Buy Rallis India; target of Rs 209: Emkay

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Buy Rallis India; target of Rs 209: Emkay

Emkay Global Financial Services is bullish on Rallis India and has recommended buy rating on the stock with a target of Rs 209 in its August 17, 2011 research report.

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Emkay Global Financial Services is bullish on Rallis India and has recommended buy rating on the stock with a target of Rs 209 in its August 17, 2011 research report.

"Rallis India reported consolidated revenues of Rs 3.0bn, +47% yoy, higher than est of Rs 2.7bn. This was primarily on account of higher than expected revenue contribution of Metahelix, the seed business, in which Rallis acquired 53.5% stake in December 2010. Rallis reported consolidated EBITDA of Rs 435mn, +92%yoy, led by higher EBITDA margins in Metahelix. Consolidated APAT of Rs 231mn, +56% yoy, was higher than est of Rs 136mn."

"Domestic agrochemical industry has grown at 12-15% pa in last 3-4 years and the management sounded confident about the sustainability of such growth in long term (5- 6 years) despite growing base affect. Lower per acre consumption of agrochemicals in India (less than 1 kg / acre as against 6-10 kgs in various other markets), increasing affordability factors (thanks to rising MSPs across the crops) of the farmers, increasing education among the farmers (many programmes being organised by the various companies to educate the farmers about the adequate use of various agri inputs), launches of various new products in the market along with many other factors are likely to contribute to sustainable growth of agrochemicals in the country. Aggressive initiatives and agri reforms undertaken by few states like Gujarat, Maharashtra, Chhatisgarh and Bihar have resulted in higher growth in these states. Other states are also likely to step up reforms in their respective states which will drive growth in agrochemicals."

"Herbicides comprises of ~20% of agrochemicals market in India (approx Rs 75 bn) while globally herbicides accounts for 40-50% of total agrochemicals market. With rising labour cost in India and growing unavailability of labour, mainly driven by NREGA, farmers are switching from manual weeding to herbicides. Consequently, herbicide is growing at a faster pace of 25-30% as against industry growth of ~15%. The higher growth in herbicides is likely to continue on account of increasing labor cost. Though Rallis has been a late entrant in herbicide markets; it has been recently very aggressive in launching new products in herbicides. Among the three products launched in FY12 (Neon (I), Sonic (I) and Vaar (H) and products to be launched in near future Honcho (H), Cylo (H) and Saras (F)), three are herbicides. Herbicides products launched in previous year like Tarak are doing well."

"Our view on the industry / company is broadly in line with management's view. We expect growth in the agrochemicals industry to remain strong and Rallis being a market leader in many segments will continue to outperform. We estimate revenue CAGR (FY10-13E) of 20% and PAT CAGR of 30% with FY12E/FY13E EPS of Rs 8.9 / Rs 11.6. We have a BUY recommendation on the stock with price target of Rs 209 (18X FY13)," says Emkay Global Financial Services research report.

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