Reduce Rallis India Ltd For Target Rs.235 - ICICI Direct
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Higher input cost inflation to weigh on 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
Q4FY22 Results: Numbers were below our estimates, impacted by lower growth from international market and higher COGS.
Revenues increased 7.7% to | 507.5 crore, led by 25% growth in the domestic crop care segment
Gross margins contracted 663 bps YoY to ~34.8%, leading operational performance to remain in loss
Loss of | 2.8 crore at EBITDA level vs. profit of | 17.7 crore in Q4FY21
Loss at PAT level was at | 14.1 crore against profit of | 6.9 crore in Q4FY21, dented by a poor operational performance
What should investors do? The stock appreciated at 24% CAGR in last three years.
We revise the rating downward from HOLD to REDUCE on the back of input cost inflation pressure
Target Price and Valuation: We value Rallis India at 19x P/E FY24E EPS to arrive at a revised target price of | 235 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 likely to 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 Sumitomo Chemical.
Trigger for Sumitomo Chemical’s future revenue growth would be increasing CRAMS opportunity from SCC Japan and Nufarm
BUY with a target price of | 520
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