"Rallis has an extensive network across India through its distributors and retailers, covering around 80% of India’s districts. Through this network, it supplies innovative products and services to maximize crop protection and production in response to evolving needs of farmers. Rallis Kisan Kutumb (RKK) now has 700,000 farmers enrolled and the company has launched “Samrudh Krishi” program in FY12, as a means to leverage on this database."
"Domestic Agrochem industry witnessed a deceleration in FY12 and Rallis was no exception to this trend (domestic pesticides sales down 3.3% YoY). During the year, the company opted to focus on cash generation (reflected in prudent working capital management) over revenue growth. Also, the company discontinued red triangle products from the portfolio (10% of sales in FY11) which further weighed on topline growth. The downtrend was restricted by healthy growth in exports (up 49.5% YoY). We anticipate the ramp-up in Dahej facility to catapult export growth. Over the years, Rallis aims to expand its product offerings and scale up its newly added adjacent businesses (Metahelix Lifesciences and Zero Waste Agro Organics). The company is on course to transform itself from a mere agrochem company to a complete agri-service provider."
Industry Snapshot:
Rising world population and economic growth in developing nations have led to significantly higher global food demand. Domestic agrochemical industry declined during the year; global counterpart grew 17% to USD 44.9bn. The Indian seed industry, world’s sixth largest (>` 70bn) has grown at 12% p.a. in the past couple of years compared to 6-7% internationally. In India, commercial seeds account for only 25% of the potential, providing tremendous opportunity in this space.
Valuations
"We expect revenue growth from domestic market to moderate in the near term. Increased cultivation costs and low pest incidence is a cause for deceleration in volume off-take. Scale-up in Metahelix business and increased contribution from exports in the interim are growth drivers. The performance of Kharif season in course shall be an important determinant for future growth in domestic agro business. At CMP, the stock trades at 18.3x FY13E and 14.6x FY14E earnings. We believe there is limited upside from these levels and recommend Reduce on the stock, with target price of ` 144 (15x FY14E EPS)," says Dolat Capital research report.
No comments:
Post a Comment