In-line results. Rallis’ 2QFY19 results were in line with our expectations as robust growth in revenues was offset by expected weakness in margins. Rallis’ 1HFY19 performance has been encouraging, exhibiting a healthy revenue growth and lowerthan- expected moderation in margins despite headwinds from erratic monsoon and rising RM costs. We retain ADD rating with an unchanged target price of `220 noting reasonable valuation and expected improvement in earnings trajectory.
11% yoy growth in consolidated revenues offset by expected ~200 bps moderation in margins
Consolidated revenues grew by 11% yoy to `6.54 bn, marginally ahead of our estimate in 2QFY19, despite a weaker Kharif season amid erratic monsoon. Consolidated EBITDA was in line with our estimate at `1.23 bn, increasing modestly by 1% yoy. EBITDA margins declined by ~200 bps to 18.9%, as slower-than-expected ~100 bps moderation in gross margins due to rising raw material costs was entirely offset by an increase in other expenditure. The company indicated that other expenditure included forex-related loss, which was partly mitigated through corresponding gains in the revenues. Consolidated net income increased by 10% yoy to `852 mn (EPS of `4.4), 5% above our estimate due to modestly higher other income and lower tax rate. Standalone revenues grew by 12% yoy to `6.13 bn. Standalone EBITDA and net income increased 2-6% yoy to `1.29 bn and `870 mn, respectively.
Encouraging performance in 1HFY19 despite multiple industry headwinds
Rallis managed to deliver a strong 19% yoy growth in consolidated revenues to `12.3 bn in 1HFY19 reflecting strength in domestic as well as international businesses. The company indicated that international CSM business grew ahead of domestic business showing initial signs of buoyancy in Latin American and European markets; even the domestic business performance was healthy in the context of a rather subdued Kharif season. Consolidated EBITDA increased by 8% yoy to `2.07 bn in 1HFY19 led by ~180 bps moderation in margins to 16.8% amid rising raw material costs; the recent sharp depreciation in rupee has added to the woes. Consolidated net income increased 14% yoy to `1.4 bn (EPS of `7.2) in 1HFY19. Rallis’ receivables increased to `6.7 bn as on September 30, 2018 from `4 bn as on March 31, 2018 led by (1) tactical easing of credit terms in the domestic business amid weakness in the end-markets and (2) rising proportion of international business, which has a relatively longer credit period.
Retain EPS estimates, ADD rating and target price of `220
Our consolidated EPS estimates for Rallis remain largely unchanged as we factor in 1HFY19 performance. We retain our positive view on the stock with a target price of `220, based on 18X FY2020E EPS. We expect the company to deliver robust 16% CAGR in EPS over FY2018-21 driven by (1) exclusive product launches over the next few years, (2) further improvement in performance of Metahelix, (3) gradual recovery in CSM exports business and (4) easing of cost pressures from FY2020 onwards.
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