Rallis India Research Report By HDFC Sec

Rallis India’s 3QFY15 results were disappointing on account of lower Rabi sowing (-5% YoY) and weak profitability for farmers in kharif. Revenues came in at Rs 3.9bn (-3% YoY) while APAT stood at Rs 255mn (-16%). Inventory losses (Rs 54mn, due to fall in RM prices) and higher other expenses led to the contraction in EBITDA margin to 13% (-91 bps).

Rallis is a direct beneficiary of Indian agriculture growth. Lower penetration of agrochemicals in India and its cost advantage underpin a long term growth. A strong brand, complete portfolio and extensive distribution network command a premium for Rallis.

Despite the world class facility at Dahej, revenues from exports have only doubled in the last 5 years for RALI vs ~5x growth for the CSM leader in India. We expect CSM along with seeds (biz to grow 2.5x over FY14-17E) to be the key drivers for the company.

Rallis is trading at 15.5/3.7x FY17E EPS/BV. Attractive valuation, zero debt, strong RoE/RoCE and new product launches are key positives for the stock. Upgrade to BUY with a TP of Rs 251 (18x FY17E EPS).

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