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Valuation pricing in emerging green shoots

Volume growth drives domestic business

Rallis India (RALI IN) reported a 5% deceleration in topline to INR 6bn versus INR 7bn estimated, led by pricing pressure globally. Domestic crop care business grew 6%, led by 7% volume growth. International business declined 24% YoY to INR 1.9bn. Gross and EBITDA margin expanded 309bps and 191bps to 42.5% and 10.4% respectively, led by: (a) 800bps improvement in geographical revenue mix in favor of domestic business, (b) timely liquidation, (c) shorter procurement cycle for raw material purchases and (d) cost control.

International business – Outlook improving

Excluding the crop protection (CP) business, CRAMS (contract research and manufacturing services) has started to see traction. The current strategy is to add new clients/ products to create possibilities, so as to garner more business, which can become meaningful 2-3 years later, to scale-up the CRAMS business. Polymer business has regained traction and may see significant volume growth in 2-3 years. Within the CP business, while demand slackening continues, the next 12 months may be better than the trailing 12 months.

Valuation: Reiterate Reduce with higher TP of INR 246

Driven by efforts on various fronts to turnaround the business, RALI may taste success FY25 onwards if the macroeconomic scenario turns supportive. If macro remains against the industry, RALI may still outperform others. Turnaround in the seeds business seems sustainable based on management commentary. But the stock at current price is factoring in all the possible benefits that can accrue to RALI in the near future. We introduce and roll forward valuations to FY26E. We reiterate Reduce with TP higher at INR 246 (from INR 219 earlier), based on 18x (unchanged) FY26 EPS of INR 13.6.

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