3QFY2016 Result Update | Agrichemical
January 21, 2016
Rallis India
NEUTRAL
CMP
`150
Performance Highlights
Target Price
-
Y/E March (` cr)
3QFY2016 2QFY2016
% chg (qoq) 3QFY2015
% chg (yoy)
Investment Period
-
Net sales
306
500
(38.7)
385
(20.4)
Other income
5
5
1.5
6
(18.7)
Stock Info
Gross profit
148
233
(36.7)
180
(18.0)
Sector
Agrichemical
Operating profit
31
95
(67.1)
46
(32.4)
Market Cap (` cr)
2,908
Adj. Net profit
20
57
(64.4)
25
(19.9)
Net debt (` cr)
126
Source: Company, Angel Research
Beta
0.9
Rallis India (Rallis) posted a disappointing set of numbers for 3QFY2016. Sales for
52 Week High / Low
299/143
the quarter came in at `306cr V/s `385cr in 3QFY2015, a dip of 20.4% yoy.
Avg. Daily Volume
84,191
Higher sales return in the domestic segment and cancellation of orders by
Face Value (`)
1
clients in global markets, along with a dip in the seed business, led to the
BSE Sensex
24,480
decline in the top-line. On the operating front, the gross margin came in at 48.2%
Nifty
7,435
V/s 46.8% in 3QFY2015; still the OPM declined to 10.2% V/s 12.0% in 3QFY2015.
Reuters Code
RALL.BO
This was owing to lower sales during the quarter. The PAT came in at `20cr V/s
Bloomberg Code
[email protected]
`25cr in 3QFY2015, a dip of 19.9% yoy. We remain Neutral on the stock.
Disappointing numbers for the quarter: Sales for the quarter came in at `306cr
V/s `385cr in 3QFY2015, a dip of 20.4% yoy. Higher sales return in the
Shareholding Pattern (%)
domestic segment and cancellation of orders by clients in global markets,
Promoters
50.1
along with a dip in the seed business, led to the decline in the top-line. On
MF / Banks / Indian Fls
14.5
the operating front, the gross margin came in at
48.2% V/s
46.8% in
FII / NRIs / OCBs
13.6
3QFY2015; still the OPM declined to 10.2% V/s 12.0% in 3QFY2015. This was
Indian Public / Others
21.8
owing to lower sales during the quarter. The PAT came in at `20cr V/s `25cr in
3QFY2015, a dip of 19.9% yoy. The dip in PAT was lower than that in the
EBDITA as tax outgo during the quarter was lower than in the corresponding
Abs. (%)
3m 1yr 3yr
quarter of last year.
Sensex
(10.5)
(13.4)
22.2
Rallis India
(30.1)
(33.3)
2.2
Outlook and valuation: Given the pressure on the financials, we expect Rallis
to register an 8.9% dip in sales in FY2016. For FY2015-17E, we expect a
CAGR of 3.7% and 3.4% in net sales and profit, respectively, with recovery
3-year price chart
expected in FY2017E. At the current levels, the stock is trading at a fair
450
400
valuation of
17.3x its FY2017E EPS. Hence, we maintain our Neutral
350
recommendation on the stock.
300
250
Key financials (Consolidated)
200
150
Y/E March (` cr)
FY2014
FY2015
FY2016E
FY2017E
100
Net Sales
1,747
1,822
1,660
1,960
50
% chg
19.8
4.3
(8.9)
18.0
0
2
2
2
3
3
3
4
4
4
5
5
5
6
1
1
1
1
1
1
1
1
1
1
1
1
1
Adj.Net Profit
152
157
140
168
n
y
p
n
y
p
n
y
p
n
y
p
n
a
a
e
a
a
e
a
a
e
a
a
e
a
J
M
S
J
M
S
J
S
J
S
J
% chg
32.9
3.5
(11.0)
20.2
EBITDA %
13.9
14.2
14.4
14.4
Source: Company, Angel Research
FDEPS (`)
7.8
8.1
7.2
8.6
P/E (x)
19.2
18.5
20.8
17.3
P/BV (x)
4.1
3.6
3.3
3.0
RoE (%)
22.7
20.5
16.5
18.0
RoACE (%)
26.4
24.7
20.1
22.3
Sarabjit Kour Nangra
EV/Sales (x)
2.4
2.3
2.5
2.1
+91-22-39357800 ext. 6806
EV/EBITDA (x)
17.4
16.4
17.6
14.8
[email protected]
Source: Company, Angel Research; Note: CMP as of January 19, 2016
Please refer to important disclosures at the end of this report
1
Rallis India | 3QFY2016 Result Update
Exhibit 1: 3QFY2016 performance (Consolidated)
Y/E March (` cr)
3QFY2016
2QFY2016
% chg (qoq) 3QFY2015
% chg (yoy)
9MFY2016 9MFY2015
% chg
Net sales
306
500
(38.7)
385
(20.4)
1,270
1,486
(14.6)
Other income
5
5
1.5
6
(18.7)
15
17
(12.3)
Total income
311
505
(38.3)
391
(20.4)
1,284
1,503
(14.5)
Gross profit
148
233
(36.7)
180
(18.0)
625
660
(5.3)
Gross margin (%)
48.2
46.7
46.8
49.2
44.4
EBDITA
31
95
(67.1)
46
(32.4)
178
219
(18.6)
EBDITA margin (%)
10.2
18.9
12.0
14.0
14.7
Financial cost
4
3
27.4
3
21.0
11
8
32.1
Depreciation
14
13
7.5
13
7.5
39
36
7.5
PBT
18
84
(78.0)
36
(49.0)
144
192
(25.1)
Provision for taxation
0
28
(101.4)
13
(103.1)
29
53
(44.8)
PAT Before Exc. And MI
19
56
(66.4)
23
(18.4)
115
139
(17.5)
Minority
(2)
(1)
(2)
4
3
-
Exceptional
0
0
0
0
0
Reported PAT
20
57
(64.4)
25
(19.9)
111
136
(18.5)
Adjusted PAT
20
57
(64.4)
25
(19.9)
111
136
(18.5)
EPS (`)
1.0
2.9
1.3
5.7
7.0
Source: Company, Angel Research
Sales decline by 20.4% yoy
Sales for the quarter came in at `306cr V/s `385cr in 3QFY2015, a dip of 20.4%
yoy. Higher sales return in the domestic segment and cancellation of orders by
clients in global markets, along with a dip in the seed business, led to the decline
in the top-line. The seed business posted a 17% yoy decline for the quarter to
`29cr against our estimate of `36.5cr in a seasonally short quarter for seeds. The
company’s domestic agrochemical business saw weak demand during the
shortened rabi season as low ground water level and extension of kharif season
into rabi reduced the sowing window available to farmers. Consequently, channel
inventory remained high, thereby forcing the company to take back inventory from
the system. As a result, sales return remained high during the quarter.
Exhibit 2: Total revenue performance
720
0
640
(5)
560
500
464
480
385
(10)
400
315
306
320
(15)
240
160
(20)
80
0
(25)
3QFY2015
4QFY2015
1QFY2016
2QFY2016
3QFY2016
Total Revenue
% YoY
Source: Company, Angel Research
January 21, 2016
2
Rallis India | 3QFY2016 Result Update
OPM dips yoy
On the operating front, the gross margin came in at 48.2% V/s 46.8% in
3QFY2015, inspite of which the OPM dipped to 10.2% V/s 12.0% in 3QFY2015,
mainly on lower sales. A 6.0% and 15.7% yoy rise in staff costs and other
expenditure, respectively, weighed down margins.
Exhibit 3: Margin trend (%)
Source: Company, Angel Research
Earnings decline
The PBT for the quarter posted a decline of 49.0% yoy owing to an 18.7% dip in
other income. The Adj. net profit declined by 19.9% yoy to ~`20cr. There was a
tax credit during the quarter of `0.4cr V/s tax outgo of `25cr in 3QFY2015.
Exhibit 4: Adjusted PAT trend
15
90
10
75
5
0
57
60
(5)
45
33
(10)
30
25
21
20
(15)
15
(20)
0
(25)
3QFY2015
4QFY2015
1QFY2016
2QFY2016
3QFY2016
Adj PAT
% YoY
Source: Company, Angel Research
January 21, 2016
3
Rallis India | 3QFY2016 Result Update
Concall highlights
The company’s domestic agrochemical business saw weak demand during the
shortened rabi season as low ground water level and extension of kharif
season into rabi reduced the sowing window available to farmers.
Consequently, channel inventory remained high, thereby forcing the company
to take back inventory from the system. As a result, sales return remained high
during the quarter.
The company’s export business saw the adverse impact of global slowdown
for the second straight quarter. Tough operating environment in key
geographies such as Brazil and USA have led to many orders getting differed
or even cancelled. Exports account for 30-33% of Rallis’ total revenues. The
Management expects some of the orders lost during 1HFY2016 to come back
in 4QFY2016.
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. Further, the company has
enhanced focus on the non-pesticide side of the business, which is a high growth
segment, and now constitutes around 30% of its overall sales. On back of a
weaker FY2016, we expect the company to post a dip in domestic sales, which
should bounce back in FY2017E.
Exports to register steady growth: 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 FY2015. Going forward,
the segment will continue to post a 20% CAGR over FY2015-17E.
Contract manufacturing to be the next growth driver: 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.
Overall, Rallis targets to achieve a cumulative revenue of `1,000cr over the next
five years from this segment alone.
Outlook and valuation
Given the pressure on the financials, we expect Rallis to register an 8.9% dip in
sales in FY2016. For FY2015-17E, we expect a CAGR of 3.7% and 3.4% in net
sales and profit, respectively, with recovery expected in FY2017E. At the
current levels, the stock is trading at a fair valuation of 17.3x its FY2017E EPS.
Hence, we maintain our Neutral recommendation on the stock.
January 21, 2016
4
Rallis India | 3QFY2016 Result Update
Exhibit 5: Key assumptions
Particulars (%)
FY2016E
FY2017E
Domestic growth
(20.0)
13.0
Export growth
(16.7)
28.0
Total revenue growth
(8.9)
18.0
EBITDA margin
14.4
14.4
Capex (` cr)
50
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)
(`)
(`)
(%) FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17E Sales PAT
Rallis
Neutral
2,908
149
-
-
20.8
17.3
2.5
2.1
17.6
14.8
16.5
18.0
3.7
3.4
United Phosphorus Buy
13,698
392
510
30.1
12.2
10.2
1.3
1.1
7.5
6.2
21.4
21.3
15.0
20.0
Source: Company, Angel Research, Bloomberg
Exhibit 7: One-year forward P/E band
450.0
400.0
350.0
300.0
250.0
200.0
150.0
100.0
50.0
0.0
Price
10x
15x
20x
25x
30x
Source: C-line, Angel Research
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. Pesticides
account for 97% of the company's total revenues, while plant nutrients, seeds and
leather chemicals contribute the balance. Contribution from the domestic business
stands at ~70%, while exports account for the balance.
January 21, 2016
5
Rallis India | 3QFY2016 Result Update
Profit & loss (Consolidated)
Y/E March (` cr)
FY2012
FY2013
FY2014
FY2015
FY2016E
FY2017E
Gross sales
1,328
1,535
1,840
1,922
1,736
2,048
Less: Excise duty
79
95
114
121
97
109
Net Sales
1,249
1,440
1,726
1,801
1,639
1,939
Other operating income
25
18
21
21
21
21
Total operating income
1,275
1,458
1,747
1,822
1,660
1,960
% chg
17.4
14.4
19.8
4.3
(8.9)
18.0
Total Expenditure
1,058
1,241
1,485
1,545
1,404
1,660
Net Raw Materials
695
823
1,008
995
952
1,126
Other Mfg costs
255
304
342
341
311
367
Personnel
90
94
111
129
118
139
Other
18
20
24
25
23
27
EBITDA
192
199
240
256
236
279
% chg
10.0
3.9
20.8
6.5
(8.0)
18.3
(% of Net Sales)
15.3
13.8
13.9
14.2
14.4
14.4
Depreciation & Amortisation
29
32
41
50
50
54
EBIT
188
186
221
228
207
246
% chg
6.3
(1.5)
18.9
3.1
(9.1)
18.8
(% of Net Sales)
15.1
12.9
12.8
12.6
12.6
12.7
Interest & other Charges
17
21
13
10
11
10
Other Income
5
5
6
4
4
4
(% of PBT)
3
3
3
2
2
2
Share in profit of Associates
-
-
-
-
-
-
Recurring PBT
176
170
214
222
200
240
% chg
(4.2)
(3.5)
26.3
3.4
(9.8)
20.2
Extraordinary Expense/(Inc.)
(23)
3
-
-
-
-
PBT (reported)
153
172
214
222
200
240
Tax
49
53
62
62
60
72
(% of PBT)
31.8
31.0
28.8
27.9
30.0
30.0
Minority Interest
2
(0)
0.8
2.6
2.6
2.6
PAT (reported)
99
119
152
157
140
168
ADJ. PAT
109
114
152
157
140
168
% chg
(13.3)
4.6
32.9
3.5
(11.0)
20.2
(% of Net Sales)
8.7
7.9
8.8
8.7
8.5
8.7
Basic EPS (`)
5.6
5.9
7.8
8.1
7.2
8.6
Fully Diluted EPS (`)
5.6
5.9
7.8
8.1
7.2
8.6
% chg
(13.3)
4.6
32.9
3.5
(11.0)
20.2
January 21, 2016
6
Rallis India | 3QFY2016 Result Update
Balance sheet (Consolidated)
Y/E March (` cr)
FY2012
FY2013
FY2014
FY2015
FY2016E
FY2017E
SOURCES OF FUNDS
Equity Share Capital
19
19
19
19
19
19
Preference Capital
-
-
-
-
-
-
Reserves & Surplus
534
601
699
795
866
966
Shareholders Funds
553
621
718
815
886
986
Minority Interest
1
5
10
10
10
10
Total Loans
151
131
75
111
111
80
Other Long Term Liabilities
0
6
4
4
4
4
Long Term provisions
18
30
15
19
19
19
Deferred Tax Liability
13
28
32
36
36
36
Total Liabilities
736
821
853
993
1,069
1,137
APPLICATION OF FUNDS
Gross Block
551
581
651
687
737
807
Less: Acc. Depreciation
189
195
233
282
332
386
Net Block
362
386
418
405
405
421
Capital Work-in-Progress
60
35
21
21
21
21
Goodwill
155
169
186
196
196
196
Investments
23
20
25
24
24
24
Long Term Loans and Adv.
91
92
98
110
94
111
Current Assets
432
488
549
680
725
833
Cash
11
26
9
7
79
69
Loans & Advances
45
28
40
28
59
70
Other
375
435
500
645
587
694
Current liabilities
387
368
445
443
396
469
Net Current Assets
45
120
104
237
329
364
Mis. Exp. not written off
-
-
-
-
-
-
Total Assets
736
821
853
993
1,069
1,137
January 21, 2016
7
Rallis India | 3QFY2016 Result Update
Cash flow statement (Consolidated)
Y/E March (` cr)
FY2012
FY2013
FY2014
FY2015
FY2016E FY2017E
Profit before tax
153
172
214
222
200
240
Depreciation
29
32
41
50
50
54
(Inc)/Dec in Working Capital
(28)
(61)
(7)
(147)
(3)
(63)
Direct taxes paid
(38)
(53)
(62)
(62)
(60)
(72)
Cash Flow from Operations
144
150
186
63
187
160
(Inc.)/ Dec. in Fixed Assets
(55)
(5)
(56)
(36)
(50)
(70)
(Inc.)/ Dec. in Investments
3
3
(5)
1
-
-
Inc./ (Dec.) in loans and adv.
Cash Flow from Investing
(52)
(2)
(61)
(35)
(50)
(70)
Issue of Equity
-
-
-
-
-
-
Inc./(Dec.) in loans
35
(6)
(73)
40
0
(31)
Dividend Paid (Incl. Tax)
(47)
(50)
(55)
(68)
(68)
(68)
Others
(82)
(78)
(14)
(1)
-
-
Cash Flow from Financing
(95)
(134)
(142)
(29)
(65)
(100)
Inc./(Dec.) in Cash
(3)
15
(17)
(2)
72
(10)
Opening Cash balances
15
11
26
9
7
79
Closing Cash balances
11
26
9
7
79
69
January 21, 2016
8
Rallis India | 3QFY2016 Result Update
Key ratios
Y/E March
FY2012
FY2013
FY2014
FY2015
FY2016E
FY2017E
Valuation Ratio (x)
P/E (on FDEPS)
26.6
25.5
19.2
18.5
20.8
17.3
P/CEPS
16.2
19.3
15.1
14.1
15.3
13.1
P/BV
5.3
4.7
4.1
3.6
3.3
3.0
Dividend yield (%)
1.3
1.3
1.3
1.3
2.0
2.7
EV/Sales
3.4
2.9
2.4
2.3
2.5
2.1
EV/EBITDA
22.3
21.3
17.4
16.4
17.6
14.8
EV / Total Assets
5.8
5.2
4.9
4.2
3.9
3.6
Per Share Data (`)
EPS (Basic)
5.6
5.9
7.8
8.1
7.2
8.6
EPS (fully diluted)
5.6
5.9
7.8
8.1
7.2
8.6
Cash EPS
9.3
7.7
9.9
10.6
9.8
11.4
DPS
2.0
2.0
2.0
2.0
3.0
4.0
Book Value
28.4
31.9
36.9
41.9
45.6
50.7
Dupont Analysis
EBIT margin
15.1
12.9
12.8
12.6
12.6
12.7
Tax retention ratio
68.2
69.0
71.2
72.1
70.0
70.0
Asset turnover (x)
1.8
1.9
2.1
2.0
1.6
1.8
ROIC (Post-tax)
19.0
16.6
19.0
18.0
14.2
15.8
Cost of Debt (Post Tax)
8.9
10.1
8.7
7.9
7.0
7.0
Leverage (x)
0.3
0.2
0.2
0.1
0.1
0.1
Operating ROE
22.4
18.0
20.6
19.5
15.0
16.5
Returns (%)
ROCE (Pre-tax)
27.3
23.8
26.4
24.7
20.1
22.3
Angel ROIC (Pre-tax)
44.1
33.7
35.9
32.4
26.8
30.3
ROE
20.6
19.5
22.7
20.5
16.5
18.0
Turnover ratios (x)
Asset Turnover (Gross Block)
2.7
2.6
2.8
2.7
2.3
2.5
Inventory / Sales (days)
72
67
62
74
93
87
Receivables (days)
30
34
35
37
46
44
Payables (days)
131
111
98
105
109
95
WC cycle (ex-cash) (days)
4
16
20
33
53
51
Solvency ratios (x)
Net debt to equity
0.3
0.2
0.1
0.2
0.1
0.0
Net debt to EBITDA
0.8
0.7
0.3
0.5
0.2
0.1
Interest Coverage (EBIT / Int.)
10.9
9.0
17.5
22.5
18.7
25.7
January 21, 2016
9
Rallis India | 3QFY2016 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
DISCLAIMER
Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited, Bombay Stock
Exchange Limited and Metropolitan Stock Exchange of India Limited. It is also registered as a Depository Participant with CDSL and Portfolio Manager
with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is a registered entity with SEBI for Research
Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number INH000000164. Angel or its associates has not been debarred/
suspended by SEBI or any other regulatory authority for accessing /dealing in securities Market. Angel or its associates including its relatives/analyst do
not hold any financial interest/beneficial ownership of more than 1% in the company covered by Analyst. Angel or its associates/analyst has not
received any compensation / managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months.
Angel/analyst has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity of
the company covered by Analyst.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in
this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem
necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits
and risks involved), and should consult their own advisors to determine the merits and risks of such an investment.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as
opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be
true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel
Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person
from any inadvertent error in the information contained in this report. Angel Broking Pvt. Limited has not independently verified all the information
contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents
or data contained within this document. While Angel Broking Pvt. Limited endeavors to update on a reasonable basis the information discussed in this
material, there may be regulatory, compliance, or other reasons that prevent us from doing so.
This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or
passed on, directly or indirectly.
Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection
with the use of this information.
Note: Please refer to the important ‘Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on
respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may have investment positions in the
stocks recommended in this report.
Disclosure of Interest Statement
Rallis India
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
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)
January 21, 2016
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