4QFY2016 Result Update | Agrichemical
April 29, 2016
Rallis India
NEUTRAL
CMP
`196
Performance Highlights
Target Price
-
Y/E March (` cr)
4QFY2016 3QFY2016
% chg (qoq) 4QFY2015
% chg (yoy)
Investment Period
-
Net sales
342
306
11.7
315
8.6
Other income
15
5
208.2
6
132.1
Stock Info
Gross profit
148
148
0.3
148
0.0
Sector
Agrichemical
Operating profit
36
31
14.5
39
(8.3)
Market Cap (` cr)
3,803
Adj. Net profit
32
20
58.0
21
51.3
Net debt (` cr)
126
Source: Company, Angel Research
Beta
0.9
For 4QFY2016, Rallis India (Rallis) posted sales of `342cr V/s `315cr in
52 Week High / Low
274/142
4QFY2015, a growth of 8.6% yoy. The same was driven by higher offtake in
Avg. Daily Volume
83,582
export orders which have been getting differed since the past two quarters due to
Face Value (`)
1
a challenging environment faced by global companies. Domestic growth
BSE Sensex
25,603
continued to remain muted during the quarter. On the operating front, the gross
Nifty
7,847
margin came in at 43.3% V/s 47.0% in 3QFY2015, leading the OPM for the
Reuters Code
RALL.BO
quarter to decline to 10.4% V/s 12.3% in 3QFY2015. In spite of the same, the
Bloomberg Code
[email protected]
PAT came in at `32cr V/s `21cr in 3QFY2015, a growth of 51.3% yoy. This was
on back of the depreciation dipping by 55.4% yoy and a 132.1% yoy growth in
other income (which came in at `15cr V/s `6cr in 4QFY2015). We remain Neutral
Shareholding Pattern (%)
on the stock.
Promoters
50.1
Margins disappoint: Company posted a robust growth in the top-line of 8.6% yoy
MF / Banks / Indian Fls
19.3
to `342cr, mainly driven by exports. On the operating front, the gross margin for
FII / NRIs / OCBs
7.6
the quarter came in at 43.3% V/s 47.0% in 4QFY2015, while the OPM came in
Indian Public / Others
23.0
at 10.4% V/s 12.3% in 4QFY2015. The PAT came in at `32cr V/s `21cr in
4QFY2015, posting a growth of 51.3% yoy which is in spite of a contraction in
the OPM. The PAT was aided by a 55.4% yoy dip in depreciation and 132.1% yoy
Abs. (%)
3m 1yr 3yr
growth in other income (which came in at `15cr V/s `6cr in 4QFY2015).
Sensex
4.6
(6.5)
32.7
Rallis India
19.2
(10.0)
56.9
Outlook and valuation: For FY2016-18E, we expect a CAGR of 15.0% and
22.3% in net sales and profit, respectively, with recovery expected in FY2017E. At
the current levels, the stock is trading at a fair valuation of 17.9x its FY2018E EPS.
3-year price chart
Hence, we maintain our Neutral recommendation on the stock.
Key financials (Consolidated)
Y/E March (` cr)
FY2015
FY2016
FY2017E
FY2018E
Net Sales
1,822
1,637
1,937
2,164
% chg
4.3
(10.1)
18.3
11.7
Adj.Net Profit
157
143
176
214
% chg
3.5
(9.0)
22.8
21.9
EBITDA %
14.2
13.3
13.3
14.3
FDEPS (`)
8.1
7.4
9.0
11.0
Source: Company, Angel Research
P/E (x)
24.4
26.9
21.9
17.9
P/BV (x)
4.7
4.3
3.8
3.3
RoE (%)
20.5
16.7
18.4
19.8
RoACE (%)
24.7
19.2
20.2
22.1
Sarabjit Kour Nangra
EV/Sales (x)
2.3
2.6
2.2
1.9
+91-22-39357800 ext. 6806
EV/EBITDA (x)
16.4
19.5
16.4
13.3
[email protected]
Source: Company, Angel Research; Note: CMP as of April 28, 2016
Please refer to important disclosures at the end of this report
1
Rallis India | 4QFY2016 Result Update
Exhibit 1: 4QFY2016 performance (Consolidated)
Y/E March (` cr)
4QFY2016
3QFY2016
% chg (qoq) 4QFY2015
% chg (yoy)
FY2016
FY2015
% chg
Net sales
342
306
11.7
315
8.6
1,612
1,801
(10.5)
Other income
15
5
208.2
6
132.1
30
25
19.9
Total income
357
311
14.8
321
11.1
1,642
1,826
(10.1)
Gross profit
148
148
0.3
148
0.0
773
806
(4.1)
Gross margin (%)
43.3
48.2
47.0
48.0
44.8
EBDITA
36
31
14.5
39
(8.3)
214
256
(16.5)
EBDITA margin (%)
10.4
10.2
12.3
13.3
14.2
Financial cost
3
4
(17.9)
3
17.3
14
10
35.5
Depreciation
6
14
(57.9)
13
(55.4)
45
50
(10.8)
PBT
42
18
127.5
30
41.3
186
221
(16.0)
Provision for taxation
10
0
-
8
16.7
39
62
(37.2)
PAT Before Exc. And MI
32
19
70.9
21
50.9
147
160
(8.3)
Minority
(0)
(2)
(0)
4
3
-
Exceptional
0
0
0
0
0
Reported PAT
32
20
58.0
21
51.3
143
157
(9.0)
Adjusted PAT
32
20
58.0
21
51.3
143
157
(9.0)
EPS (`)
1.7
1.1
1.1
7.4
8.1
Source: Company, Angel Research
Sales rose by 8.6% yoy
(Rallis) posted sales of `342cr V/s `315cr in 4QFY2015, a growth of 8.6% yoy.
The same was driven by higher offtake in export orders which have been getting
differed since the past two quarters due to a challenging environment faced by
global companies. Domestic growth continued to remain muted during the
quarter.
For the entire year FY2016, Rallis’ exports business witnessed pressure on account
of global weakness in the agrochemical industry. As a result, the company’s
revenues dropped by 20% yoy to `400cr in FY2016. The company’s primary
export market remains Brazil where sluggish demand environment, currency
volatility and macro headwinds led to deferment/cancellation of many orders. For
FY2016, the share of exports in overall revenue remained at 30%. However, export
orders saw some revival in 4QFY2016, but the Management still remains cautious
on recovery in Brazil anticipating sluggishness for a couple of more quarters. This
would likely keep the exports business revenues under pressure.
During FY2016, Rallis’ seed business under Metahelix reported decent growth of
8% yoy to `344cr 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% margins in a good monsoon year.
April 29, 2016
2
Rallis India | 4QFY2016 Result Update
Exhibit 2: Total revenue performance
720
15
640
10
560
500
5
464
480
0
400
342
315
306
(5)
320
(10)
240
(15)
160
80
(20)
0
(25)
4QFY2015
1QFY2016
2QFY2016
3QFY2016
4QFY2016
Total Revenue
% YoY
Source: Company, Angel Research
OPM dips yoy
On the operating front, the gross margin came in at 43.3% V/s 47.0% in
4QFY2015, while the OPM came in at 10.4% V/s 12.3% in 4QFY2015. The gross
margin for the quarter dipped by 370bp, while the OPM dipped by 190bp. Other
expenditure for the quarter rose by 1.2% yoy.
Exhibit 3: Margin trend (%)
60.0
52.5
48.2
47.0
46.7
50.0
43.3
40.0
30.0
20.0
18.9
10.0
12.3
11.2
10.2
10.4
0.0
4QFY2015
1QFY2016
2QFY2016
3QFY2016
4QFY2016
Gross margin
EBITDA margin
Source: Company, Angel Research
Earnings rise by 51.3% yoy on back of other income
The PAT for the quarter came in at `32cr V/s `21cr in 4QFY2015, posting a
growth of 51.3% yoy. The growth came in spite of a contraction in the OPM and
was aided by a 55.4% yoy dip in depreciation and 132.1% yoy growth in other
income (which came in at `15cr V/s `6cr in 4QFY2015).
April 29, 2016
3
Rallis India | 4QFY2016 Result Update
Exhibit 4: Adjusted PAT trend
70
60
57
50
60
40
50
30
40
20
33
32
30
10
21
20
0
20
(10)
10
(20)
0
(30)
4QFY2015
1QFY2016
2QFY2016
3QFY2016
4QFY2016
Adj PAT
% YoY
Source: Company, Angel Research
April 29, 2016
4
Rallis India | 4QFY2016 Result Update
Concall highlights
The company’s innovation index for FY2016 improved to 11% from 10% in
the previous year. However, the Management indicated that the index could
have improved further but the same was restricted due to a challenging
demand environment which resulted in new products not achieving the desired
level of growth during the year.
The company has bagged two CRAMS projects on pilot basis during the year.
The Management expects to convert these pilot projects into full commercial
contracts in FY2017 and expects them to contribute to earnings growth from
FY2018-2019. Currently, Rallis has two molecules under CRAMS which are
being manufactured at its Dahej facility.
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. 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 `3,34cr (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% margins 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,
April 29, 2016
5
Rallis India | 4QFY2016 Result Update
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 expects them to contribute to earnings growth from FY2018-2019.
Currently, Rallis has two molecules under CRAMS which are being manufactured
at its Dahej facility.
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 FY2017E,
driven by above normal monsoons. At the current levels, the stock is trading at
a fair valuation of 17.9x its FY2018E EPS. Hence, we maintain our Neutral
recommendation on the stock.
Exhibit 5: Key assumptions
Particulars (%)
FY2017E
FY2018E
Domestic growth
24.0
11.0
Export growth
5.0
15.0
Total revenue growth
19.6
11.8
EBITDA margin
13.3
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)
(`)
(`)
(%) FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17E Sales PAT
Rallis
Neutral
3,802
196
-
-
26.9
21.9
2.6
2.2
19.5
16.4
16.7
18.4
15.0
22.3
United Phosphorus Neutral
23,502
517
-
30.1
17.3
14.4
2.0
1.7
10.8
9.0
20.0
20.3
9.9
15.8
Source: Company, Angel Research, Bloomberg
April 29, 2016
6
Rallis India | 4QFY2016 Result Update
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.
April 29, 2016
7
Rallis India | 4QFY2016 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
1,656
1,832
Net Raw Materials
823
1,008
995
839
1,110
1,242
Other Mfg costs
304
342
341
404
382
406
Personnel
94
111
129
132
137
154
Other
20
24
25
22
27
30
EBITDA
199
240
256
214
255
306
% chg
3.9
20.8
6.5
(16.5)
19.1
20.3
(% of Net Sales)
13.8
13.9
14.2
13.3
13.3
14.3
Depreciation & Amort.
32
41
50
45
56
61
EBIT
186
221
228
195
225
271
% chg
(1.5)
18.9
3.1
(14.3)
15.1
20.8
(% of Net Sales)
12.9
12.8
12.6
12.1
11.8
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
220
268
% chg
(3.5)
26.3
3.4
(16.2)
18.2
21.9
Extraordinary Exp./(Inc.)
3
-
-
-
-
-
PBT (reported)
172
214
222
186
220
268
Tax
53
62
62
39
44
54
(% 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
176
214
ADJ. PAT
114
152
157
143
176
214
% chg
4.6
32.9
3.5
(9.0)
22.8
21.9
(% of Net Sales)
7.9
8.8
8.7
8.9
9.2
10.0
Basic EPS (`)
5.9
7.8
8.1
7.4
9.0
11.0
Fully Diluted EPS (`)
5.9
7.8
8.1
7.4
9.0
11.0
% chg
4.6
32.9
3.5
(9.0)
22.8
21.9
April 29, 2016
8
Rallis India | 4QFY2016 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
987
1,132
Shareholders Funds
621
718
815
899
1,006
1,152
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
1,184
1,270
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
778
895
Cash
26
9
7
8
25
53
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
316
379
Mis. Exp. not written off
-
-
-
-
-
-
Total Assets
821
853
993
1,038
1,184
1,270
April 29, 2016
9
Rallis India | 4QFY2016 Result Update
Cash flow statement (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
FY2017E FY2018E
Profit before tax
172
214
222
186
220
268
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)
(44)
(54)
Cash Flow from Operations
150
186
63
246
117
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
17
28
Opening Cash balances
11
26
9
7
8
25
Closing Cash balances
26
9
7
8
25
53
April 29, 2016
10
Rallis India | 4QFY2016 Result Update
Key ratios
Y/E March
FY2013
FY2014
FY2015
FY2016
FY2017E
FY2018E
Valuation Ratio (x)
P/E (on FDEPS)
33.6
25.3
24.4
26.9
21.9
17.9
P/CEPS
25.5
19.9
18.6
20.5
16.6
14.0
P/BV
6.2
5.3
4.7
4.3
3.8
3.3
Dividend yield (%)
1.0
1.0
1.0
1.5
2.0
2.5
EV/Sales
2.9
2.4
2.3
2.6
2.2
1.9
EV/EBITDA
21.3
17.4
16.4
19.5
16.4
13.3
EV / Total Assets
5.2
4.9
4.2
4.0
3.5
3.2
Per Share Data (`)
EPS (Basic)
5.9
7.8
8.1
7.4
9.0
11.0
EPS (fully diluted)
5.9
7.8
8.1
7.4
9.0
11.0
Cash EPS
7.7
9.9
10.6
9.6
11.9
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
51.7
59.2
Dupont Analysis
EBIT margin
12.9
12.8
12.6
12.1
11.8
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
1.8
ROIC (Post-tax)
16.6
19.0
18.0
15.4
16.4
17.9
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
0.1
0.1
Operating ROE
18.0
20.6
19.6
16.1
17.3
18.7
Returns (%)
ROCE (Pre-tax)
23.8
26.4
24.7
19.2
20.2
22.1
Angel ROIC (Pre-tax)
33.7
35.9
32.4
25.7
27.6
29.9
ROE
19.5
22.7
20.5
16.7
18.4
19.8
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
81
85
Receivables (days)
34
35
37
44
40
42
Payables (days)
111
98
105
119
102
98
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
0.1
0.0
Net debt to EBITDA
0.7
0.3
0.5
0.4
0.4
0.1
Interest Coverage (EBIT / Int.)
9.0
17.5
22.5
14.4
24.3
33.9
April 29, 2016
11
Rallis India | 4QFY2016 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
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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.
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responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
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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)
April 29, 2016
12