Rallis India Result Update

8/8/2019 Rallis India Result Update

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3Q FY 2010 results

Rallis India Ltd. (Rallis) 3Q FY 2010 net sales were below our estimates, while profitability was

significantly above our estimates. The company reported stellar profitability due to better

product mix and improvement in quality of operations. The volume growth in domestic net sales

was more than offset due to poor demand from the international business.

January 16, 2010RALLIS INDIA LIMITED

Shareholding Pattern (%)

Promoter group 45.20

FIIs 1.58

Indian institutions 28.47

Public 24.75

Performance

Return (%) 1 Month 6 Months 1Year

Absolute 16 48 210

Relative 12 31 119

Analyst

Bhavesh [email protected]

Stock Details

CMP (Rs.) 1082

Bloomberg code RALI.IN

Market cap (Rs. mn) 14,028

52 week H/L 1,086/320

1

Current Price:

1year Target:

Return:

Rs. 1,082

Rs. 1,271

+17%

BUY

Financial ResultsRs Mn

Particulars 3Q FY 10 3Q FY 09 VAR (%)

Net Sales 2,028.7 2,076.3 (2.3)

Other operating income 38.9 65.7 (40.8)

Total income 2,067.6 2,142.0 (3.5)

Raw materials consumed 1,149.2 1,229.0 (6.5)

Purchase of traded goods 80.8 92.4 (12.6)

Employees cost 161.5 157.2 2.7

Depreciation 36.9 38.6 (4.4)

Other expenses 290.9 313.5 (7.2)

Operating income 390.9 260.9 49.8

EBITDA 427.8 299.5 42.8

Other income /(expense) 27.4 4.2 552.4

Interest income /(expense), net (9.7) 6.2 (256.5)

Earnings before taxes (PBT) 353.8 244.1 44.9

Provision for Income Tax 113.2 88.4 28.1

PAT (Excl EO) 295.4 170.5 73.3

Outlook and valuations

Rallis reported better-than-expected profitability during 3Q FY 2010 on account of

improvement on product mix and better quality of operations. Looking ahead, after a below-

normal kharif crop season, the rabi crop acreage has witnessed improvements. This could

result in a robust agrichemicals demand during the rabi season from March 2010. Significant

improvement in Other income during 3Q FY 2010 indicates strong cash position of thecompany. The company continues to focus on cost reduction and better working capital

management. Considering these factors, we have revised our FY 2010 and FY 2011

profitability estimates slightly upwards. Furthermore, over the long-to-medium term, we expect

Rallis' revenue growth to be driven by its International business and domestic volume growth.

Margins are expected to improve given that Rallis continues to optimize its cost structure

coupled with declining input costs. Rallis also has significant excess land bank. As a part of

ongoing restructuring programme, the company may sell some of its non-core assets which

may pose an upside risk upside to our target price estimate.

At the current market price of Rs. 1,082, the stock is currently trading at 11.1x FY 11E EPS of

Rs. 97.84. We maintain our positive outlook on the stock and maintain a BUY. Considering the

strong revenue and profitability expectations over FY 2009 - FY 2011, we assign a Price

earnings multiple of 13.0x and derive a target price of Rs 1,271.

Stock Chart

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Financial highlights

?Net sales declined 2.3% y-o-y in 3Q FY 10 mainly due to low demand from theinternational business. Nevertheless, we understand that Rallis' domestic performance

performed better on the back of better rainfall during post-kharif season. Sales volumes

as well as pricing continued to slide y-o-y internationally during 3Q FY 2010.

?EBITDA margins improved 666 bps y-o-y mainly due to better product mix and

improvement in quality of operations.

?The company reported significant growth in Other income reflecting robust growth in cash

and equivalents.

?PAT (excluding extra-ordinary items) increased 73.3% y-o-y.

Key updates

? After a below-normal kharif crop season, the rabi crop acreage has witnessed

improvements. This could result in a robust agri-chemicals demand during the rabiseason from March 2010.

?The company expects Dahej plant to be operational from July 2010 compared to its

previous expectation of June 2010. The company continues to target Rs. 5,000 mn of net

sales from this plant over the next three years.

?The company did not take any new debt during the quarter. The majority of equipments for

Dahej plant have been ordered.

?The company had launched new fungicide ERGON during 2Q FY 2010. The response

from the farmers for ERGON has been above company's expectations.

Spurt in Other income during 3Q FY 2010reflects strong balance sheet position


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Appendix: Financial Statements

3

Profit and Loss

ear to Mar (Rs. mn) FY 08 FY 09 FY 10E FY 11E

Net Sales 6,745.9 8,366.9 8,617.0 10,240.5

growth (%) 24.0 5.2 15.4

Raw materials consumed 3,384.0 4,508.5 4,646.7 5,370.7

Purchase of traded goods 724.0 597.8 634.3 896.0

Employees cost 603.1 668.7 645.9 675.9

Depreciation 150.6 169.7 162.6 288.4

Other expenses 1,429.6 1,454.4 1,346.0 1,382.5

Operating income 665.5 1,196.9 1,487.4 1,799.3

EBITDA 816.1 1,366.6 1,650.0 2,087.7

Other income /(expense) 27.4 29.1 54.7 57.2

Interest income /(expense), net 38.6 30.7 (5.8) (5.6)

Earnings before taxes (PBT) 1,463.9 1,072.4 1,448.6 1,812.1

Provision for Income Tax 210.9 352.2 463.0 543.6

PAT (Excl EO) 366.2 758.6 1,006.5 1,268.5

Cash Flow

Year to Mar (Rs. mn) FY 08 FY 09 FY 10E FY 11E

Net Profit / (Loss) Before Tax 1,461.7 712.9 1,448.6 1,812.1

Depreciation 150.6 169.7 162.6 288.4

Other Adjustments (817.9) 97.3 0.0 0.0

Operating Profit before WC Changes 844.6 1,386.9 1,611.2 2,100.5

Working Capital Adjustments (617.2) 326.8 162.6 288.4

Cash Generated from Operations (178.6) 1,792.0 2,015.9 2,027.7

Less Taxes paid (259.4) 352.2 (463.0) (543.6)

Cash Flow from Operating Act ivities (437.9 ) 1,380.6 1,552.9 1,484.1

Net Fixed Asset Purchase (269.3) (655.8) (1,700.0) (800.0)

Proceeds from sale o f fixed assets 902.0 11.6 0.0 0.0

Purchase of Investments (1,227.4) (1,973.3) 0.0 0.0

Proceeds f rom sale of Invesments 1,001.3 1,167.2 0.0 0.0

Others 16.4 26.5 0.0 0.0

Cash Flow from Investing Activities 422.8 (1,423.9) (818.0) (800.0)

Borrowings, net 90.3 374.0 904.1 507.4

Dividend and taxes thereon paid (189.4) (301.6) (271.1) (253.7)

Repayment of preference shares 0.0 0.0 (782.0) 0.0

Others (40.6) (32.3) 0.0 0.0

Cash Flow from Financing Activities (139.7) 40.1 (149.0) 253.7

Net Change in Cash (154.8) (3.1) 585.9 937.8

Balance Sheet

ear to Mar (Rs. mn) FY 08 FY 09 FY 10E FY 11E

Inventories 1,454.5 1,472.7 1,519.2 1,802.8

Debtors 1,011.6 1,143.6 1,177.4 1,402.8

Cash and cash equivalents 75.3 71.5 657.4 1,595.2

Other current assets 801.6 784.8 787.6 790.5

Total current assets 3,343.1 3,472.7 4,141.7 5,591.2

Fixed Assets:

Gross Block 2,960.4 3,376.6 5,367.3 6,167.3

Less: Acuumulated depreciat ion 1,614.1 1,790.7 1,953.3 2,241.7

Net Block 1,346.3 1,585.9 3,414.0 3,925.6

Capital Work in Progress 132.5 290.7 0.0 0.0

Investments 555.1 1,361.6 1,361.6 1,361.6

Deferred tax asset 132.3 101.6 101.6 101.6

Miscellaneous expenditure 7.3 71.3 71.3 71.3

Total Assets 5,516.5 6,883.7 9,090.0 11,051.2

Current Liabilities 1,409.5 1,951.1 2,438.9 2,877.9

Provisions 592.7 640.3 640.3 640.3

Total Current liabilities 2,002.2 2,591.4 3,079.2 3,518.2

Secured and unsecured loans 438.9 805.5 1,709.6 2,217.0

Share Capital 999.8 999.8 217.8 217.8

Reserve & Surplus 2,075.5 2,486.9 3,201.4 4,216.1

Total Shareholder funds 3,075.4 3,486.8 3,419.2 4,434.0

Total Liabilities and Shareholder funds 5,516.5 6,883.7 8,208.0 10,169.2

Year to Mar FY 08 FY 09 FY 10E FY 11E

ROE (%) 40.7 20.4 24.4 27.5

Fixed asset turnover ratio (x) 5.03 4.85 2.74 2.84

Valuation

Shares outstanding (mn) 11.98 11.98 11.98 11.98

Price ( Rs.) 352.5 391.8 1,082.0 1,082.0

Equity Market Cap (Rs mn) 4,224.6 4,695.0 12,967.3 12,967.3

EV (Rs) 4,592.0 4,843.0 13,081.7 13,089.6

EV/ Sales (x) 0.7 0.6 1.5 1.3

EV/ EBITDA (x) 5.6 3.5 7.9 6.3

P/E (x) 3.6 7.3 14.7 11.1

Book value per share (Rs) 256.6 290.9 285.3 370.0

Growth (%)

Net Sales 4.9 24.0 5.20 15.40

Operating income 1.0 79.8 24.3 21.0

EBITDA (15.8) 67.5 20.7 26.5

PAT 115.6 (43.1) 32.7 26.0

Profitability (%)

Operating margin 9.9 14.3 17.3 17.6

EBITDA margin 12.1 16.3 19.1 20.4

PAT margin 5.4 9.1 11.7 12.4

Stability

Debt / Equity Ratio (x) 0.14 0.23 0.50 0.50

Summary Financials


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Investment Research Team

Anurag Bansal Director and Head [email protected]

Santosh Kumar Manager-Business Development [email protected]

Sushil kumar Asst Manager - Business Development [email protected]

Rajesh Jain Head (Research)

Saurabh Rana Asst. VP [email protected]

Manish Choudhary Engineering/Infrastructure [email protected]

Jaisheel Garg Power/Midcap [email protected]

Harsh Gupta FMCG/Hospitality [email protected]

Surabhi Sharma Oil& Gas [email protected]

Bhavesh Chauhan Metals [email protected]

Dinesh Joshi Auto& Cement [email protected]

Nitin Murarka Alternative Research [email protected]

Vineet Sood Alternative Research [email protected]

Kunal Sharma Alternative Research [email protected]

Dhirender Bisht Alternative Research [email protected]

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Rallis India Result Update