Accumulate Rallis India; target of Rs 177: Dolat Capital

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Accumulate Rallis India; target of Rs 177: Dolat Capital

Dolat Capital is bullish on Rallis India and has recommended accumulate rating on the stock with a target of Rs 177 in its October 21, 2011 research report.

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Dolat Capital is bullish on Rallis India and has recommended accumulate rating on the stock with a target of Rs 177 in its October 21, 2011 research report.

"Rallis India's consolidated revenue grew 19.4% YoY at Rs 4.4bn, mainly led by healthy volume growth and higher contribution from international business. Metahelix, however, recorded lower-than-expected revenue of Rs 30mn. Erratic rains affected sowing while also acreage under millets declined which is a key crop for Metahelix seeds. This quarter saw lower pest menace in paddy and cotton. EBITDA margins declined by 180bps YoY to 22.2% due to higher raw material costs at 59.7% of sales (up 240bps YoY) while employee expenses remained flat at 5% of sales. Metahelix recorded operating loss of Rs 35mn. Interest costs surged to Rs 39mn due to higher investment in Metahelix (raised stake to 73%) and higher working capital requirement due to increased promotional expenditure and scale up in operations."

"Depreciation too shot up by 83% YoY to Rs 73mn due to capitalisation of the Dahej facility (commenced operations in June 2011). The facility is expected to achieve optimum capacity utilisation levels by end FY12E. It is in active discussions with several Japanese companies for supply-based contracts. The company has launched nine new products, including four herbicides - - a fast growing segment. PAT (post minority interest) stood flat at Rs 585mn. Metahelix recorded a loss of Rs 33mn. Scale-up in revenues from its seeds business (Metahelix) and the recently commissioned Dahej facility are key growth drivers. Higher reservoir levels augurs well for rabi season."

"We expect growth momentum in the domestic segment to sustain on the back of an enriching product-pipeline. Scale up in the Metahelix business and incremental revenue contribution from Dahej aids overall growth momentum. At CMP of Rs 162, the stock trades at 20.2x FY12E and 15.6x FY13E earnings. We recommend Accumulate on the stock, with revised target price of Rs 177 (17x FY13E EPS)," says Dolat Capital research report.

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