Buy Rallis India Ltd For Target Rs. 400 - ICICI Direct
Ongoing capex portends well for future performance
About the stock:
Rallis India is a leading agrochemical company with a presence across the agri input value chain and a strong and healthy pipeline of sustainable products.
* The company has a diversified portfolio, supported by a strong channel network of more than 6,700 dealers and 79,000 retailers
* In terms of revenue contribution, domestic crop care constitutes 54% of the overall revenue followed by international crop care of 30% and rest from seeds business
Q1FY22 Results:
Revenue was ahead of our estimates while PAT came in lower than expected owing to lower gross margins and higher operating cost.
* Reported revenue growth of 11.7% YoY to | 740.5 crore, led by domestic crop care business (up 32% YoY)
* Gross margins declined 90 bps YoY to ~38.8% while EBITDA margin contracted 300 bps YoY to 16.4%, due to higher operating cost such as employee & other expenses
* EBITDA was down 5.3% YoY to | 121.5 crore PAT fell 10% YoY to | 82.3 crore owing to lower than expected operational performance
What should investors do?
The stock appreciated at 95% CAGR in last two years
* We retain BUY rating on the back of better growth outlook from both domestic and international crop care business
Target Price and Valuation: We value Rallis India at 25x P/E FY23E EPS to arrive at a revised target price of | 400 per share (earlier | 350 per share)
Key triggers for future price performance:
* Lower pricing pressure for key molecules in the international market along with better volume growth visibility
* Backward integration of few technicals can likely translate into improvement in gross margins
* Increase in custom synthesis/CRAMS business revenue
Alternate Stock Idea:
Apart from Rallis India, in our chemical coverage we also like Neogen Chemical
* Trigger for Neogen Chemical’s future revenue growth would be increasing CRAMS opportunity
* BUY with a target price of | 1085
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