Rallis India

About the company

Rallis India, a Tata Group company Group Co., has a history of over 150 years. The company is into manufacturing of Agrochemicals and is present across the value chain of agriculture inputs – from seeds to organic plant growth nutrients. Rallis is also in the business of contract manufacturing for global corporations.

Q4FY22 Updates

Financial Results & Highlights

Detailed Results:

1. The company had a poor quarter with revenue increasing by 7% due to shortage of key raw materials coupled with phasing issues with one of its international clients.
2. Company reported negative PAT of Rs.14 Cr Vs positive PAT of Rs.8 Cr YoY.
3. EBIDTA margins for the quarter were flat.
4. EBIDTA was hit due to higher provisions for slow moving seeds coupled with opportunity loss in the form of short of inputs
5. EBITDA percentage for full year stands at 10.5% as against 13.3% in the base year which was impacted due to pricing volatility and inability to fully absorb seed inflation and the mix led headwind because of de-growth in seeds.
6. The board recommended dividend of Rs.3 for the FY22.

Investor Conference Call highlights:

1. Domestic business growth was soft due to soft Rabi season & rapid spread of black trips in the South coupled with the resurgence of Covid in the early part of the quarter according to the management.
2. The revenue growth for the entire industry was primarily price driven which was a result of high costs of inputs.
3. The management states that on the exports front, demand for agrochemicals continued to remain strong driven by remunerative crop prices and supply shortages from China.
4. In a bid to strengthen its product portfolio, the company added 7 new products in the current fiscal of which 3 were 9(3) products, 2 were 9(4) products & balance 2 products were through co-marketing. 
5. The company aims to launch at least 2 9(3) products annually.
6. Despite these new introductions, the company’s ITI was around 11% which is lower than the target of 15%.
7. Domestic seeds business continued to remain under challenge.
8. Herbicides grew 20% YoY while Insecticide & Fungicide grew 5% YoY.
9. The company’s retailer count was at 55,000 Vs 47,000 while its distributer count was at 4,100 Vs 3900 YoY.
10. The crop protection segment grew by 17% YoY every quarter in FY22.
11. In FY22, the company added six new products in the crop nutrition segment, two in-house and four through co-marketing
12. Seeds business didn’t perform well in the current fiscal due to increased demand for illegal herbicide tolerant cotton seeds impacting the overall growth momentum and profitability of the business according to the management.
13. The company’s retail footprint in the seeds business stood at 38,000 Vs 31,000.
14. The management states that capacity expansion undertaken for Kresoxim-methyl, Acetamiprid and Lambda-Cyhalothrin have started contributing to the overall growth of the business.
15. The company’s realizations have improved by around 5% in the domestic crop protection segment and 14% in the international business, but these efforts haven’t offset the impact of raw material inflation.
16. The management expects to start the operation of Acephate formulation in Brazil by H1FY23 which will help in increasing the share of the formulations business.
17. The company has started taking efforts to reduce supply dependence on China by finding suppliers in the local markets although the Chinese contribution remains above 50%.
18. The management states that the company is on track towards introducing one new AI, Difenoconazole from the new multi-purpose plant in FY 23 & its new formulation facility at the Dahej CZ is also stabilizing & gearing up for larger volumes in FY 23.
19. The company will liquidate its large inventory of seeds through prudent commercial interventions which will have an impact on EBIDTA margins.
20. Shift towards increasing the share of formulation products has sustained growth and margins of the domestic crop protection business.
21. The company’s Seeds business contribution to overall revenue dropped by 3% during the year. Since this business makes higher material margins in the range of 15% to 20%, margins were impacted by 50 bps by this shift in mix.
22. The company’s total capex for FY22 stood at Rs.185 Cr & plans to do a capex of Rs.250 Cr in FY23.
23. The growth of Metribuzen chemical was stalled due to a high inventory overhang in the market, but the management expects it to bounce back by Q2.
24. Out of the growth of 25% in the crop protection segment, there was an equal split between contribution from price & volumes.
25. The management believes that since on the illegal cotton side, the availability is even higher than last year, it does not see the challenges in its seeds business slowing down during the year.
26. The international revenue for FY22 is Rs.780 Cr.
27. The management recognizing the demand and stronger realization of pyrethroids have invested in a dedicated Lambda Cyhalothrin facility.
28. The management expects a soft Q1 as the volatility and uncertainty will continue on input availability as well as raw material pricing front, which will affect margins.

Analyst’s View:

Rallis is one of the leading crop-care & seeds companies in India. It had a bad quarter with revenue growth of 7.5% YoY and Loss after tax of Rs 14 Cr in Q4. The company continues to see price inflation in raw materials. The demand scenario in the agrochemical space remains robust due to good crop prices available in India and supply shortages from China. Meanwhile, the company continues to see pressure on the high margin domestic seeds business which is also diminishing the overall margin profile for the company. Furthermore, the management expects to see soft demand in the coming quarter due to rising raw material prices and input unavailability. It remains to be seen how the company will be able to tackle inflation and raw material supply problems and how long will it take for the seeds business to get back on track. Nonetheless, given the company’s strong market position and operational history, Rallis India remains a good Chemical stock to watch out for.