Hold Rallis India Ltd For Target Rs.305 - ICICI Direct
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International crop care reinforces overall performance
About the stock: Rallis India is a leading agrochemical company with a presence across agri input value chain and a strong, 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 overall revenue followed by international crop care of 30% and the rest from the seeds business
Q3FY22 Results: Numbers were largely in with our estimates across all parameters.
* Revenues increased 10.1% to | 628.1 crore, led by 19% growth in the international market
* Gross margins expanded 170 bps YoY to ~40.2% while EBITDA margin improved 20 bps YoY to 10.7%, due to higher employee and other expenses
* EBITDA was up 12.1% YoY to | 67.4 crore
* PAT fell 3.8% YoY to | 39.6 crore owing to higher depreciation and lower other income
What should investors do? The stock appreciated at 22% CAGR in last three years.
* We maintain our HOLD rating on the back of input cost inflation pressure
Target Price and Valuation: We value Rallis India at 22x P/E FY23E EPS to arrive at a revised target price of | 305 per share (earlier | 305 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 | 2160
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