[T.S.R:18342] Rallis India-BUY

Rallis India Limited, an agrochemical company, engages in the manufacture and sale of pesticides, plant growth nutrients, and seeds in India and internationally. It offers insecticides, fungicides, and herbicides; cereals and fiber crops, hybrid varieties of maize and paddy, and cotton; fertilizers; and seed treatment chemicals, as well as household products, including Termex termiticide, Sentry synthetic pyrethroid insecticide, and Ralli cockroach control gel. The company also provides technical and bulk of various molecules to agrochemical manufacturers; and contract manufacturing services for technical grades/formulations and intermediaries. It sells its products through dealers and retailers.

 

Rallis India Limited operates as a subsidiary of Tata Chemicals Limited, which holds a 51.04% Stake in the company. Rallis India has 7 of the top 12 brands in the country. Top 3 brands of Company by revenue contributed close to 250 Crore in total sales of FY 10-11. The company has 6 factories located across the country including Dahej SEZ plant which commissioned this year. Rallis has a very strong distribution network covering 80% of India 's districts, and more than 1500 dealers and 30,000 retailers across India .

 

Rallis has recently added manufacturing capacities by setting up a new plant in Dahej (annual capacity of 5000MT). This plant has been set up in a special economic zone (SEZ) and will mainly cater to international markets. Rallis is seeing strong enquiries from customers for contract manufacturing. We expect this plant to scale up over the next 1-2 years and drive strong growth for the international business. Rallis should also benefit from excise and tax savings, given that the plant is located in a SEZ. The Dahej plant would be exempted from income tax and excise duties for the first 5 years of operations.

 

Investment Arguments

~ Industry Outlook

~ Strong capital management

~ Strong brands, innovative products and deep distribution driving market share gains in the domestic market

~ Higher productivity, scarce labor driving demand

~ Valuation

 

 

~Valuation

With Dahej Plant in place we think it will help company to boost both top line and bottom line going forward. We forecast EPS CAGR of 25% over FY12E-FY14E. We believe that stock should trade at 17-18x of its FY 13 PE and like to assign price target of Rs. 168 for 12-15 months perspective

 

 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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