2QFY2017 Result Update | Agrichemical
November 3, 2016
Rallis India
NEUTRAL
CMP
`221
Performance Highlights
Target Price
-
Y/E March (` cr)
2QFY2017 1QFY2017
% chg (qoq) 2QFY2016
% chg (yoy)
Investment Period
-
Net sales
540
445
21.4
447
20.8
Stock Info
Other income
12
7
75.2
5
136.6
Sector
Agrichemical
Gross profit
210
202
4.2
234
(10.3)
Market Cap (` cr)
4,295
Operating profit
96
70
36.5
86
11.2
Net debt (` cr)
126
Adj. Net profit
67
49
35.1
51
31.0
Beta
0.9
Source: Company, Angel Research
52 Week High / Low
246/142
Avg. Daily Volume
88,414
For 2QFY2017, Rallis India (Rallis) reported a yoy growth of 20.8% in sales to
Face Value (`)
1
`540cr (vs. `447cr in 2QFY2016). On the operating front, the gross margin
BSE Sensex
27,877
came in at 38.9% (vs. 52.4% in 2QFY2016), which along with sales growth aided
Nifty
7,502
the OPM to come in at 17.7% (V/s 19.2% in 2QFY2016). Aided by sales growth,
Reuters Code
RALL.BO
a good operating performance and surge in other income (`12cr vs. `5cr in
Bloomberg Code
RALI@IN
2QFY2016), the Adj. Net profit grew by 31.0% yoy to `67cr (vs. `51cr in
2QFY2016). We maintain our Neutral view on the stock.
Shareholding Pattern (%)
Robust numbers mainly aided by robust growth: For 2QFY2017, the company
Promoters
50.1
reported a yoy growth of 20.8% in sales to `540cr (vs. `447cr in 2QFY2016).
MF / Banks / Indian Fls
19.8
On the operating front, the gross margin came in at 38.9% (vs. 52.4% in
FII / NRIs / OCBs
6.4
2QFY2016), which along with sales growth aided the OPM to come in at 17.7%
Indian Public / Others
23.7
(vs. 19.2% in 2QFY2016). Aided by sales growth, a good operating performance
and surge in other income (`12cr V/s `5cr in 2QFY2016), the Adj. Net profit
grew by 31.0% yoy to `67cr (vs. `51cr in 2QFY2016).
Abs. (%)
3m
1yr
3yr
Sensex
(0.5)
4.6
31.5
Outlook and valuation: For FY2016-18E, we expect a CAGR of 15.0% and
Rallis India
0.0
6.9
40.5
22.3% in net sales and profit, respectively, with recovery expected in FY2017. At
the current levels, the stock is trading at a fair valuation of 20.5x its FY2018E EPS.
3-year price chart
Hence, we maintain our Neutral view on the stock.
400
350
Key financials (Consolidated)
300
Y/E March (` cr)
FY2015
FY2016
FY2017E
FY2018E
250
200
Net Sales
1,822
1,637
1,937
2,164
150
% chg
4.3
(10.1)
18.3
11.7
100
50
Adj.Net Profit
157
143
167
214
0
% chg
3.5
(9.0)
16.6
28.2
EBITDA %
14.2
13.3
14.3
14.3
Source: Company, Angel Research
FDEPS (`)
8.1
7.4
8.6
11.0
P/E (x)
27.8
30.6
26.2
20.5
P/BV (x)
5.4
4.9
3.9
3.5
RoE (%)
20.5
16.7
16.5
18.0
RoACE (%)
24.7
19.2
20.9
20.3
Sarabjit Kour Nangra
EV/Sales (x)
2.3
2.6
2.1
1.9
+91-22-39357800 ext. 6806
EV/EBITDA (x)
16.4
19.5
14.9
13.0
Source: Company, Angel Research; Note: CMP as of November 1, 2016
Please refer to important disclosures at the end of this report
1
Rallis India | 2QFY2017 Result Update
Exhibit 1: 2QFY2017 performance (Consolidated)
Y/E March (` cr)
2QFY2017
1QFY2017
% chg (QoQ) 2QFY2016
% chg (YoY) 1HFY2017 1HFY2016
% chg
Net sales
540
445
21.4
447
20.8
985
862
14.2
Other income
12
7
75.2
5
136.6
178
10
1679.7
Total income
553
452
22.3
453
22.1
1,163
872
33.3
Gross profit
210
202
4.2
234
(10.3)
412
390
5.6
Gross margin (%)
38.9
45.4
52.4
41.8
45.3
EBDITA
96
70
36.5
86
11.2
166
142
16.6
EBDITA margin (%)
17.7
15.8
19.2
16.8
16.5
Financial cost
1
2
(51.1)
3
(60.4)
3
7
(50.4)
Depreciation
11
12
(11.2)
13
(13.6)
23
24
(3.2)
PBT
96
62
53.6
76
26.8
317
121
161.8
Provision for taxation
29
47
(37.1)
25
18.2
76
28
173.4
PAT Before Exc. And MI
67
16
320.7
51
31.0
241
93
158.4
Minority
0
0
0
0
0
-
Exceptional
0
158
0
120
0
Reported PAT
67
174
(61.8)
51
31.0
241
93
158.4
Adjusted PAT
67
49
35.1
51
31.0
120
93
29.1
EPS (`)
3.4
2.5
2.6
6.2
4.8
Source: Company, Angel Research
Sales rose by 20.8% yoy
For 2QFY2017, the company’s sales rose by 20.8% yoy to `540cr (vs. `447cr in
2QFY2016). Monsoon 2016 ended on a positive note with rainfall for the season
at 97% of LPA against interim fears of below normal monsoons. Rainfall was
muted at the start of the season with 89% of LPA in June but gained pace during
the crucial period with 107% of LPA in July. The subsidiary business (Metahelix), on
the other hand, witnessed growth of 66% yoy albeit on a lower base. Subsidiaries
sales for the quarter came in at `45cr.
Exhibit 2: Revenue performance
720
15
640
540
10
560
500
5
480
445
0
400
342
306
(5)
320
(10)
240
(15)
160
80
(20)
0
(25)
2QFY2016
3QFY2016
4QFY2016
1QFY2017
2QFY2017
Total Revenue
% YoY
Source: Company, Angel Research
November 3, 2016
2
Rallis India | 2QFY2017 Result Update
OPM dips yoy
On the operating front, the gross margin came in at 38.9% (vs. 52.4% in
2QFY2016), a yoy dip of 13.5%. Inspite of this, the OPM came in at 17.7% (vs.
19.2% in 2QFY2016). This was mainly on back of only 10.8% yoy rise in
employee expenses and 8.6% yoy dip in other expenses.
Exhibit 3: Margin trend (%)
60.0
52.4
48.2
50.0
45.4
43.3
38.9
40.0
30.0
20.0
19.2
17.7
10.0
15.8
10.2
10.4
0.0
2QFY2016
3QFY2016
4QFY2016
1QFY2017
2QFY2017
Gross margin
EBITDA margin
Source: Company, Angel Research
Earnings rise 31% yoy
Aided by sales growth, a good operating performance and surge in other income
(`12cr vs. `5cr in 2QFY2016), the Adj. Net profit grew 31.0% yoy to `67cr
(vs. `51cr in 2QFY2016).
Exhibit 4: Adjusted PAT trend
70
67
60
50
60
51
40
49
50
30
40
20
32
30
10
20
0
20
(10)
10
(20)
0
(30)
2QFY2016
3QFY2016
4QFY2016
1QFY2017
2QFY2017
Adj PAT
% YoY
Source: Company, Angel Research
November 3, 2016
3
Rallis India | 2QFY2017 Result Update
Investment arguments
The 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.
FY2016 has been challenging on back of poor monsoons but the outlook for
FY2017 is favorable and should bode well for domestic sales growth. A lower base
would result in 17.3% CAGR in the domestic business during FY2016-18E.
Exports under pressure: 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 ~30% of sales in FY2016. In FY2016, the global
weakness in the agrochemical industry put pressure on Rallis’ exports business,
where the revenues dropped by 20% yoy to `400cr. The company’s primary export
market is Brazil where a sluggish demand environment, currency volatility and
macro headwinds led to deferment/cancelation of many orders. However, export
orders saw a revival in 4QFY2016; still the management remains cautious on
recovery in Brazil, which could take more than a couple of quarters. This would
likely keep the exports business revenues under pressure. Going forward, the
segment will continue to post a 7.2% CAGR over FY2016-18E.
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 FY2016, Rallis’ seed business, under
Metahelix reported a decent growth of 8% yoy to `334cr (almost 23% of the
domestic business) on back of increased market share and despite significant
reduction in acreages for some of the key crops such as paddy 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. During
FY2016, the company increased its stake in Metahelix to 100%.
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.
Outlook and valuation
Over FY2016-18E, we expect the company to post a CAGR of 15.0% and 22.3%
in net sales and profit, respectively, with recovery expected in FY2017 driven by
above normal monsoons. At the current level, the stock is trading at a fair
valuation of 20.5x its FY2018E EPS. Hence, we maintain our Neutral view on the
stock.
November 3, 2016
4
Rallis India | 2QFY2017 Result Update
Exhibit 5: Key assumptions
Particulars (%)
FY2017E
FY2018E
Domestic growth
24.0
11.0
Export growth
5.0
15.0
Total revenue growth
18.3
11.7
EBITDA margin
14.3
14.3
Capex (` cr)
70
70
Source: Company, Angel Research
Exhibit 6: Peer valuation
Company Reco
Mcap CMP TP Upside
P/E (x)
EV/Sales (x)
EV/EBITDA (x)
RoE (%)
CAGR (%)
(` cr)
(`)
(`)
(%) FY17E FY18E FY17E FY18E FY17E FY18E FY17E FY18E Sales PAT
Rallis
Neutral
4,377
221
-
-
26.2
20.5
2.1
1.9
14.9
13.0
16.5
18.0
15.0
22.3
UPL
Neutral
35,259
696
-
-
16.1
13.5
1.8
1.5
9.6
8.0
21.4
21.2
16.0
18.9
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.
November 3, 2016
5
Rallis India | 2QFY2017 Result Update
Profit & loss (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
FY2017E
FY2018E
Gross sales
1,535
1,840
1,922
1,730
2,059
2,302
Less: Excise duty
95
114
121
119
147
164
Net Sales
1,440
1,726
1,801
1,612
1,911
2,138
Other operating income
18
21
21
26
26
26
Total operating income
1,458
1,747
1,822
1,637
1,937
2,164
% chg
14.4
19.8
4.3
(10.1)
18.3
11.7
Total Expenditure
1,241
1,485
1,545
1,398
1,637
1,832
Net Raw Materials
823
1,008
995
839
1,110
1,242
Other Mfg costs
304
342
341
404
363
406
Personnel
94
111
129
132
137
154
Other
20
24
25
22
27
30
EBITDA
199
240
256
214
274
306
% chg
3.9
20.8
6.5
(16.5)
27.9
11.9
(% of Net Sales)
13.8
13.9
14.2
13.3
14.3
14.3
Depreciation & Amort.
32
41
50
45
56
61
EBIT
186
221
228
195
244
271
% chg
(1.5)
18.9
3.1
(14.3)
24.8
11.3
(% of Net Sales)
12.9
12.8
12.6
12.1
12.7
12.7
Interest & other Charges
21
13
10
14
9
8
Other Income
5
6
4
4
4
4
(% of PBT)
3
3
2
2
2
2
Share in profit of Asso.
-
-
-
-
-
-
Recurring PBT
170
214
222
186
238
267
% chg
(3.5)
26.3
3.4
(16.2)
28.4
12.1
Extraordinary Exp./(Inc.)
3
-
-
-
(120)
-
PBT (reported)
172
214
222
186
358
267
Tax
53
62
62
39
72
53
(% of PBT)
31.0
28.8
27.9
21.0
20.0
20.0
Minority Interest
(0)
0.8
2.6
3.7
3.7
3.7
PAT (reported)
119
152
157
143
287
214
ADJ. PAT
114
152
157
143
167
214
% chg
4.6
32.9
3.5
(9.0)
16.6
28.2
(% of Net Sales)
7.9
8.8
8.7
8.9
8.7
10.0
Basic EPS (`)
5.9
7.8
8.1
7.4
8.6
11.0
Fully Diluted EPS (`)
5.9
7.8
8.1
7.4
8.6
11.0
% chg
4.6
32.9
3.5
(9.0)
16.6
28.2
November 3, 2016
6
Rallis India | 2QFY2017 Result Update
Balance sheet (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
FY2017E
FY2018E
SOURCES OF FUNDS
Equity Share Capital
19
19
19
19
19
19
Preference Capital
-
-
-
-
-
-
Reserves & Surplus
601
699
795
880
1,098
1,243
Shareholders Funds
621
718
815
899
1,117
1,263
Minority Interest
5
10
10
4
4
4
Total Loans
131
75
111
75
110
50
Other Long Term Liabilities
6
4
4
4
4
4
Long Term provisions
30
15
19
18
18
18
Deferred Tax Liability
28
32
36
39
39
39
Total Liabilities
821
853
993
1,038
1,295
1,380
APPLICATION OF FUNDS
Gross Block
581
651
687
764
834
904
Less: Acc. Depreciation
195
233
282
327
383
444
Net Block
386
418
405
437
451
460
Capital Work-in-Progress
35
21
21
21
21
21
Goodwill
169
186
196
259
259
259
Investments
20
25
24
28
28
28
Long Term Loans and Adv.
92
98
110
110
109
122
Current Assets
488
549
680
650
889
1,006
Cash
26
9
7
8
136
164
Loans & Advances
28
40
28
35
69
77
Other
435
500
645
607
684
765
Current liabilities
368
445
443
467
462
517
Net Current Assets
120
104
237
183
427
490
Mis. Exp. not written off
-
-
-
-
-
-
Total Assets
821
853
993
1,038
1,295
1,380
November 3, 2016
7
Rallis India | 2QFY2017 Result Update
Cash flow statement (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
FY2017E FY2018E
Profit before tax
172
214
222
186
358
267
Depreciation
32
41
50
45
56
61
(Inc)/Dec in Working Capital
(61)
(7)
(147)
55
(115)
(47)
Direct taxes paid
(53)
(62)
(62)
(39)
(72)
(53)
Cash Flow from Operations
150
186
63
246
228
227
(Inc.)/ Dec. in Fixed Assets
(5)
(56)
(36)
(76)
(70)
(70)
(Inc.)/ Dec. in Investments
3
(5)
1
(4)
-
-
Inc./ (Dec.) in loans and adv.
-
-
-
-
-
-
Cash Flow from Investing
(2)
(61)
(35)
(80)
(70)
(70)
Issue of Equity
-
-
-
-
-
-
Inc./(Dec.) in loans
(6)
(73)
40
(36)
35
(60)
Dividend Paid (Incl. Tax)
(50)
(55)
(68)
(68)
(68)
(68)
Others
(78)
(14)
(1)
-
-
(1)
Cash Flow from Financing
(134)
(142)
(29)
(165)
(29)
(129)
Inc./(Dec.) in Cash
15
(17)
(2)
1
128
28
Opening Cash balances
11
26
9
7
8
136
Closing Cash balances
26
9
7
8
136
164
November 3, 2016
8
Rallis India | 2QFY2017 Result Update
Key ratios
Y/E March
FY2013
FY2014
FY2015
FY2016
FY2017E
FY2018E
Valuation Ratio (x)
P/E (on FDEPS)
38.3
28.8
27.8
30.6
26.2
20.5
P/CEPS
29.1
22.7
21.2
23.3
12.8
15.9
P/BV
7.0
6.1
5.4
4.9
3.9
3.5
Dividend yield (%)
0.9
0.9
0.9
1.3
1.8
2.2
EV/Sales
2.9
2.4
2.3
2.6
2.1
1.9
EV/EBITDA
21.3
17.4
16.4
19.5
14.9
13.0
EV / Total Assets
5.2
4.9
4.2
4.0
3.1
2.9
Per Share Data (`)
EPS (Basic)
5.9
7.8
8.1
7.4
8.6
11.0
EPS (fully diluted)
5.9
7.8
8.1
7.4
8.6
11.0
Cash EPS
7.7
9.9
10.6
9.6
17.6
14.1
DPS
2.0
2.0
2.0
3.0
4.0
5.0
Book Value
31.9
36.9
41.9
46.2
57.5
64.9
Dupont Analysis
EBIT margin
12.9
12.8
12.6
12.1
12.7
12.7
Tax retention ratio
69.0
71.2
72.1
79.0
80.0
80.0
Asset turnover (x)
1.9
2.1
2.0
1.6
1.7
1.6
ROIC (Post-tax)
16.6
19.0
18.0
15.4
16.9
16.4
Cost of Debt (Post Tax)
10.1
8.7
7.9
11.6
8.0
8.0
Leverage (x)
0.2
0.2
0.2
0.2
(0.0)
(0.0)
Operating ROE
18.0
20.6
19.6
16.1
16.8
16.2
Returns (%)
ROCE (Pre-tax)
23.8
26.4
24.7
19.2
20.9
20.3
Angel ROIC (Pre-tax)
33.7
35.9
32.4
25.7
29.9
29.9
ROE
19.5
22.7
20.5
16.7
16.5
18.0
Turnover ratios (x)
Asset Turnover (Gross Block)
2.6
2.8
2.7
2.3
2.4
2.5
Inventory / Sales (days)
67
62
74
89
87
96
Receivables (days)
34
35
37
44
43
48
Payables (days)
111
98
105
119
103
97
WC cycle (ex-cash) (days)
16
20
33
46
45
53
Solvency ratios (x)
Net debt to equity
0.2
0.1
0.2
0.1
(0.0)
(0.1)
Net debt to EBITDA
0.7
0.3
0.5
0.4
(0.0)
(0.3)
Interest Coverage (EBIT / Int.)
9.0
17.5
22.5
14.4
26.4
33.9
November 3, 2016
9
Rallis India | 2QFY2017 Result Update
Research Team Tel: 022 - 39357800
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offering of securities of the company covered by Analyst during the past twelve months.
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contrary view, if any.
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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)
November 3, 2016
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