RESULTS REVIEW 3QFY16

19 JAN 2016

Rallis India
BUY
INDUSTRY

AGROCHEMICAL

CMP (as on 19 Jan 2016)

Rs 149

Target Price

Rs 200

Nifty

7,435

Sensex

24,480

KEY STOCK DATA

Bloomberg/Reuters

RALI IN/RALL.BO

No. of Shares (mn)

194

MCap (Rs bn) / ($ mn)

29/428

6m avg traded value (Rs mn)

65

STOCK PERFORMANCE (%)

52 Week high / low

Rs 299/145
3M

6M

12M

Absolute (%)

(30.4) (41.2) (33.5)

Relative (%)

(19.9) (27.2) (20.1)

SHAREHOLDING PATTERN (%)

Promoters

50.09

FIs & Local MFs

FIIs

Public & Others

49.91

Waiting for a sign

With muted domestic and export sales, Rallis Indias
revenues fell by 20% YoY to Rs 5.1bn. Lower volumes
resulted in low EBITDA margin of 11.3% (-162bps
YoY). Hence, EBITDA was Rs 352mn (-30%) and PAT
Rs 204mn (-20%).
So far, FY16 has been a washout year for Rallis
because of (1) The Consecutive rain deficit in India,
(2) Weaker Latin America and European currencies,
(3) Muted international prices of agri-commodities,
and (4) Unfavourable weather conditions in Brazil.
The stock corrected by 35% in the past year. With
fundamental triggers intact, a good monsoon in 2016
may turn things around for Rallis. (1) Focus on new
9(3) product launches, (2) Growth in the seed
business and, (3) Likely pick up in custom synthesis
(CSM) revenues from FY17 will be key triggers.
Although the near-term outlook may not be
inspiring, risk-reward is favourable for long-term
investors. Maintain BUY with a TP of Rs 200/sh (18x
12 months rolling forward EPS).
Financial Summary (Consolidated)

Deepak Kolhe
deepak.kolhe@hdfcsec.com

(Rs mn)
Net Sales
EBITDA
APAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
RoE (%)

+91-22-6171-7316

Source: Company, HDFC sec Inst Research

Source : BSE

Satish Mishra
satish.mishra@hdfcsec.com
+91-22-6171-7334

Highlights of the quarter

Pesticides: Domestic sales were muted because of

poor monsoon for the second consecutive year.

Exports were hit owing to a steep fall in the Latin
American and European currencies. The
agrochemicals market in Brazil fell by 23% in US$
term in CY15. Muted international agri-commodity
prices dragged performance in other geographies.

Seeds: Metahelix revenues declined by 17% to

Rs 290mn mainly because of (1) Farmers using

low-cost seeds, and (2) Switching to crops that
require less water.

Proxy to Indian agriculture play: Rallis is a direct

beneficiary of the Indian agriculture growth story.

Lower penetration of agrochemicals in the country
and its cost advantage underpin a long-term
growth. A strong brand, complete portfolio,
extensive distribution network and strong balance
sheet will help Rallis gain market share when the
wind changes direction.

3QFY16 3QFY15 YoY (%) 2QFY16 QoQ (%)

3,103
3,895
(20.3)
5,017
(38.1)
352
505
(30.3)
966
(63.6)
204
255
(19.9)
570
(64.2)
1.0
1.3
(19.9)
2.9
(64.2)

FY14
17,466
2,613
1,519
7.8
19.1
11.3
22.7

FY15
18,218
2,771
1,572
8.1
18.4
10.8
20.5

FY16E
15,937
2,326
1,334
6.9
21.7
12.7
15.6

FY17E
18,306
2,909
1,722
8.9
16.8
10.0
18.3

FY18E
21,636
3,659
2,310
11.9
12.5
7.7
21.7

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

RALLIS INDIA : RESULTS REVIEW 3QFY16

Quarterly Financials Snapshot (Consolidated)

Revenue decline was mainly
led by export markets

(Rs mn)
Net Sales
Material Expenses
Traded Goods
Employee Expenses
Other Expenses
EBITDA
Depreciation
PBIT
Other Income
Interest
E/o items
PBT
Tax
PAT
Minority Interest
APAT
AEPS (Rs/sh)

3QFY16
3,103
1,341
245
321
845
352
140
212
8
36
184
(4)
188
(17)
204
1.0

3QFY15
3,895
1,862
185
342
1,002
505
126
379
9
26
361
128
233
(22)
255
1.3

YoY (%)
(20.3)
(28.0)
32.0
(6.0)
(15.7)
(30.3)
10.9
(44.0)
(7.0)
40.7

QoQ (%)
(38.1)
(38.7)
(48.7)
(6.9)
(18.9)
(63.6)
7.5
(74.7)
(71.5)
27.4

(19.9)
(19.9)

2QFY16
5,017
2,187
477
345
1,042
966
130
836
28
29
836
278
558
(12)
570
2.9

3QFY16

3QFY15

YoY (bps)

2QFY16

QoQ (bps)

Material Expenses as % of Net Sales

Employee Expenses as % of Net Sales
Traded Goods as % of Net Sales
Other Expenses as % of Net Sales

43.2
10.3
7.9
27.2

47.8
8.8
4.8
25.7

(458)
158
313
150

43.6
6.9
9.5
20.8

(37)
347
(163)
645

EBITDA Margin (%)

11.3

13.0

(162)

19.3

(793)

6.6

6.5

11.4

(479)

(2.2)

35.5

(3,769)

33.2

(3,542)

(49.2)
(103.1)
(19.5)

(78.0)
(101.4)
(66.4)
(64.2)
(64.2)

Source: Company, HDFC sec Inst Research

Margin Analysis
(% of Net Sales)

Tax rate is lower owing to

higher provisioning in 2Q

Net Profit Margin (%)

Tax Rate (%)
Source: Company, HDFC sec Inst Research

Page | 2

RALLIS INDIA : RESULTS REVIEW 3QFY16

Assumptions
Sales Growth (%)
Domestic
Exports
Metahelix
Total
Gross Margin (%)
Tax Rate (%)
Working capital (days)
Inventory
Debtors
Creditors
Capex (Rs mn)

FY13

FY14

FY15

FY16E

FY17E

FY18E

19.0
8.3
42.2
14.4
39.8
31.0
4
67
41
63
349

20.9
17.3
46.3
19.8
42.3
28.8
18
69
35
64
587

5.3
2.0
40.0
4.3
45.4
27.9
46
79
50
58
431

(6.0)
(30.0)
10.0
(12.5)
49.5
22.7
47
80
50
55
800

15.0
15.0
30.0
14.9
49.0
25.9
45
80
50
60
800

15.0
30.0
30.0
18.2
48.5
25.8
44
75
50
60
800

Change In Estimates
Net Sales
EBITDA
APAT
AEPS

FY17 Old
20,198
3,188
1,949
10.0

FY17 New
18,306
2,909
1,722
8.9

% Change
(9.4)
(8.8)
(11.6)
(11.6)

Net Sales
EBITDA
APAT
AEPS

FY18 Old
24,073
4,121
2,728
14.0

FY18 New
21,636
3,659
2,310
11.9

% Change
(10.1)
(11.2)
(15.3)
(15.3)

Source : Company, HDFC sec Inst Research

Peer Valuation
Chambal Fert
Coromandel Int
PI Industries
Rallis India
UPL Ltd
Navin Fluorine
SRF Ltd

TP
Mcap
CMP
Rating
(Rs/sh )
(Rs bn) (Rs/sh)
24.2
58
BUY
74
46.6
165
BUY
250
83.9
614
BUY
750
28.9
149
BUY
200
168.0
392
BUY
560
16.7
1,710
NEU
1,925
65.2
1,135
BUY
1,525

Lower commodity prices and muted farmers

profitability in FY16 are key reasons
EPS (Rs/sh)
FY16E FY17E FY18E
8.7
9.2
9.4
15.2
21.0
24.5
21.5
26.6
33.3
6.9
8.9
11.9
30.1
35.4
39.3
75.0
96.8
128.2
75.9
89.1
101.3

FY16E
6.7
10.8
28.6
21.7
13.0
22.8
14.9

P/E (x)
FY17E
6.4
7.8
23.0
16.8
11.1
17.7
12.7

FY18E
6.2
6.7
18.4
12.5
10.0
13.3
11.2

FY16E
1.0
1.9
7.4
3.2
2.4
2.6
2.5

P/BV (x)
FY17E
0.9
1.7
5.8
2.9
2.1
2.4
2.2

FY18E
0.8
1.5
4.6
2.6
1.8
2.1
1.9

FY16E
15.1
18.4
28.9
15.6
20.3
12.0
17.7

ROE (%)
FY17E
14.2
22.4
28.2
18.3
20.3
14.1
18.1

FY18E
13.2
22.8
27.9
21.7
19.3
16.8
17.9

Source: Company, HDFC sec Inst Research

Page | 3

RALLIS INDIA : RESULTS REVIEW 3QFY16

Income Statement (Consolidated)

(Rs mn)
Net Sales
Growth (%)
Material Expenses
Traded Goods
Employee Expenses
Other Operating Expenses
EBITDA
EBITDA Margin (%)
EBITDA Growth (%)
Depreciation
EBIT
Other Income
Interest & Financial charges
EO profit/(loss)
PBT
Tax
RPAT
Minority interest
APAT
APAT Growth (%)
AEPS
EPS Growth (%)

FY14
17,466
19.8
8,376
1,709
1,105
3,663
2,613
15.0
24.1
407
2,206
64
126
2,144
617
1,527
8
1,519
27.6
7.8
27.6

Source: Company, HDFC sec Inst Research

Balance Sheet (Consolidated)

FY15
18,218
4.3
8,349
1,596
1,294
4,208
2,771
15.2
6.1
496
2,276
42
101
2,216
618
1,598
26
1,572
3.5
8.1
3.5

FY16E
15,937
(12.5)
6,773
1,275
1,313
4,250
2,326
14.6
(16.1)
527
1,799
78
133
1,745
395
1,349
15
1,334
(15.1)
6.9
(15.1)

FY17E
18,306
14.9
7,872
1,464
1,470
4,590
2,909
15.9
25.1
558
2,351
86
94
2,344
606
1,737
15
1,722
29.1
8.9
29.1

FY18E
21,636
18.2
9,411
1,731
1,647
5,187
3,659
16.9
25.8
584
3,075
99
43
3,132
807
2,325
15
2,310
34.1
11.9
34.1

(Rs mn)
SOURCES OF FUNDS
Share Capital
Reserves
Total Shareholders Funds
Long-term Debt
Short-term Debt
Total Debt
Minority Interest
Long-term Provisions & Others
Net deferred tax liability
TOTAL SOURCES OF FUNDS
APPLICATION OF FUNDS
Net Block
CWIP
Goodwill
Investments
LT Loans & Advances
Other non-current assets
Inventories
Trade Receivables
Cash & Equivalents
ST Loans & Advances
Other Current Assets
Current Assets
Trade Payables
Other Current Liabilities
Current Liabilities
Net current Assets
TOTAL APPLICATION OF FUNDS

FY14

FY15

FY16E

FY17E

FY18E

194
6,986
7,180
261
484
745
105
180
315
8,525

194
7,951
8,145
268
837
1,105
101
224
357
9,932

194
8,723
8,917
268
837
1,105
101
224
357
10,705

194
9,760
9,955
18
587
605
101
224
357
11,242

194
11,151
11,346
18
187
205
101
224
357
12,233

4,182
211
1,859
187
1,077
3,295
1,679
157
298
27
5,456
3,051
1,396
4,447
1,009
8,525

3,996
265
1,958
187
1,101
3,942
2,477
127
279
26
6,851
2,882
1,543
4,426
2,426
9,932

4,168
603
1,958
187
1,157
3,493
2,183
596
279
26
6,577
2,401
1,543
3,945
2,633
10,705

4,070
942
1,958
187
1,214
4,012
2,508
597
279
26
7,422
3,009
1,543
4,552
2,870
11,242

3,980
1,248
1,958
187
1,275
4,446
2,964
969
279
26
8,684
3,557
1,543
5,100
3,584
12,233

Source: Company, HDFC sec Inst Research

Page | 4

RALLIS INDIA : RESULTS REVIEW 3QFY16

Cash Flow (Consolidated)

(Rs mn)
Reported PAT
Non-operating income & EO
items
PAT from Operations
Interest
Depreciation
Working Capital Change
OPERATING CASH FLOW ( a )
Capex
Free cash flow (FCF)
Investments
Non-operating income
INVESTING CASH FLOW ( b )
Share capital Issuance
Debt Issuance
Dividend
Interest
FINANCING CASH FLOW ( c )
NET CASH FLOW (a+b+c)
EO items
Closing Cash & Equivalents

Key Ratios
FY14
1,553

FY15
1,576

FY16E
1,334

FY17E
1,722

FY18E
2,310

46

(38)

53

58

66

1,507
123
407
(581)
1,456
(587)
870
(187)
46
(728)
(545)
(521)
(124)
(1,191)
(463)
157

1,613
101
496
(1,552)
659
(431)
227
(119)
(38)
(588)
485
(550)
(101)
(166)
(96)
127

1,282
133
527
207
2,148
(800)
1,348
53
(747)
(562)
(133)
(695)
706
596

Source: Company, HDFC sec Inst Research

1,664 2,244
94
43
558
584
(294)
(403)
2,022 2,467
(800)
(800)
1,222 1,667
58
66
(742)
(734)
(500)
(400)
(685)
(919)
(94)
(43)
(1,279) (1,362)
1
372
597
969

PROFITABILITY (%)
GPM
EBITDA Margin
EBIT Margin
APAT Margin
RoE
Core RoCE
RoCE
EFFICIENCY
Tax Rate (%)
Fixed asset Turnover (x)
Inventory (days)
Debtors (days)
Other Current Assets (days)
Payables (days)
Other Current Liab & Prov (days)
Cash Conversion Cycle (days)
Debt/EBITDA (x)
Net D/E
Interest Coverage
PER SHARE DATA
EPS (Rs/sh)
CEPS (Rs/sh)
DPS (Rs/sh)
BV (Rs/sh)
VALUATION
P/E
P/BV
EV/EBITDA
OCF/EV (%)
FCF/EV (%)
FCFE/MCAP (%)
Dividend Yield (%)

FY14

FY15

FY16E

FY17E

FY18E

42.3
15.0
12.6
8.7
22.7
23.1
20.1

45.4
15.2
12.5
8.6
20.5
20.2
17.8

49.5
14.6
11.3
8.4
15.6
15.6
13.9

49.0
15.9
12.8
9.4
18.3
18.8
16.3

48.5
16.9
14.2
10.7
21.7
23.4
20.0

28.8
4.5
69
35
7
64
29
18
0.3
0.1
17.5

27.9
4.7
79
50
6
58
31
46
0.4
0.1
22.5

22.7
4.1
80
50
7
55
35
47
0.5
0.1
13.6

25.9
4.7
80
50
6
60
31
45
0.2
0.0
25.0

25.8
5.7
75
50
5
60
26
44
0.1
(0.1)
72.2

7.8
9.9
2.4
36.9

8.1
10.6
2.5
41.9

6.9
9.6
2.5
45.9

8.9
11.7
3.0
51.2

11.9
14.9
4.0
58.3

19.1
4.0
11.3
4.9
2.9
2.6
1.6

18.4
3.6
10.8
2.2
0.8
0.4
1.7

21.7
3.2
12.7
7.3
4.6
4.2
1.7

16.8
2.9
10.0
7.0
4.2
3.9
2.0

12.5
2.6
7.7
8.7
5.9
5.6
2.7

Source: Company, HDFC sec Inst Research

Page | 5

RALLIS INDIA : RESULTS REVIEW 3QFY16

RECOMMENDATION HISTORY
Rallis

330

Date
21-Jan-15
25-Mar-15
23-Apr-15
24-Jul-15
8-Oct-15
27-Oct-15
19-Jan-16

TP

280
230
180

CMP
216
212
216
235
215
207
149

Reco
BUY
BUY
BUY
BUY
BUY
BUY
BUY

Target
251
251
265
265
265
240
200

Rating Definitions
Jan-16

Dec-15

Nov-15

Oct-15

Sep-15

Aug-15

Jul-15

Jun-15

May-15

Apr-15

Mar-15

Feb-15

Jan-15

130

BUY

: Where the stock is expected to deliver more than 10% returns over the next 12 month period

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL

: Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 6

RALLIS INDIA : RESULTS REVIEW 3QFY16

Disclosure:
We, Satish Mishra, PGDM, & Deepak Kolhe, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our
views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in
this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its
Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further
Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No
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Page | 7