Shares of Rallis India Ltd on July 18 opened sharply higher after Tata Chemicals said in a notice to exchanges that it has bought 9.7 million shares of the company through a block deal.
At 9.15am, the Rallis India stock was trading at Rs 228 on the BSE, up 6.05 percent from its previous close. The benchmark Sensex gained 0.35 percent to 6,6828 points.
Tata Chemicals acquired 4.99 percent stake in Rallis India at Rs 215.05 a share and the total deal was valued at Rs 208.60 crore. The acquisition has raised Tata Chemicals' stake in Rallis to 55.04 percent from 50.06 percent.
The company recently reported a 5 percent on-year drop in net profit at Rs 63 crore for the April-June quarter, while its revenue from operations too declined 9 percent to Rs 782 crore over the last year.
Rallis India’s profit numbers were pulled down by its crop care segment, which procured low business on account of delayed monsoon and easing fertiliser costs. Revenue from the crop care business fell 9 percent on-year in Q1FY24, the company said in an analyst call presentation.
The Rallies India management offered a cautious outlook for FY2024 exports, while brokerage firm Kotak Institutional Equities see erratic rainfall as a risk to the company's domestic growth. "We revise the FY2024/25 EPS up by 6 percent each and remain cautious with a June 2024 FV of Rs220 (18X June 2025E P/E)," Kotak said.
Rallis, in its 1QFY24 report, experienced a 9 percent year-on-year decline in revenues. Despite this, the company effectively minimised the decline in EBITDA to just 2 percent through strategic measures such as optimising the product mix, controlling operating expenses, and implementing pricing actions.
Looking ahead, the management remains cautious about the exports business, anticipating a gradual recovery in the second half of FY2024 once channel inventories ease out. However, there is more positive sentiment surrounding the domestic business due to the recent increase in monsoon rainfall, which has been viewed as a favourable indicator.
"We would remain cautious, considering the very erratic spatial distribution of rainfall witnessed thus far — with northern India facing floods and the south and west of the country experiencing rainfall deficits—as well as risks of El Niño-related disruptions. On the margin front, falling input costs are unlikely to boost margins as customers demand reductions in finished product prices amid what is currently a buyer’s market given oversupply out of China. Price declines could well continue to weigh on margins in coming quarters," Kotak said in its latest report.
Kotak has expressed concerns about the agrochemical industry, stating that channel inventories continue to be at elevated levels in crucial regions. Although crop prices are favourable and expected to support farmer demand, the agrochemical business remains heavily dependent on climate conditions. Looking forward, the outlook for FY2024 is uncertain due to apprehensions about the potential impact of El Niño.
"Aside from these near-term uncertainties, the structural problems that Rallis continues to grapple with are — (1) its genericised product portfolio and (2) its heavy reliance on China for raw materials. While the management is making efforts to address both these challenges, any significant positive results may take years to become visible. In
in this backdrop, valuations are still not attractive enough to warrant a positive stance, in our view," the Kotak report said.
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