Rallis’s Q1 performance was hit by lower placement of stocks before consumption season due to prediction of drought this year and above-average opening inventory with channels at the start of the year. We expect Rallis to recoup growth in the rest of the three quarters. Hence, we maintain our earnings estimates for FY16-17e. We expect Rallis to post standalone EPS of Rs 9.3/ Rs 10.9 for FY16/ 17e. Maintain ‘outperformer’ with a target price of R310.
Rallis’s domestic pesticides business has been largely stable over the past five years (8.4% CAGR) as growth of the top revenue generating molecules peaked and there were no innovative product offerings to replace or refresh them. To revive growth, Rallis has introduced new formulations of the top revenue contributing molecules and new pesticides by in-licensing products from Dow Agroscience and Agrinos.
We expect the new launches to drive a 12% CAGR in the core pesticides business (~52% of FY14 revenues) over FY14-17e. Further, domestic business will see traction through increased sale of non-pesticide agriculture inputs (PGP, biological products, etc). An increase in share of revenues of the new products, which typically fetch higher margins, would lead to an 80-150bp ebitda margin expansion over the next three years.
