7/29/2019 Rallis India - Report 10.03.2013

1/1

ALLIS INDIA Recommendation: HOLD

MP : 122.25 BSE : 500355 Businesses : Crop Protection M. Cap : 2,379 Crs

2 week high : 169.95 NSE : RALLIS Contract Manufacturing NSE: RALLIS

2 week low : 117.60 FV : 1 Seeds BSE: 500355

rop - Increasing population and demand for food products - Strong distribution network in India (2,500 dealers

rotection - Rising Minimum Support Prices for agricultural produce and 37,000 retailers)

usiness - Increasing government support to farmers - Several initiatives to connect with farmers - Rallis

- Increasing labour cost for manual crop protection Kisan Kutumbh, Samrudh Krishi

- Last agricultural input and uncertain weather conditions - Owns 7 out of top 12 brands in industry- Genetically modified seeds reduces need for pesticides - Launched 10 new products in FY 12 expected to

- Indian market characterized by many generic players be a strong revenue driver going forward

- Low pricing power due to competition - Presence restricted to only a few states in India

- Rising raw material costs - Profit margins reduced to 17% due to weather

- Stringent environmental regulations pose a key risk conditions & increasing raw material costs

- Growth in profitability below growth in revenues for

last 5 years

ttractiveness

ontract - Revenue not subject to weather conditions - Launch of new Dahej facility to grow business

anufacturing - Non-seasonal nature of revenue - Known for its manufacturing capabilities

usiness - Contracts typically awarded for lowering costs, hence, - Foreign exchange fluctuation risk

difficult to achieve high marginsttractiveness

eeds - 1st agricultural input. Unaffected by factors affecting - Ability to develop proprietary biotech products

usiness agriculture e.g. rains, pests, etc - EBITDA margins of 18 to 20%

- High product yields along with quality - 1st Indian company to have proprietary seed

- competing with Mosanto's seed

- Launched 10 new products in FY 12

-

KEY BUSINESSES

RALLIS

MARKET INFORMATION

LOW

INDUSTRY

MEDIUM

MEDIUM MEDIUM

-

- Contributes less than 3% of revenues

ttractiveness

rowth Drivers

hallenges - CAGR Revenues: 3 year (12.89%); 5 year(13.13%) - Negative Free Cash Flow

- Comprehensive agri solutions provider along with Tata - CAGR Net Profit: 3 year (4.05%); 5 year (-1.47%)

Chemicals, Metahelix and Zero Waste Agro Organics - 97% revenues from high competition Pesticides

- Strong distribution network, direct connect with farmers business

- Presence concentrated in few states only

inancials at a 3 year 5 year Consolidated Financials: (Rs. Crs)

lance CAGR Net Sales: 12.89% 13.13% Mar'12 Mar'11 Mar'10

CAGR Net Profit: 4.05% -1.47% Sales 1274.87 1077.16 886.15

Growth 18.35% 21.56%

P / E Ratio: 20.22 ROCE: EBITDA 192.64 209.12 177.44

D / E Ratio: 0.2 ROE: EBITDAM 15.11% 19.41% 20.02%

Asset (Pre-tax returns) NP 116.37 123.92 103.31

Turnover: 2.7x

Calculation of Free Cash Flows:

(Rs. In Crs) Net Profit 116.37 123.92 103.31

Dec'12 Sep'12 Jun'12 + Dep. 28.66 17.48 18.31

Sales 340 480.6 338.3 - Capex -201.78 -220.22 28.56

EBITDA 45.5 100.9 41.5 - Work Ca -31.21 -46.6 73.69

NP 22 61.6 24.17 FCF -87.96 -125.42 223.87

aluation Going forward, Rallis is expected to grow at around 18 to 20% p.a. for next 2 years due to revenues from

the Dahej facility, investment into seeds & soil protection business and various initiatives taken by the

company. However, due to the increase in debt levels, low capital turnover and dependence of earnings on

monsoon and government intervention, we assign a Price to Earnings ratio of not more than 18 times the FY

2014 EPS which is expected to be Rs. 7.20 (EPS 6.05 x 19% growth) giving us a target price of Rs. 129.

HIGH LOW

GROWTH DRIVERS CHALLENGES

GROWTH DRIVERS / CHALLENGES, FINANCIALS AND VALUATION

23.20%

20.70%

March 10, 2013

Accordingly, we recommend a HOLD at CMP and will re-visit the above estimate for the company after

Quarter 2 FY 2013-14. Though Rallis India is a better company compared to its peers on valuation

parameters, return ratios and management efficiency, I feel the current valuation captures most of the

positives.