Technology

Rallis India (Rallis) posted disappointing results for 2QFY2016. Sales for the
quarter came in at Rs499.7cr V/s Rs635.9cr in 2QFY2015, a dip of 21.4% yoy.
Sales were adversely impacted due to poor monsoon in India, while the
international market also faced pressure with Brazil (a key market for the
company) witnessing a severe drought. In USA, low crop commodity prices
along with higher inventory prices impacted consumption. On the operating
front, the gross margins came in at 46.7% V/s 38.5% in 2QFY2015, which lead
the OPM to come in at 18.9% V/s 18.2% in 2QFY2015. The PAT came in at
Rs57cr V/s Rs73cr in 2QFY2015, a yoy dip of 22.0%. We remain Neutral on the
stock.
Disappointing sales: For 2QFY2016, sales came in at Rs499.7cr V/s Rs635.9cr in
in 2QFY2015, a dip of 21.4% yoy. Sales were adversely impacted due to poor
monsoon in India, while the international market also faced pressure with Brazil
(a key market for the company) witnessing a severe drought. In USA, low crop
commodity prices along with higher inventory prices impacted consumption. On
the operating front, the gross margins came in at 46.7% V/s 38.5% in
2QFY2015, which lead the OPM to come in at 18.9% V/s 18.2% in 2QFY2015.
The PAT came in at Rs57cr V/s `73cr in 2QFY2015, a yoy dip of 22.0%.
Outlook and valuation: The Management is confident about the long-term
prospects of the agrochemicals industry. We expect Rallis to register a CAGR of
15.1% and 16.7% in net sales and profit, respectively, over FY2015-17E. At the
current levels, the stock is trading at a fair valuation of 18.7x its FY2017E EPS.
Hence, we maintain our Neutral recommendation on the stock.

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