CMP

 

Rallis India Ltd is engaged in manufacturing and marketing agri inputs. The company’s segments include agri-Inputs consists of pesticides, plant growth nutrients (PGN) and seeds and other segment consists of agrochemicals, polymers, etc. The company has four production facilities which are located in Gujarat (at Ankleshwar and Dahej) and Maharashtra (at Lote and Akola).

Stock Details

Market Cap. (Cr.) 4645.86
Face Value 1.00
Equity (Cr.) 19.45
52 Wk high/low 340.00/127.10
BSE Code 500355
NSE Code RALLIS
Book Value (Rs) 79.09
Industry Agrochemicals

 

Share Holding Pattern %

Promoter 50.09
FIIs 7.14
Institutions 17.05
Non Promoter Corp. 1.91
Government 0.41
Public & Others 23.39
Total 100

Price-Chart

Key Highlights

  • In November 2010, Rallis India became a subsidiary of Tata Chemicals, which increased its existing stake of 97 per cent in the company.

  • India is the 2nd largest consumer of fertilisers globally and the market was valued at Rs. 6,258 billion in CY 2019. It is expected to grow at a compound annual growth rate (‘CAGR’) of 12.2% from CY 2019 to CY 2024 to reach Rs. 11,116 billion.

  • Revenue of the company was at Rs. 725 Cr in Q2FY21 i.e. lower by 3% as compared to PY Q2. Seeds business has registered growth of 29% in Q2FY21. Domestic Crop Care Business grew by 8%; International Business saw a drop of 29%

  • The Government of India has announced several pro-farmer initiatives to double farmers’ income by 2022 and provide growth impetus to the agriculture sector. These include the Pradhan Mantri Kisan Maan Dhan Yojana (‘PM-KMY’), Pradhan Mantri Kisan Samman Nidhi (‘PM-KISAN’), the e-NAM portal to promote ‘One Nation One Market’, Direct Cash Benefit Transfer, and growth impetus to horticulture.

  • The company had changed credit terms last year, which led an improvement in receivable days for H1FY21. This has improved the overall cash conversion cycle to 64 days from 104 days in past.

  • The Company registered a revenue growth of 13.5% from Rs. 1,984 crore in FY 2018-19 to Rs. 2,252 crore in FY 2019-20. This was primarily driven by volume growth of 12% across domestic and international businesses even though the Company witnessed pricing pressure in some of the major technicals in the international markets.

Business Overview:

The company has two operations Crop protection and Non Pesticide portfolio:

Crop Protection:

The company provides all crop related protection under this operation. Despite the irregular monsoon pattern and constrained acreages of few key crops in important geographies, the company was able to grow the domestic business by over 11% over the previous year. Even in areas where the industry faced regulatory issues, Rallis has managed to maintain its business due to acceptance of Rallis Samrudh Krishi at both channel and farmer level.

Domestically, during the year, the company launched five new products and receive good response from the farmers and will be the growth drivers in next few years. The products are Pulito, Cenator, Odis, Riceup and Jashn Super. Their target geographies based product to product like Pulito’ target geographies are Maharashtra, Andhra Pradesh, Tamil Nadu and Karnataka and used for specialty crop. Cenator’s target geographies are Andhra Pradesh, Karnataka, Punjab, Haryana, West Bengal and Chattisgarh.

Globally, the International Business Division (IBD) has achieved a revenue growth of 9% during the current year, growing to Rs479 crores, as against Rs441 crores during 2016-17. During the year, the company has gained 14 registration approvals in several countries and also successfully launched 5 brands around the globe. Alliance business has seen substantial growth during the year as well. IBD continues its focus and developmental activities in key geographies in Latin America, South East Asia, European and African markets.

The company has also been working in providing Agri-Solutions like Rallis Samrudh Krishi (RSK), a model aimed at adding value to farmers by improving yield. To this effect, the company has been working on several crops such as pulses, grapes, chilli, etc. over last few years. During the year, the company rolled out RSK across the country on various crops, reaching one million farmers and helping them to enhance their yield and farm income.

Non Pesticide Portfolio:

NPP creates value for farmers and enables them to look at the company as a solution provider for all their agriculture related needs.

Seeds and Plant Growth Nutrients

 

Non Pesticide Portfolio contributes 33% in total revenue.

During the year FY20, the Seeds business of the Company  achieved  a  revenue  of  Rs.364  crore  as  against  Rs. 336  crore  during  FY  2018-19,  an  increase  of  8.3%.  The Company continued  to  focus  on  its  cotton  business.  Scaling up of new launches in millet allowed the Company to  regain  its  position  from  the  setback  experienced  in  the  last  two  years.

The company is operating in the Bio Stimulants and Micronutrients business categories of plant growth nutrients. Surplus, a multi micro nutrient, nano technology based liquid fertilizer that was launched in Maharashtra in the previous year, was launched in further ten states during 2017-18. The company plans to launch it in a few other states in the coming year. The company plans to build Ralligold and Surplus as major brands in the next 3-5 years.

Agri Services

Agri Services portfolio comprises the organic manure product GeoGreen, Grapes Samrudh Krishi (SK) initiative and MoPu (More Pulses) programme. The    Company  has  GeoGreen,  GeoGreen  Granule  and  GeoGreen  P  Plus  in  the  organic  fertiliser  portfolio  and  are  planning  to  augment  the  portfolio  by  launching  GeoGreen  K  Plus  in  Kharif  2020.  During the year FY20,  the  business achieved achieved a revenue growth of 13%. While MoPu initiative continued in Maharashtra as well as in Madhya Pradesh, discussions were also held with the Karnataka Government for initiating it in that State as well.

Company-Subisdiary

Seeds Industry:

India is the fifth largest seed market. At present, India’s organized seed market is worth US$ 4.8 billion which is expected to grow to US$ 8 billion by 2023. According to an IMARC report, the global seed industry is likely to reach a value of over US$ 86 billion by 2023, from its current value of US$ 62.1 billion.

Fertilisers and Plant Nutrients Industry:

India is the second-largest consumer of fertilizers. It is also the second largest producer of nitrogenous fertilizers and ranks third globally as far the production of phosphatic fertilizers is concerned. The demand for potash is primarily met through imports. India’s organized Bio stimulants market is worth Rs2,000 crores, which is expected to grow 11-13% a year, whereas the Micronutrients market is worth Rs1,800 crores and is expected to grow 8-9% a year. By 2020, the global fertilizer industry is likely to reach a value of US$ 151.8 billion by growing at a little under 5% from hereon.

Category As a % of the overall crop protection industry Crop Area
Insecticides 60% Rice, Cotton
Fungicides 18% Fruits, Vegetables, Rice
Herbicides 16% Rice, Wheat
Bio- pesticides 3% Rice, Maize, Tobacco
Others 3%  

 

Source:FICCI

Crop Protection:

Indian crop protection industry is worth Rs16,800 crores. Per hectare consumption of agrochemicals is under 1 Kg one of the lowest among major economies of the world. India’s crop protection industry  can be classified primarily into four segments insecticides, fungicides, herbicides and biopesticides. While insecticides constitute a higher proportion, fungicides and herbicides are the fastest growing segments of the Indian crop care industry. In 2017, the

global crop protection industry was valued

at US$ 61 billion, with the industry growing by just 1.7% globally on a Y-o-Y basis.

SWOT Analysis:

Strengths:

· company spread over 4 locations (2 in Gujarat and 2 in Maharashtra) and have the large enough capacity in the country producing more than 10,000 M.T. of technical grade pesticide and about 30,000 Tons/Liters of formulations per annum.

·Rallis India has been working on increasing connectivity with the farmers through various initiative like Rallis Samrudh Krishi (RSK) and digital interventions, are beginning to show results, with farmers reporting benefiting from the PoPs and timely information through Drishti and Samadhan app.

Weaknesses:

· The industry depends more on other countries like China. Recently China had shut down many chemical companies due to pollution concern that affected India’s agrochem industry.

·The company has more dependence on the production of selected crop like cotton and paddy, both contribute significantly revenue to the company.

·The company has lower pricing power and high input costs, this may be the problem for profit growth.

Opportunities:

·Awareness about crop protection and the importance of using better quality hybrid seeds and organic plant nutrients and micronutrients also remains a neglected area. This provides an immense scope for market expansion.

·The company has high growth opportunities due to China shutting off its capacities on pollution concerns resulting global market is looking out for substitutes and affordable supply of raw material for agro chemicals.

·The company India’s under-penetration of crop protection products consumption per hectare, limited availability of land and irrigation and farmers’ enhanced awareness about best farming practices present significant long-term growth opportunities to the country’s crop protection and seeds industry

 

Threats:

·The crop protection industry largely consumes crude oil-linked raw materials. Thus, sharp fluctuations in crude oil prices affect their profitability. In FY 2017-18, India’s crop protection industry faced a double whammy. Raw material prices skyrocketed due to rising crude oil prices.

·Changes in government policies may impact the company e.g., the implementation of GST affected supplies to dealers, thereby affecting volumes in Q1 and Q2 of FY 2017-18.

· business related to seeds is subject to production risks, involving weather, pests, diseases, availability of proper and sufficient agriculture land and growers.

Profit and Loss Account (Consolidated

Particulars ( in Rs. Cr.) 202009 202006 201909 YoY (%) QoQ (%) FY20 FY19 YoY (%)
Net Sales 725.01 662.7 748.69 -3.2% 9.4% 2251.8 1984 13.5%
Other Income 14.7 11.75 6.77 117.1% 25.1% 45.75 30.65 49.3%
Total Income 739.71 674.45 755.46 -2.1% 9.7% 2297.6 2014.6 14.0%
Expenditure
Raw Material Consumed 384.93 349.37 337.4 14.1% 10.2% 1282.1 1195.3 7.3%
Stock Adjustment 8.49 26.64 78.43 -89.2% -68.1% -33.3 -140.18 -76.2%
Purchase of Finished Goods 55.41 23.54 63.27 -12.4% 135.4% 141.21 116.42 21.3%
Employee Expenses 54.35 49.16 50.33 8.0% 10.6% 200.1 180.64 10.8%
Other Expenses 105.07 85.7 100.6 4.4% 22.6% 402.38 390.85 2.9%
Total Expenditure 608.25 534.41 630.03 -3.5% 13.8% 1992.5 1743 14.3%
PBIDT 131.46 140.04 125.43 4.8% -6.1% 305.11 271.59 12.3%
Interest 1.4 1.97 1.88 -25.5% -28.9% 6.11 5.25 16.4%
PBDT 130.06 138.07 123.55 5.3% -5.8% 299 266.34 12.3%
Depreciation 20.31 17.92 18.63 9.0% 13.3% 61.51 46.08 33.5%
PBT 109.75 120.15 104.92 4.6% -8.7% 237.49 220.26 7.8%
Tax 26.8 28.28 20.06 33.6% -5.2% 53.8 65.48 -17.8%
Profit After Tax 82.95 91.87 84.86 -2.3% -9.7% 183.69 154.78 18.7%
EPS (Rs.) 4.27 4.72 4.41 -3.2% -9.5% 9.51 7.99 19.0%
PBIDTM (%) 18.13 21.13 16.75 8.2% -14.2% 13.55 13.69 -1.0%
PATM (%) 11.44 13.86 11.33 1.0% -17.5% 8.16 7.8 4.6%

Source: Company’s Financials and Capitaline

Q2FY21 Conference Call Highlights

Focus will be on maintaining growth momentum by launching new product and a change in product mix

  • International business was down due to Metribuzin price erosion. Further, there was lower offtake of PEKK under the CRAMS portfolio
  • Revenue from the international business remained at Rs. 154 crore against Rs. 217 crore in Q2FY20. Revenue from the domestic crop care was at Rs. 486 crore vs. Rs.451 crore in Q2FY20 while the same from CRAMS was at Rs. 12 crore against Rs. 21 crore in Q2FY20
  • The company launched one formulation during Q2. It has launched Aquafert – potato, onion, vegetable (FNP) and Flobor in the crop nutrition category
  • The new formulation unit at Dahej will be commissioned this fiscal while a new R&D unit is coming up at Bengaluru
  • The company has been working towards widening its distribution reach. Recently revised trade terms have helped Rallis generate decent FCF this fiscal
  • Going ahead, strengthening alliances, branded formulation under co-marketing arrangements along with registering own brands and increase formulation revenue would be key triggers to scale up the business ahead
  • The working capital cycle is at 65 days against 104 days

Cash Flow (Consolidated)

In last five years, the company has been showing healthy growth in cash and cash equivalent and now it stood at Rs

22.4 crore.

Particulars 202003 201903 201803 201703 201603
Cash and Cash Equivalents at Beginning of the year 5.89 28.78 2.74 -35.81 -62.22
Net Cash from Operating Activities 336.84 80.06 41.39 407.66 232.13
Net Cash Used in Investing Activities -245.92 -51.45 88.8 -289.42 -146.9
Net Cash Used in Financing Activities -74.41 -51.5 -104.14 -79.69 -58.81
Net Inc/(Dec) in Cash and Cash Equivalent 16.51 -22.89 26.04 38.54 26.41
Cash and Cash Equivalents at End of the year 22.4 5.89 28.78 2.74 -35.81

Source: Capitaline

Balance Sheet (Consolidated)

SOURCES OF FUNDS :                                                           202003                     201903               201803
Share Capital 19.45 19.45 19.45
Reserves Total 1390.01 1266.48 1171.13
Total Shareholders Funds 1409.46 1285.93 1190.58
Minority Interest 0.69 1.84 1.11
Secured Loans 50.59 54.8 3.44
Unsecured Loans 29.09 18.04 21.2
Total Debt 79.68 72.84 24.64
Other Liabilities 32.2 28.39 22.06
Total Liabilities 1522.03 1389 1238.39
APPLICATION OF FUNDS :
Gross Block 840.02 749.73 709.4
Less: Accumulated Depreciation 247.18 168.95 135.74
Net Block 592.84 580.78 573.66
Capital Work in Progress 75.7 50.71 47.32
Investments 302.47 109.27 95.6
Inventories 699.2 673.55 572.18
Sundry Debtors 450.59 449.07 399.67
Cash and Bank 48.65 45.75 33.39
Loans and Advances 117.12 139.35 144.02
Total Current Assets 1315.57 1307.72 1149.27
Current Liabilities 857.3 736.65 701.88
Provisions 40.67 20.52 17.81
Total Current Liabilities 897.97 757.17 719.69
Net Current Assets 417.6 550.55 429.58
Deferred Tax Assets 20.99 52.04 50.04
Deferred Tax Liability 49.49 68.49 69.79
Net Deferred Tax -28.5 -16.45 -19.75
Other Assets 161.91 114.14 111.96
Total Assets 1522.03 1389 1238.39

Source: Capitaline

Outlook:

Rallis India is one of India’s leading agrochemicals companies. It has more than 150 years of experience in servicing rural markets and a comprehensive portfolio of pesticides, herbicides, fungicides and plant nutrients for Indian farmers.

In India, awareness about crop protection is low as well as the role of agrochemicals in improving farm productivity is grossly undermined. Similarly, the importance of using better quality hybrid seeds and organic plant nutrients and micronutrients also remains a neglected area. This provides an immense scope for market expansion. Rallis India is focused on offering solutions to farmers to improve farm productivity, rather than just selling products to them. As a part of a unique programme – Rallis Samrudh Krishi, the company tries to promote knowledge-based farming. RSK endeavors to create awareness among the farmer community about the crop, quality, productivity and income and offers customized advice to registered farmers.

The company announced a capex of Rs. 525-550 crore out of total capex envisaged of Rs.800 crore over the next five years. Of the overall announced capex, majority will be for the formulation capacity at Dahej while some would be allocated for automation of present plants along with increase in the active ingredient capacity.

Going forward, we expect the company will get good assistance from domestic and international activities like China shutting off its capacities on pollution concerns resulting global market is looking out for substitutes and affordable supply of raw material for agro chemicals. The company has widened its product portfolio and today, caters to all critical agri-input needs such as: Soil conditioners Hybrid seeds Plant growth nutrients Plant protection chemicals. A capex plan of Rs. 800 crore for the next five years will enable the Company to cater to growing demand, improve manufacturing cost efficiency and reduce import dependency.

On performance front we expect company to report EPS of Rs.13.2 for FY22E, at CMP of Rs.247 PE work out to be 18.5x. Hence, investors can buy the stock at CMP of Rs.247 for target price of Rs320. Time frame should be 9-12months.

DISCLOSURE IN PURSUANCE OF SECTION 19 OF SEBI (RA) REGULATION 2014

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