1QFY2018 Result Update | Agrichemical
July 26, 2017
Rallis India
NEUTRAL
CMP
`237
Performance Highlights
Target Price
-
Y/E March (` cr)
1QFY2018
4QFY2017
% chg (qoq)
1QFY2017
% chg (yoy)
Investment Period
-
Net sales
446
348
28.0
450
(1.0)
Stock Info
Other income
5
5
0.9
160
(97.2)
Sector
Agrichemical
Gross profit
205
138
48.8
207
(0.8)
Market Cap (` cr)
4,610
Operating profit
69
42
66.7
75
(7.7)
Net debt (` cr)
(212)
Adj. Net profit
45
31
45.9
49
(8.1)
Beta
0.8
Source: Company, Angel Research
52 Week High / Low
265/180
Avg. Daily Volume
58,692
For 1QFY2018 Rallis India (Rallis) reported a yoy de-growth of 1.0% in sales to
Face Value (`)
1
`446cr (v/s. `450cr in 1QFY2017). The performance of Rallis was impacted
BSE Sensex
32,246
during the quarter on the back of transition to GST and high channel inventory.
Nifty
9,342
On the operating front, the OPM came in at 15.6% (v/s. 16.7% in 1QFY2017).
Reuters Code
RALL.BO
Owing to lower sales growth the Adjusted Net profit de-grew by 8.1% yoy to
Bloomberg Code
[email protected]
`45cr (v/s. `49cr in 1QFY2017). We maintain our Neutral view on the stock.
Lackluster performance: For 1QFY2018, the company reported a yoy de-growth
Shareholding Pattern (%)
of 1.0% in sales to `446cr (v/s. `450cr in 1QFY2017). The performance of Rallis
Promoters
50.1
was impacted during the quarter on back of transition to GST and high channel
MF / Banks / Indian Fls
21.5
inventory. On the operating front, the gross margin came in at 46.1% (v/s. 46.0%
FII / NRIs / OCBs
3.7
in 1QFY2017), while higher other expenses aided the OPM to come in at 15.6%
Indian Public / Others
24.8
(v/s. 16.7% in 1QFY2017). Owing to lower sales growth, the Adjusted Net profit
de-grew by 8.1% yoy to `45cr (v/s. `49cr in 1QFY2017).
Abs. (%)
3m 1yr 3yr
Outlook and valuation: For FY2017-19E, we expect a CAGR of 11.5% and
Sensex
8.7
14.8
23.4
21.6% in net sales and profit respectively. At the current levels, the stock is trading
Rallis India
(5.4)
8.6
9.3
at a fair valuation of 22.5x its FY2019E EPS. Hence, we maintain our Neutral.
3-year price chart
Key financials (Consolidated)
400
350
Y/E March (` cr)
FY2016
FY2017
FY2018E
FY2019E
300
Net Sales
250
1,637
1,687
1,873
2,099
200
% chg
(10.1)
3.0
11.0
12.1
150
Adj.Net Profit
143
139
184
205
100
50
% chg
(9.0)
(3.0)
32.7
11.4
0
EBITDA %
13.3
15.7
15.0
15.0
FDEPS (`)
7.4
7.1
9.5
10.5
Source: Company, Angel Research
P/E (x)
32.3
33.3
25.1
22.5
P/BV (x)
5.1
4.2
3.8
3.4
RoE (%)
16.7
13.8
15.8
16.0
RoACE (%)
19.2
20.1
18.8
19.0
Sarabjit Kour Nangra
EV/Sales (x)
2.6
2.3
2.1
1.9
+91-22-39357800 ext. 6806
EV/EBITDA (x)
19.3
14.6
13.7
12.4
[email protected]
Source: Company, Angel Research; Note: CMP as of July 25, 2017
Please refer to important disclosures at the end of this report
1
Rallis India | 1QFY2018 Result Update
Exhibit 1: 1QFY2018 performance (Consolidated)
Y/E March (` cr)
1QFY2018
4QFY2017
% chg (QoQ)
1QFY2017
% chg (YoY)
FY2017
FY2016
% chg
Net sales
446
348
28.0
450
(1.0)
1,678
1,529
9.8
Other income
5
5
0.9
160
(97.2)
172
14
1103.1
Total income
450
353
27.6
610
(26.3)
1,850
1,543
19.9
Gross profit
205
138
48.8
207
(0.8)
728
670
8.6
Gross margin (%)
46.1
39.6
46.0
43.4
43.8
EBDITA
69
42
66.7
75
(7.7)
263
229
15.0
EBDITA margin (%)
15.6
12.0
16.7
15.7
15.0
Financial cost
1
3
(56.1)
2
(50.2)
7
14
(46.4)
Depreciation
11
12
(4.4)
12
(7.7)
47
44
8.5
PBT
61
32
94.6
221
(72.2)
381
186
104.5
Provision for taxation
16
1
47
83
39
112.4
PAT Before Exc. And MI
45
31
45.9
174
(74.0)
298
147
102.4
Minority
0
0
0
0
0
-
Exceptional
0
0
125
158
0
Reported PAT
45
31
45.9
174
(74.0)
298
147
102.4
Adjusted PAT
45
31
45.9
49
(8.1)
139
147
(5.7)
EPS (`)
2.3
1.6
2.5
7.1
7.6
Source: Company, Angel Research
Sales lower 1.0% yoy
For 1QFY2018, the company’s sales de-grew by 1.0% yoy to `446cr (v/s. `450cr
in 1QFY2017). The performance of Rallis was impacted during the quarter on the
back of transition to GST and high channel inventory. Rallis India reported a
muted 1QFY2018 performance. The agrochemical segment reported 5.0% de-
growth in sales while seed business i.e. Metahelix reported a marginal
4.5%
growth yoy. Revenues of subsidiaries in 1QFY2018 were at `198.0cr, up 4.5% yoy.
EBITDA margins on the subsidiaries front, however, came in at an impressive
31.0%.
Exhibit 2: Revenue performance
720
25
640
20
540
560
446
480
445
15
400
348
326
10
320
240
5
160
0
80
0
(5)
1QFY2017 2QFY2017 3QFY2017 4QFY2017 1QFY2018
Total Revenue
% YoY
Source: Company, Angel Research
July 26, 2017
2
Rallis India | 1QFY2018 Result Update
OPM dips
On the operating front, the gross margin came in at 46.1% (v/s. 45.4% in
1QFY2017). Thus, the OPM came in at 15.6% (v/s. 15.8% in 1QFY2017), on the
back of the lower sales. Employee expenses rose by 8.3% yoy during the quarter.
Exhibit 3: Margin trend (%)
60.0
45.4
46.9
46.1
50.0
38.9
39.6
40.0
30.0
20.0
17.7
10.0
15.8
15.6
11.4
12.0
0.0
1QFY2017
2QFY2017
3QFY2017
4QFY2017
1QFY2018
Gross margin
EBITDA margin
Source: Company, Angel Research
Earnings dip
Owing to lower sales growth, the Adjusted Net profit de-grew by 8.1% yoy to `45cr
(v/s. `49cr in 1QFY2017). The Reported Net Profit came in at `45cr v/s. `174cr,
yoy dip of 74.0%, on back of the 97.2% yoy dip in the other income (`160cr in
1QFY2017 v/s. 5cr 1QFY2018).
Exhibit 4: Adjusted PAT trend
67
70
35
30
60
49
25
50
45
20
15
40
31
10
30
25
5
20
0
(5)
10
(10)
0
(15)
1QFY2017
2QFY2017
3QFY2017
4QFY2017
1QFY2018
Adj PAT
% YoY
Source: Company, Angel Research
July 26, 2017
3
Rallis India | 1QFY2018 Result Update
Investment arguments
Company set to seize rising opportunities in the domestic crop protection market:
India's overall pesticide consumption is one of the lowest in the world and has a
huge potential to grow. We believe Rallis is well placed to seize this opportunity on
the back of its wide distribution network, strong brands, and a robust new product
pipeline. According to industry estimates, the unorganized market accounts for
50% of the industry. Nonetheless, we believe Rallis is in a position to wrest market
share as well as charge a premium for its products. A lower base would result in
11.0% CAGR in the domestic business during FY2017-19E.
Exports remain flat: Although a late entrant, the company has been enhancing its
focus in the exports market, which is now turning out to be its main growth driver.
Overall exports formed ~31% of sales in FY2017. In FY2017, the global weakness
in the agrochemical industry had put pressure on Rallis’ exports business, which
resulted in revenue coming in at `450cr. Moreover, going forward, the segment
will continue to post a 15.0% CAGR over FY2017-19E.
Seed business to augment the domestic portfolio: After the acquisition of Metahelix
seeds business in 2010, the seeds business forms a major part of the domestic
business of the company. During FY2017, Rallis’ seeds business (under Metahelix)
reported a decent growth of 15% yoy to `280cr on the back of increased market
share, and despite significant reduction in acreages for some of the key crops such
as millet seeds and corn. The company is also strengthening its cotton portfolio
and will be launching a new product to take on the market leaders in this crop.
The management remains confident of Metahelix achieving 12-14% margin in a
good monsoon year.
Contract manufacturing ramping up slowly: Rallis plans to focus on contract
manufacturing for exports and selectively target top players. To facilitate the same,
the company has set up a plant at Dahej, which in FY2013 was working at full
capacity and contributed significantly to the overall growth of the company. The
company has bagged two CRAMS projects on a pilot basis during the year. The
management expects to convert these pilot projects into full commercial contracts
in FY2017 and contribute to earnings growth from FY2018-2019 onwards.
Outlook and valuation
Over FY2017-19E, we expect the company to post a CAGR of 11.5% and 21.0%
in net sales and profit respectively. At the current level, the stock is trading at a fair
valuation of 22.5x its FY2019E EPS. Hence, we maintain our Neutral view on the
stock, on back of the rich valuations.
Exhibit 5: Key assumptions
Particulars (%)
FY2018E
FY2019E
Domestic growth
11.0
11.0
Export growth
15.0
15.0
Total revenue growth
11.0
12.1
EBITDA margin
15.0
15.0
Capex (` cr)
70
70
Source: Company, Angel Research
July 26, 2017
4
Rallis India | 1QFY2018 Result Update
Exhibit 6: Peer valuation
Company
Reco
Mcap
CMP
TP
Upside
P/E (x)
EV/Sales (x)
EV/EBITDA (x)
RoE (%)
CAGR (%)
(` cr)
(`)
(`)
(%) FY18E FY19E FY18E FY19E FY18E FY19E FY18E FY19E Sales PAT
Rallis
Neutral
4,610
237
-
-
25.1
22.5
2.1
1.9
13.7
12.4
15.8
16.0
11.5
21.6
UPL
Neutral
44,006
866
-
-
22.8
19.0
2.4
2.0
13.5
11.3
23.3
23.3
16.0
12.3
Source: Company, Angel Research, Bloomberg
Company background
Rallis is one of the oldest and second largest pesticide agrichemical companies in
the country with a market share of around 13% and belongs to the Tata Group.
The company also has a credible presence in the international market.
Contribution from the domestic business stands at ~70%, while exports account
for the balance.
July 26, 2017
5
Rallis India | 1QFY2018 Result Update
Profit & loss (Consolidated)
Y/E March (` cr)
FY2014
FY2015
FY2016
FY2017
FY2018E
FY2019E
Gross sales
1,840
1,922
1,730
1,783
1,997
2,237
Less: Excise duty
114
121
119
105
133
148
Net Sales
1,726
1,801
1,612
1,678
1,864
2,090
Other operating income
21
21
26
9
9
9
Total operating income
1,747
1,822
1,637
1,687
1,873
2,099
% chg
19.8
4.3
(10.1)
3.0
11.0
12.1
Total Expenditure
1,485
1,545
1,398
1,415
1,585
1,777
Net Raw Materials
1,008
995
839
950
1,044
1,170
Other Mfg costs
344
343
406
319
354
397
Personnel
111
129
132
146
163
182
Other
23
23
21
23
24
27
EBITDA
240
256
214
263
279
313
% chg
20.8
6.5
(16.5)
23.2
6.0
12.1
(% of Net Sales)
13.9
14.2
13.3
15.7
15.0
15.0
Depreciation & Amort.
41
50
45
47
53
58
EBIT
221
228
195
225
235
264
% chg
18.9
3.1
(14.3)
177.6
4.8
12.3
(% of Net Sales)
12.8
12.6
12.1
13.4
12.6
12.7
Interest & other Charges
13
10
14
7
4
6
Other Income
6
4
4
4
4
4
(% of PBT)
3
2
2
1
2
2
Share in profit of Asso.
Recurring PBT
214
222
186
222
236
263
% chg
26.3
3.4
(16.2)
189.9
(56.2)
11.4
Extraordinary Exp./(Inc.)
-
-
-
158
-
-
PBT (reported)
214
222
186
380
236
263
Tax
62
62
39
83
52
58
(% of PBT)
28.8
27.9
21.0
21.8
22.0
22.0
Minority Interest
0.8
2.6
3.7
3.7
3.7
3.7
PAT (reported)
152
157
143
297
184
205
ADJ. PAT
152
157
143
139
184
205
% chg
32.9
3.5
(9.0)
(3.0)
32.7
11.4
(% of Net Sales)
8.8
8.7
8.9
8.3
9.9
9.8
Basic EPS (`)
7.8
8.1
7.4
7.1
9.5
10.5
Fully Diluted EPS (`)
7.8
8.1
7.4
7.1
9.5
10.5
% chg
32.9
3.5
(9.0)
(3.0)
32.7
11.4
July 26, 2017
6
Rallis India | 1QFY2018 Result Update
Balance sheet (Consolidated)
Y/E March (` cr)
FY2014
FY2015
FY2016
FY2017
FY2018E
FY2019E
SOURCES OF FUNDS
Equity Share Capital
19
19
19
19
19
19
Preference Capital
-
-
-
-
-
-
Reserves & Surplus
699
795
880
1,092
1,198
1,325
Shareholders Funds
718
815
899
1,111
1,217
1,345
Minority Interest
10
10
4
0
0
0
Total Loans
75
111
75
37
37
80
Other Long Term Liabilities
4
4
4
-
-
-
Long Term provisions
15
19
18
23
23
23
Deferred Tax Liability
32
36
39
26
26
26
Total Liabilities
853
993
1,038
1,198
1,304
1,474
APPLICATION OF FUNDS
Gross Block
651
687
764
717
787
857
Less: Acc. Depreciation
233
282
327
374
427
484
Net Block
418
405
437
343
360
372
Capital Work-in-Progress
21
21
21
21
21
21
Goodwill
186
196
259
237
237
237
Investments
25
24
28
239
239
239
Long Term Loans and Adv.
98
110
110
137
137
137
Current Assets
549
680
650
728
761
1,032
Cash
9
7
8
10
27
15
Loans & Advances
40
28
35
324
67
269
Other
500
645
607
394
667
748
Current liabilities
445
443
467
507
451
564
Net Current Assets
104
237
183
221
310
468
Mis. Exp. not written off
-
-
-
-
-
-
Total Assets
853
993
1,038
1,198
1,304
1,474
July 26, 2017
7
Rallis India | 1QFY2018 Result Update
Cash flow statement (Consolidated)
Y/E March (` cr)
FY2014
FY2015
FY2016
FY2017
FY2018E FY2019E
Profit before tax
214
222
186
380
236
263
Depreciation
41
50
45
47
53
58
(Inc)/Dec in Working Capital
(7)
(147)
55
(63)
(72)
(169)
Direct taxes paid
(62)
(62)
(39)
(83)
(52)
(58)
Cash Flow from Operations
186
63
246
282
165
93
(Inc.)/ Dec. in Fixed Assets
(56)
(36)
(76)
47
(70)
(70)
(Inc.)/ Dec. in Investments
(5)
1
(4)
(211)
-
-
Inc./ (Dec.) in loans and adv.
Cash Flow from Investing
(61)
(35)
(80)
(164)
(70)
(70)
Issue of Equity
-
-
-
-
-
-
Inc./(Dec.) in loans
(73)
40
(36)
(33)
-
43
Dividend Paid (Incl. Tax)
(55)
(68)
(68)
(78)
(78)
(78)
Others
(14)
(1)
-
-
0
(0)
Cash Flow from Financing
(142)
(29)
(165)
(115)
(78)
(35)
Inc./(Dec.) in Cash
(17)
(2)
1
2
17
(12)
Opening Cash balances
26
9
7
8
10
27
Closing Cash balances
9
7
8
10
27
15
July 26, 2017
8
Rallis India | 1QFY2018 Result Update
Key ratios
Y/E March
FY2014
FY2015
FY2016
FY2017
FY2018E
FY2019E
Valuation Ratio (x)
P/E (on FDEPS)
30.4
29.4
32.3
33.3
25.1
22.5
P/CEPS
24.0
22.3
24.6
13.4
19.5
17.6
P/BV
6.4
5.7
5.1
4.2
3.8
3.4
Dividend yield (%)
0.8
0.8
1.3
1.7
2.1
2.5
EV/Sales
2.4
2.3
2.6
2.3
2.1
1.9
EV/EBITDA
17.2
16.2
19.3
14.6
13.7
12.4
EV / Total Assets
4.8
4.2
4.0
3.2
2.9
2.6
Per Share Data (`)
EPS (Basic)
7.8
8.1
7.4
7.1
9.5
10.5
EPS (fully diluted)
7.8
8.1
7.4
7.1
9.5
10.5
Cash EPS
9.9
10.6
9.6
17.7
12.2
13.5
DPS
2.0
2.0
3.0
4.0
5.0
6.0
Book Value
36.9
41.9
46.2
57.1
62.6
69.1
Dupont Analysis
EBIT margin
12.8
12.6
12.1
13.4
12.6
12.7
Tax retention ratio
71.2
72.1
79.0
78.2
78.0
78.0
Asset turnover (x)
2.1
2.0
1.6
1.5
1.5
1.5
ROIC (Post-tax)
19.0
18.0
15.4
15.8
14.8
14.9
Cost of Debt (Post Tax)
8.7
7.9
11.6
10.2
7.8
7.8
Leverage (x)
0.2
0.2
0.2
0.1
0.0
0.0
Operating ROE
20.6
19.6
16.1
16.3
14.9
15.3
Returns (%)
ROCE (Pre-tax)
26.4
24.7
19.2
20.1
18.8
19.0
Angel ROIC (Pre-tax)
35.9
32.4
25.7
26.7
24.2
23.8
ROE
22.7
20.5
16.7
13.8
15.8
16.0
Turnover ratios (x)
Asset Turnover (Gross Block)
2.8
2.7
2.3
2.3
2.5
2.6
Inventory / Sales (days)
62
74
89
89
87
94
Receivables (days)
35
37
44
45
44
47
Payables (days)
98
105
119
126
110
104
WC cycle (ex-cash) (days)
20
33
46
42
48
64
Solvency ratios (x)
Net debt to equity
0.1
0.2
0.1
0.0
0.0
0.1
Net debt to EBITDA
0.3
0.5
0.4
0.2
0.1
0.3
Interest Coverage (EBIT / Int.)
17.5
22.5
14.4
74.3
63.8
45.2
July 26, 2017
9
Rallis India | 1QFY2018 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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Disclosure of Interest Statement
Rallis India
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)