Rallis India Shares Surge On Q1 Revenue Growth, Positive Exports Outlook

Shares of Rallis India Ltd. gained on a rise in the agrosciences company's first-quarter revenue, positive export demand outlook and increasing share in key overseas markets, even as its seeds business is expected to face challenges.

The Tata Chemicals subsidiary posted revenue of Rs 863 crore in the quarter ended June, a 16% rise over the year earlier.

Key highlights (YoY, Consolidated)

• Profit before tax (before exceptional items) at Rs 90 crore, down 17%.

• Profit after tax at Rs 67 crore, down 18.3%.

During the quarter, Rallis also became the first company to introduce Fenoxanil in India, a fungicide for preventing and treating rice blast. It also launched one new herbicide for cotton and paddy crops each and three new paddy hybrids and a tomato hybrid.

The company faced cost headwinds that affected margins, said Sanjiv Lal, managing director and chief executive officer of Rallis India. "In the seeds business, there were challenges of delayed monsoon and crop shifts. The revival of monsoons in July augurs well for agriculture."

"Our long-term focus continues to be investing in growth through new product introduction, expanding our retail footprint and investing in flexible Multipurpose manufacturing plants for multiple chemistry capabilities required for our new product pipeline,” he said.

Shares of Rallis India gained as much as 6.9%, before closing 6.1% higher on Thursday. Of the 20 analysts tracking the company, eight have a ‘buy’ rating, while six each suggest a ‘hold’ and a ‘sell’, according to Bloomberg data. The average of the 12-month consensus price target implies an upside of 8.1%.

Here's what brokerages have to say about Rallis India's Q1 FY23 results.

• Upgrades rating to 'accumulate' from 'reduce' at a target price of Rs 235, implying a potential upside of 15%.

• Expects the domestic business' near-term performance to remain subdued on account of higher raw material costs, high dependence on China for its raw material requirement, slow ramp up of its newly launched products and erratic monsoon.

• Seeds business is also expected to remain weak over FY23 as challenges of higher sales returns, proliferation of illegal seeds and crop shifts continue to persist.

• Expects margin pressure to continue in the near term as the ongoing geopolitical issues and extended Covid-led lockdowns in China are expected to put pressure on raw material availability and pricing.

• International business continues to see steady recovery supported by higher realisations and improved demand with most of its products operating at higher production levels.

• The company’s focus on increasing share of formulated products with newer registration in key geographies like Brazil bodes well for its future growth and would aid in improving its margin profile.

• Growth in contract research and manufacturing services with revival in PEKK polymer sales starting Q4 and two new contract manufacture opportunities could serve as mid-term re-rating trigger.

• With the sharp correction in stock price since our last update in April, the stock price has bottomed out and presents a good upside opportunity hereon. However, diminishing return ratios and limited growth visibility could be the key issues to monitor.

• Maintains 'buy' a target price of Rs 260, implying a potential upside of 27%.

• Aided by pricing and volume growth, Rallis’ Q1 revenue grew. Management talked of better margins driven by softer prices of some raw materials and better capacity utilisation on greater demand internationally.

• The focus on launches, rising share of its herbicide range, export market share gains and ongoing capex plans kept the long-term outlook positive.

• Key short-term challenges: for its seeds business, shift in cropping patterns; greater use of illegal cotton seed, less contract-manufacturing demand.

• Management said challenges in its seeds business would continue and it is focusing more on liquidation, cost optimisation, the product pipeline (more of a rabi portfolio) and scaling up operations in vegetable seeds. It is positive on export demand and continues to work on augmenting its portfolio (more toward formulations).

• Risks: Failure to diversify to a non-kharif range of seeds, greater use of illegal herbicide-tolerant cotton seed, monsoon dependence, delay in launching products and slowdown in R&D.