Rallis India Q2 Results Review - Headwinds Intensify, Outlook Remains Weak; Maintain 'Sell': Dolat Capital

Dolat Capital Report

Rallis India Ltd. saw a revenue decline of 12.5% YoY to Rs 8.3 billion (our estimate: Rs 7.9 billion) impacted by weak demand and pricing pressure which is currently prevalent across both domestic as well as global crop protection market.

Improved product mix coupled with cost optimization measures resulted in gross margin expansion of 464 basis points YoY to 38.9% which further translated into Ebitda margin uptick of 362 basis points YoY to 16%. 

Rallis India Ebitda came in higher by 13.1% YoY to Rs 1.3 billion driven by higher gross profits and lower opex (down 11.9% YoY).

Improved operational performance led to adjusted profit after tax growth of 14.4% YoY to Rs 813 million.

Outlook and valuation

With no visible signs of improvement we expect the weakness in demand and pricing pressure to continue over the course of H2 FY24. We believe that recovery will be slow paced and visible only from FY25 onwards.

Reservoir levels have depleted (-8% of last 10 years long period average) owing to erratic rains which could impact acreages in the upcoming Rabi season ultimately resulting in lower domestic demand.

Factoring in the weak outlook we have cut our earnings per share estimates by 12/16.7% for FY24E/FY25E.

We roll forward FY26E numbers to arrive at a revised target price of Rs 205/share (18 times FY26E EPS). Maintain 'Sell'.

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