61107576 rallis-india

1QFY2012 Result Update | Agrichemical
July 27, 2011

Rallis India NEUTRAL
CMP `170
Performance Highlights Target Price -
(` cr) (Con.) 1QFY2012 1QFY2011 % yoy 4QFY2011 % qoq Investment Period -
Revenue 291.6 196.0 48.7 219.5 32.8
EBITDA 42.8 15.9 169.7 22.5 90.4 Stock Info
EBITDA margin (%) 14.7 8.1 10.2 Sector Agrichemical
Adj PAT 23.1 14.6 58.8 19.0 21.8 Market Cap (`cr) 3,249
Source: Company, Angel Research Beta 0.6
52 Week High / Low 174/117
Rallis India (RAIL) reported a good set of numbers for 1QFY2012. A part of the
Avg. Daily Volume 20431
can be accounted to the acquisition of Metahelix; however, adjusted for the same
Face Value (`) 1
also the performance has been robust. However, we remain Neutral on the stock.
BSE Sensex 18,432
Robust growth driven by the seed business: RAIL’s revenue for the quarter grew by Nifty 5,547
49% yoy to `292cr. This was primarily on account of higher-than-expected Reuters Code RALL.BO
revenue contribution from Metahelix. Standalone revenue also grew by 17% yoy Bloomberg Code RALI@IN
to `240cr mainly driven by volume. However, a significant EBITDA margin led to
net profit growth of 58.8% yoy. EBITDA margin expanded by 660bp yoy to 14.7%
Shareholding Pattern (%)
on account of higher margins in the seeds business and improvement in the
Promoters 50.7
standalone business. EBITDA margin on a standalone basis came in at 13%.
EBITDA margin for the seeds business stood at 20.6%. MF / Banks / Indian Fls 24.0
FII / NRIs / OCBs 6.5
Outlook and valuation: RAIL’s management is confident on the prospects for key Indian Public / Others 18.8
crops such as cotton and paddy due to generally normal monsoons, which should
aid continued healthy growth in the agrochemicals industry. The company expects
to outperform the industry given its product pipeline. Overall, we expect RAIL to Abs. (%) 3m 1yr 3yr
register a CAGR of 20% and 23% in its net sales and profit over FY2011–13, Sensex (5.2) 2.0 29.1
respectively. At current levels, the stock is trading at fair valuations of 17.1x Rallis India 13.6 35.0 503.9
FY2013E EPS. Hence, we remain Neutral on the stock.

Key financials (Consolidated)
Y/E March (` cr) FY2010 FY2011 FY2012E FY2013E
Net sales 901 1,093 1,342 1,570
% chg 5.2 21.4 22.7 17.0
Net profit 99 126 163 191
% chg 53.8 27.7 28.8 17.2
EBITDA (%) 19.4 18.2 18.4 17.9
EPS (`) 5.1 6.5 8.3 9.8
P/E (x) 33.0 25.8 20.0 17.1
P/BV (x) 7.7 6.1 4.9 4.0
RoE (%) 25.5 26.4 27.3 25.9
RoCE (%) 36.2 37.3 35.6 33.3
EV/Sales (x) 3.5 3.0 2.3 1.9 Sarabjit Kour Nangra
+91-22-39357800 ext. 6806
EV/EBITDA (x) 18.0 16.4 12.7 10.8
sarabjit@angelbroking.com
Source: Company, Angel Research

Please refer to important disclosures at the end of this report 1

Rallis India | 1QFY2012 Result Update

Exhibit 1: 1QFY2012 Performance (Consolidated)
Y/E March (` cr) 1QFY2012 4QFY2011 % chg (qoq) 1QFY2011 % chg (yoy) FY2011 FY2010 % chg
Net sales 292 220 32.8 196 48.7 1,066 879 21.3
Other income 6 13 (53.8) 8 (26.0) 33.1 28.4 16.6
Total income 298 233 28.0 204 45.8 1,099 907 21.1
Gross profit 125 83 50.2 74 68.8 418 372 12.6
Gross margin (%) 42.9 38.0 37.8 39.3 42.3
Operating profit 43 22 90.4 15.9 169.7 171.3 144.9 18.3
Operating margin (%) 14.7 10.2 8.1 16.1 16.5
Financial cost 3 2 59.9 -1 (414.4) 3 2 10.6
Depreciation 5 5 3.8 4 52.0 17 19 -9.5
PBT 41 29 42.2 21 90.0 184 152 21.6
Provision for taxation 8 10 (18.6) 7 14.6 58 51 13.3
PAT before Extra-ordinary item 33 19 72.7 15 125.2 126 100 25.8
Exceptional 0 0 0 0 0
Minority 5 0 0 0 0
PAT after extra-ordinary item & MI 23 19 21.8 15 58.8 126 100 25.4
EPS (`) 1.2 1.0 0.8 6.5 5.3

Sales growth driven by the seeds business

RAIL posted top-line growth of 48.7% yoy to `292cr, driven by robust performance
in the domestic market and the seeds business. This was primarily on account of
higher-than-expected revenue contribution from Metahelix. Standalone revenue
also grew by 17% yoy to `240cr mainly driven by volume.

The company acquired a majority stake of 53.5% in Metahelix Life Sciences in
December 2010, with an investment of `99.5cr funded through internal accruals.
Metahelix is an agricultural biotechnology company focusing on developing traits
and technologies for crop protection and improved productivity. It reported
revenue of `58.9cr, EBITDA of `12.3cr with EBITDA margin of 20.6% and PAT
(after minority) of `6.6cr during the quarter.

July 27, 2011 2


Exhibit 2: Total revenue performance

400 368

320 297
271
232
240 203 203

(` cr)
160

80

0
4Q2010 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012


Overall improvement in operating performance…
For 1QFY2012, RAIL reported EBITDA margin of 14.7% (8.1%), registering
660bp yoy expansion, on account of higher margins in the seeds business and
improvement in the standalone business. On a standalone basis, EBITDA margin
stood at 13%. EBITDA margin of the seeds business stood at 20.6%.

Exhibit 3: Margin trend
80 74

70
60
50 45
42 41
38 38
40
(%)

30
20
24
21 19
10 16 15
12
0
4Q2010 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012
Gross margin EBITDA


…Resulting in robust earnings growth

Adjusted PAT for the quarter came in at `23cr, registering a 58.8% yoy increase.
Growth in net profit was on the back of the 169.7% yoy rise in operating profit.
However, a decline in other income along with higher interest expenses during the
quarter resulted in net profit growth.

July 27, 2011 3


Exhibit 4: Adj. PAT trend
75

59
60

45

(` cr)
34
30 24 23
19
15
15

0
4Q2010 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012


Management meet – Key takeaways

Management indicated that RAIL is in the process of getting the requisite approvals
for contract manufacturing from Dahej plant and capacity would be ramped-up
over the course of FY2012. The plant is expected to operate at close to its peak
capacity from FY2013.

Management announced that so far the company has introduced three products in
the domestic formulations business in FY2012.

Management is confident on the prospects for key crops such as cotton and paddy
due to generally normal monsoons, which should aid continued healthy growth in
the agrochemicals industry. RAIL expects to outperform the industry given its
product pipeline.

Investment arguments
Set to seize rising opportunities in the domestic pesticides market: India's overall
pesticide consumption is one of the lowest in the world, and we believe RAIL is well
placed to seize this opportunity on the back of its wide distribution network, strong
brands and robust new product pipeline. According to industry estimates, the
unorganised market accounts for another 50% of the industry. Nonetheless,
we believe RAIL is in a position to wrest market share as well as charge a premium
for its products.

Exports to register steady growth: Closing down of capacity in China before the
2008 Olympics and MNCs diversifying their base to India had resulted in the
company’s exports spiking by 80% to `295cr in FY2009. The scenario, however,
changed post the Olympics and many closed capacities have come on stream and
prices of commodities have corrected, due to which exports declined by 35% in
FY2010; however, exports improved by ~41% in FY2011. Against this backdrop,
we estimate RAIL to post a 27% CAGR in exports over FY2011–13.

July 27, 2011 4


Contract manufacturing to be the next growth driver: RAIL plans to focus on
contract manufacturing for exports and selectively target and supply to the top
players. To facilitate the same, the company is setting up a new plant at Dahej.
Overall, RAIL targets to achieve cumulative revenue of `1,000cr over the next five
years from this segment alone.

Outlook and valuation

Management is confident of the prospects for key crops such as cotton and paddy
due to generally normal monsoons, which should aid continued healthy growth in
the agrochemicals industry. RAIL expects to outperform the industry given its
product pipeline. Overall, we expect RAIL to register a CAGR of 20% and 23% in
its net sales and profit over FY2011–13, respectively. At current levels, the stock is
trading at fair valuations of 17.4x FY2013E EPS. Hence, we remain Neutral
on the stock.

Exhibit 5: Key assumptions
Particulars (%) FY2012E FY2013E Comment
Domestic growth 15.0 12.0 Robust volume growth on account of normal monsoons
Export growth 30.0 25.0 Revival in the export market, lower inventory in Latin American markets
Total revenue growth 22.7 17.0
Gross margin 41.5 41.0 Higher penetration to see marginal reduction in prices
EBITDA margin 18.4 17.9 Higher contribution from the low-margin contract manufacturing business
Tax rate 25.0 25.0 Lower rate due to SEZ benefit

Exhibit 6: Peer valuation
Company Reco Mcap CMP TP Upside P/E (x) EV/Sales (x) EV/EBITDA (x) RoE (%) CAGR (%)
(` cr) (`) (`) (%) FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E Sales PAT
RAIL Neutral 3,249 167 - - 20.0 17.1 2.3 1.9 12.7 10.8 27.3 25.9 19.8 22.9
Bayer CropScience Neutral 3,500 899 - - 19.5 17.8 1.4 1.2 11.6 10.1 23.5 21.3 13.6 11.9
United Phosphorus Buy 7,545 163 224 38 9.7 8.7 1.1 1.1 5.9 5.6 17.6 17.1 9.3 18.0
Source: Company, Angel Research, Bloomberg

Exhibit 7: One-year forward P/E band

180.0
160.0
140.0
Share price (`)

120.0
100.0
80.0
60.0
40.0
20.0
0.0
Apr-07

Jul-07

Apr-08

Jul-08

Apr-09

Jul-09

Apr-10

Jul-10

Apr-11
Oct-07

Oct-08

Oct-09

Oct-10
Jan-08

Jan-09

Jan-10

Jan-11

Price 7x 9x 11x 13x 15x

Source: C-line, Angel Research

July 27, 2011 5


Profit & loss (Consolidated)
Y/E March (` cr) FY08 FY09 FY10 FY11E FY12E FY13E
Total operating income 675 856 901 1,093 1,342 1,570
% chg 9.4 26.9 5.2 21.4 22.7 17.0
Total Expenditure 615 719 726 894 1,095 1,289
Net Raw Materials 411 507 506 634 785 926
Other Mfg costs 134 134 137 188 170 199
Personnel 62 67 67 73 113 132
Other 9 11 15 - 27 31
EBITDA 59 137 175 199 247 281
% chg 340.6 131.2 28.0 13.9 23.9 13.8
(% of Net Sales) 8.8 16.0 19.4 18.2 18.4 17.9
Depreciation& Amortisation 20 23 18 17 33 35
EBIT 39 114 157 182 214 246
% chg (322.1) 191.3 37.7 16.0 17.6 15.1
(% of Net Sales) 5.8 13.3 17.4 16.6 15.9 15.7
Interest & other Charges 12 11 5 3 - -
Other Income 112 3 7 5 3 8
(% of PBT) 81 3 4 3 2 3
Share in profit of Associates
Recurring PBT 139 106 158 185 217 254
% chg 190.4 (23.6) 49.5 16.6 17.4 17.2
Extraordinary Expense/(Inc.) (87) (6) (8) - - -
PBT (reported) 52 100 150 185 217 254
Tax 21 35 51 58 54 64
(% of PBT) 15.2 33.3 32.3 31.4 25.0 25.0
PAT (reported) 31 64 99 127 163 191
Add: Share of earnings of associate - - - - - -
Less: Minority interest (MI) - - - - - -
Prior period items - - - - - -
PAT after MI (reported) 31 64 99 126 163 191
ADJ. PAT 31 64 99 126 163 191
% chg (592.5) 110.2 53.8 27.7 28.8 17.2
(% of Net Sales) 3.9 7.5 10.9 11.5 12.1 12.1
Basic EPS (`) 2 4 5 6 8 10
Fully Diluted EPS (`) 2 4 5 6 8 10
% chg (592.5) 110.2 41.9 27.7 28.8 17.2

July 27, 2011 6


Balance sheet (Consolidated)
SOURCES OF FUNDS
Equity Share Capital 18 18 20 20 20 20
Preference Capital 88 88 - - - -
Reserves & Surplus 202 244 405 513 641 793
Shareholders’ Funds 308 350 424 532 660 812
Minority Interest - - - - - -
Total Loans 47 82 8 10 - -
Deferred Tax Liability - - - - - 8
Total Liabilities 354 432 433 542 660 820
APPLICATION OF FUNDS
Gross Block 296 338 309 496 521 547
Less: Acc. Depreciation 161 179 156 174 207 242
Net Block 135 159 153 322 314 305
Capital Work-in-Progress 13 29 112 18 18 18
Goodwill - - - - - -
Investments 56 136 140 28 28 28
Current Assets 338 352 326 533 698 892
Cash 8 8 12 5 130 231
Loans & Advances 79 77 89 103 107 126
Other 250 266 226 425 461 535
Current liabilities 201 261 304 365 397 424
Net Current Assets 137 91 22 168 301 468
Mis. Exp. not written off 13 10 5 7 - 1
Total Assets 354 432 433 542 660 820

July 27, 2011 7


Cash flow statement (Consolidated)
Profit before tax 146 107 153 185 217 254
Depreciation 20 23 18 17 33 35
Change in Working Capital (100) 33 110 (160) (17) (71)
Less: Other income - -- - - - -
Direct taxes paid (26) (31) (67) (51) (48) (56)
Cash Flow from Operations (45) 139 215 (9) 185 162
(Inc.)/ Dec. in Fixed Assets 63 (64) (95) (93) (25) (26)
(Inc.)/ Dec. in Investments (21) (78) 3 113 - -
Inc./ (Dec.) in loans and advances - - - - - -
Other income - - - - - -
Cash Flow from Investing 42 (142) (91) 20 (25) (26)
Issue of Equity - - 1 - - -
Inc./(Dec.) in loans 11 37 (74) 2 (10) -
Dividend Paid (Incl. Tax) (19) (30) (44) (15) (25) (34)
Others (4) (3) (3) (3) (0) -
Cash Flow from Financing (13) 3 (120) (16) (35) (34)
Inc./(Dec.) in Cash (15) (0) 3 (5) 124 102
Opening Cash balances 22 8 8 12 5 130
Closing Cash balances 8 8 12 5 130 231

July 27, 2011 8


Key ratios
Y/E March FY08 FY09 FY10 FY11E FY12E FY13E
Valuation Ratio (x)
P/E (on FDEPS) 98.3 46.8 33.0 25.8 20.0 17.1
P/CEPS 59.4 34.5 27.8 22.7 16.7 14.5
P/BV 13.7 11.5 7.7 6.1 4.9 4.0
Dividend yield (%) 0.6 0.6 0.7 0.7 0.9 1.0
EV/Sales 4.5 3.5 3.5 3.0 2.3 1.9
EV/EBITDA 51.5 21.8 18.0 16.4 12.7 10.8
EV / Total Assets 8.6 6.9 7.3 6.0 4.7 3.7
Per Share Data (`)
EPS (Basic) 1.7 3.6 5.1 6.5 8.3 9.8
EPS (fully diluted) 1.7 3.6 5.1 6.5 8.3 9.8
Cash EPS 2.8 4.8 6.0 7.4 10.0 11.6
DPS 1.1 1.1 1.2 1.1 1.5 1.7
Book Value 12.2 14.5 21.8 27.3 33.9 41.7
Dupont Analysis
EBIT margin 5.8 13.3 17.4 16.6 15.9 15.7
Tax retention ratio 84.8 66.7 67.7 68.6 75.0 75.0
Asset turnover (x) 2.4 2.6 2.9 2.6 2.5 2.8
ROIC (Post-tax) 11.6 22.9 33.9 29.5 30.1 33.0
Cost of Debt (Post Tax) 8.9 3.2 4.1 19.0 6.0 -
Leverage (x) 0.2 - - - - -
Operating ROE 24.9 22.9 33.9 29.5 30.1 33.0
Returns (%)
ROCE (Pre-tax) 13.0 28.9 36.2 37.3 35.6 33.3
Angel ROIC (Pre-tax) 11.7 39.4 79.9 35.0 41.7 43.1
ROE 11.8 19.6 25.5 26.4 27.3 25.9
Turnover ratios (x)
Asset Turnover (Gross Block) 2.3 2.7 2.8 2.7 2.6 2.9
Inventory / Sales (days) 74 63 60 65 68 64
Receivables (days) 52 46 39 43 53 51
Payables (days) 105 86 115 115 105 95
Working capital cycle (ex-cash) (days) 44 45 19 29 45 47
Solvency ratios (x)
Net debt to equity 0.2 (0.1) (0.3) (0.1) (0.2) (0.4)
Net debt to EBITDA 0.8 (0.1) (0.8) (0.3) (0.5) (1.1)
Interest Coverage (EBIT / Interest) 3.2 10.6 29.3 72.4 534.6 -

July 27, 2011 9


Research Team Tel: 022 - 39357800 E-mail: research@angelbroking.com Website: www.angelbroking.com

DISCLAIMER

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.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make
investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this
document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

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 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 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 Limited endeavours 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.

Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or
other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in
the past.

Neither Angel Broking 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 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 (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to 15%) Sell (< -15%)

July 27, 2011 10

61107576 rallis-india

Recomendados

Recomendados

Más contenido relacionado

La actualidad más candente

La actualidad más candente (20)

Destacado

Destacado (10)

Similar a 61107576 rallis-india

Similar a 61107576 rallis-india (20)

Último

Último (20)

61107576 rallis-india