Prabhudas Lilladher’s research report on Rallis India
Rallis India Q4FY18 results were below estimates, hurt by higher raw material prices & one offs to the tune of ~Rs66m (related to employee cost, forex losses and GST related provisions) Key takeaways from Analyst Meet: 1. Double digit volume growth both in domestic and exports in agrochemical segment. However, pricing pressure resulted in the overall revenue growing slower 2. Contaf series, PGNs & GeoGreen continue to do well, and new product launches like Cenator, Pulito, Odis, Epic have also seen pick-up; reflected in Innovator Turnover index at 10% (vs. 7% YoY), 3. Pharma intermediate in CRAM (which got commercialised in Aug-17) has stabilised from Feb-18 and anticipate incremental revenues of ~Rs600mn in FY19E 4. Capex for FY19E would be in the range of Rs500mn-900mn which includes some de-bottlenecking (to reduce dependence on China to some extent for raw materials) apart from maintenance capex 5. Availability and rising prices remain an issue for raw materials imported from China which, they believe, will continue for at-least next 3-4 months 6. Rallis has taken conscious decision to have higher inventory of strategic materials to ensure smoother operation in upcoming season.
The stock is trading at a P/E of 21.7x FY19E & 18.4x FY20E PER. While we like RALI due to its conservative approach, cash rich Balance sheet, stable margin profile & healthy RoE; looking at deceleration in earnings growth led by margin pressures, we downgrade it to Accumulate with TP of Rs262 ( down from Rs290) at 22x FY20E.
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