently and deserves to trade at premium valuations vis-à-vis other domestic players.
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