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Hold Rallis India, target Rs 165: ICICI Direct

ICICI Direct has given a hold recommendation on Rallis India with a target price of Rs 165.

Shares of Rallis India traded at Rs 154 around 12:55 pm on 22 July, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.

Investment rationale by the brokerage:


Better distribution policies, incremental capex to drive performance ahead

Rallis reported revenue growth of 8.7 per cent year-on-year (YoY) to Rs 623.2 crore driven by standalone crop protection business.

The revenue from international business grew 12 per cent YoY to about Rs 142 crore.

The company clarified that it had sold some seeds through Rallis’ channel partner in Q1FY19.

Hence, adjusting that in standalone accounts, the domestic business witnessed growth of 15 per cent YoY to about Rs 221 crore.

Metahelix registered 2.6 per cent YoY growth to Rs 260.1 crore.

Ebitda margins expanded 70 bps YoY to 15.2 per cent due to lower other expenses post Ind-AS 116 adoption. This resulted in Ebitda growth of 14 per cent YoY to Rs 94.8 crore.

Lower tax outgo led bottomline to post 23.8 per cent YoY growth to Rs 67.6 crore.

Domestic sales growth gaining momentum

The management reframed distribution policy last quarter which, as per the brokerage, has aided the company to post better domestic growth during this quarter.

Apart from this, the company has been planning to launch five products this year of which it has already got registration of two products.

This will be launched during this season. Furthermore, progress of monsoon is expected to drive Q2FY20 sales for domestic market.

The company has been planning to enter a few Rabi crops seed, which the brokerage expects to diversify revenue of the company in the long run.

New capex to drive international business

The company has been doing capex for metribuzin of which 500 tonnes have been commercialised while the remaining 500 tonnes are expected to be commissioned by December 2020.

This is expected to drive international revenues, going ahead.

Apart from this, future capex plans for Hexaconazole ($149 million global size are expected to boost international pie further.

On the other hand, the management highlighted that increased supply in Pendimethalin would pressurise sales, going ahead.

Valuation and outlook

The new metribuzin capacity is expected to drive growth, going ahead, given Rallis has major market share in the same.

Further, it has received registration for two new products, which is expected to be launched this season.

Moreover, monsoon progress is likely to drive Kharif acreages, going ahead and, thereby, better visibility in domestic crop protection business.

“We value the company at P/E multiple of 16 times on FY21E (implied EV/Ebitda of about 9.9 times),” said the brokerage.

Source: Economic Times