Maintain ‘Hold’ on Rallis India; target price at Rs 223

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Published: October 27, 2017 2:54:07 AM

Rallis India’s Q2FY18 consolidated revenue of Rs 5.9 billion was up 9 % y-o-y, but below our 15 % growth estimate. Standalone revenue of Rs 5.5 billion grew 11% y-o-y, driven by double-digit growth in both domestic and export segments.

Consolidated sales of Rs 5.9 billion grew 9 % y-o-y (adjusted for accounting change due to GST), but below our 15 % revenue growth estimate. Standalone performance was marginally better, growing 11% y-o-y to Rs 5.5 billion.

Rallis India’s Q2FY18 consolidated revenue of Rs 5.9 billion was up 9 % y-o-y, but below our 15 % growth estimate. Standalone revenue of Rs 5.5 billion grew 11% y-o-y, driven by double-digit growth in both domestic and export segments. However, Metahelix saw 13 % y-o-y fall in revenue to Rs 393 million due to higher-than-expected sale returns. Consolidated EBITDA margins, however, improved by 150bps led by benefits of operating leverage and lower losses in Metahelix. Rallis also launched three products this quarter. With the expected GST-led restocking not happening, we lower our revenue growth estimate and consequently trim our FY18/19E EPS by 5%/4%. We continue to value Rallis at 18.0x FY19E EPS, giving us a target price of Rs 223. We maintain ‘HOLD’.

Consolidated sales of Rs 5.9 billion grew 9 % y-o-y (adjusted for accounting change due to GST), but below our 15 % revenue growth estimate. Standalone performance was marginally better, growing 11% y-o-y to Rs 5.5 billion. Both domestic and export segments posted 10% growth. Exports segment performed better, led by improving situation in key markets like Brazil and advancement of certain orders to Q2FY18. While the previous quarter had seen spurt in other expenses, in Q2FY18, Rallis managed to control expenses owing to operating leverage. Thus, standalone EBITDA margin improved 90bps to 23.1%. Metahelix logged muted performance with sales correcting 13 % y-o-y to `393 million as sale returns were much higher than expected. However, losses reduced marginally.

Rallis introduced three new products during the quarter, viz: 1) Cenator: A fungicide for management of sheath blight in paddy; 2) Pulito: A fungicide for fruits and vegetables;and 3) Odis: An insecticide for management of sucking pests. While management mentioned previous quarter was an aberration primarily due to GST, growth in Q2FY18 came below expectation. To reflect the same, we adjust our FY18E revenue growth to 9%, which leads to 5%/4% cut in FY18/19E EPS. We continue to value Rallis at 18.0x FY19E EPS, giving us a target price of Rs 223. We maintain ‘HOLD’.

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