Downgrade Rallis India to ‘underweight’ from ‘neutral’ as performance continues to lag peers. As a result, we revise our one-year target price for December 2015 lower from R223 and we now value Rallis using a one-year forward P/E of 17x from 20x earlier. We are using one-year forward P/E of 17x as the FY15-17 & FY15-18 EPS CAGR for Rallis now stands at c17%, as per our estimates.
Owing to aggressive product launches and marketing by domestic players and strong product pipeline for MNCs, we believe that Rallis’ domestic sales growth is likely to lag industry growth in the medium term. We lower domestic sales growth estimate to 9% each for FY16/17 while we maintain our FY15-17 sales growth CAGR of c25% for Metahelix. Thus, our FY15, FY16, and FY17 consolidated net profit estimates decline by 7%, 9%, and 2%.
Weak domestic sales led to disappointing Q3FY15 earnings. In our view, this was due to a reasonable decline in domestic crop protection sales along with relatively lower decline in exports For 9MFY15, standalone sales are up only 0.9% y-o-y and PAT is up is 0.4% y-o-y, indicating market share loss in domestic pesticide sector. Rallis’ seed subsidiary Metahelix continues to perform well and has reported 37.6% y-o-y growth for 9MFY15.
Market share loss for Rallis has continued in FY15. Rallis has dropped its market share by c100 bps to c8% during this period, as per our estimates.