Stock Fundamentals

Rallis India: Sow seeds, reap rewards - Buy

Rajalakshmi Nirmal | Updated on May 19, 2019 Published on May 19, 2019

The company’s plans to revive growth in the domestic market hold promise

Investors willing to stay put for one to two years, can buy the stock of Rallis India at the current price and accumulate if prices fall further. Weak results and negative rural sentiment have pulled the stock down in the last one year. However, the new management’s aggressive plans to expand over the next one year and revive the sagging growth in the domestic market, give hopes.

Sanjiv Lal, the MD & CEO, and S Nagarajan, the COO, plan to expand the distribution network and product portfolio in seeds and allocate funds for brownfield expansion in capacity to seize opportunity in certain molecules in the export market.

While there may not be any good news for investors over the next two quarters, given that the South-West monsoon is not likely to be good enough, the company will do well over a two-year time-frame. With the growing population and the resultant pressure on crop yields, there is increasing need to arrest weed and pest attack. This can result in strong demand for players, including Rallis India. At the current market price of ₹142, the stock discounts its estimated price-earnings multiple of 2019-20 by 12 times. It was trading at a PE of 14 times on one-year forward earnings six months back.

On trailing earnings of one year, the stock trades at a PE multiple of 18 times. Its five-year average PE is 23 times.

Rallis’ diversified agri portfolio with presence in crop protection chemicals, plant growth nutrients and seeds, makes it a good play on the rural theme. Both the UPA and NDA have made several promises in their election manifesto to reduce rural distress and put more money in the hands of farmers. So, irrespective of which party wins and forms the government, farmers are poised to see better days.

Growth drivers

Rallis’ new management is putting in place a strong product pipeline of new launches. Actually, work on the product front began a few years back. The company is now looking at bringing 11-12 new products into the market over the next few years. Of these, five would be launched by the end of 2019-20.

Rallis also has plans to source more molecules via in-licensing and core marketing agreements by forming alliances with new partners.

Further, in the seeds business, Metahelix Life Sciences — the company’s subsidiary that makes hybrid seeds — plans to set foot into maize and vegetables through in-licensing from other seed developers. This is to help till the company’s own hybrids in these products are ready for marketing. Currently, Metahelix has its own hybrids in paddy and millets.

Rallis has a strong distribution network in the western and southern markets and is attempting to grow its presence in the northern and eastern markets. From a total of about 3,500 distributors, Rallis intends to add 600-700 more distributors during the year and take the number of connected retailers to 42,000 from the current 35,000-36,000.

In the international business, Rallis has been seeing good opportunity in one of the key molecules and plans to expand production capacity by investing about ₹40 crore. This would double the capacity in the molecule, Metribuzin, from about 1,000 tonnes per annum to about 2,000 tpa. Capacity commissioning will be done in two phases and is likely to be over between July and December of the current year. The company holds a 12 per cent market share globally in the market for Metribuzin.

In the March 2019 quarter, the company’s revenue dropped by 8.5 per cent, Y-o-Y. This was due to drop in demand for the company’s products on account of relatively low pest infestation and acreage under key crops in the South because of unfavourable monsoon.

However, for the full year 2018-19, the company recorded an increase of 9.7 per cent in revenue to ₹1,983.96 crore. Net profit for the same period was ₹154.78 crore, down about 7 per cent due to higher raw material costs and employee expenses.

Margin pressure may continue

In the March 2019 quarter, raw material costs as a percentage of sales were reported at 56.8 per cent, up from 54.4 per cent from the same quarter last year. For the full year 2018-19, this was 59.1 per cent versus 55.4 per cent in 2017-18.

Operating profit margin for the full year was 12.1 per cent, contracting from 14.6 per cent in the last year.

It looks like the company may face margin pressure for some more time.

Rallis’ management has indicated that with the shutdown of factories in China, prices of many key chemicals may continue to rise in the global market. While the company is trying to pass on the costs to customers, the sluggish demand is not providing room.

Published on May 19, 2019

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.