Buy Rallis India; target of Rs 193: Prabhudas Lilladher

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Buy Rallis India; target of Rs 193: Prabhudas Lilladher

Prabhudas Lilladher is bullish on Rallis India and has recommended buy rating on the stock with a target of Rs 193 in its October 20, 2011 research report.

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Prabhudas Lilladher is bullish on Rallis India and has recommended buy rating on the stock with a target of Rs 193 in its October 20, 2011 research report.

"Rallis India's (Rallis') consolidated net sales grew by 19.4% YoY to Rs4,395m (PLe - Rs4,637m), primarily driven by volumes, while agrochemical price improvement has also supported the sales growth marginally. Overall rainfall was good, with widespread rainfall, leading to good acreages in sowing. However, timing and distribution caused disruptions and affected the domestic business conditions. It leads to lower-than-expected sales during Q2FY12. Continuous rain in the North and East India affected sowing of bajra and vegetables that has affected seeds sales. Management has indicated that International sales have grown faster than domestic sales."

"Company's EBITDA grew by 10.6% YoY to Rs975m (PLe - 1177m). Standalone EBITDA margin was lower by 90bps YoY to 23.1%, mainly due to forex loss (impact of 20-30bps) and sales of lower margin products. Consolidated EBITDA margin was lower by 170bps YoY to 22.2% since Q2FY12 was an off-peak quarter for the seed business and fixed (R&D, Employee cost) expenses, resulting in EBITDA loss (~Rs35m). Depreciation has increased by 83.4% YoY to Rs73m, mainly on account of capitalization of Dahej plant during June 2011. Consolidated PAT was flat YoY to Rs585m. (PLe - Rs742m)."

"We have downward revised our FY12E/FY13E estimates by 10.5%/6% on account of considering lower EBITDA margin. However, we expect that Rallis' long-term growth prospect will remain intact. At the present valuation (one-year forward P/E of 15.1x), Rallis is trading at par/premium v/s global as well as domestic peers on account of better financial, focus on branded products, higher return ratio's and synergy with Tata Chemicals. We strongly believe that Rallis will trade at a premium, going forward too. We expect that Rallis could positively surprise in the future, on the back of its land bank (85 acres in Hyderabad and 25 acres in Mumbai), strategic stake in Advinus Therapeutics and income from pulse initiatives. We have not considered any of these factors in our estimate. We maintain our "BUY" rating on stock, with the target price of Rs 193 (i.e. 18xFY13E)," says Prabhudas Lilladher research report. 

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