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  • Stock Recommendation: Rallis India — Add — TP Rs 220

    Publish date: 19th July, 2018

    Robust revenue growth offset by weaker margins

    Rallis India produced healthy revenue and profit numbers this quarter, but all that fine work was done in by weaker margins.

    Key Highlights

    • Rallis posted a two-year revenue growth of 13% due to volume growth in domestic pesticide business. The year-over-year growth is 30% but that is due to last year’s GST-related disruptions.
    • Part of TATA enterprise, Rallis recorded a 21% increase in net profit from previous year.
    • However, the weak margins took the gloss off the report card. The rising cost of raw materials meant that the EBITDA margin shrunk by 120 basis points to 14.5%. Raw material prices have increased due to falling Chinese supply.
    • Its acquisition, Metahelix, delivered an 11% revenue growth. But unlike its parent company, the margins here contracted by 7%.

    Valuation & outlook

    We foresee the current problem of high raw material prices to tide over from FY2020 onwards. We also feel that the company’s export business will recover and its acquisition will perform better with time.

    Keeping these factors in mind, we expect Rallis to deliver a 16% growth in EPS between FY2019-21.

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