Rallis India

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Microsec Research19 Aug 2011

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TABLE OF CONTENTS:

Topic Page No

Investment Highlights 03‐ 03

Company Overview 04‐ 04

Business Overview 05‐ 05

Industry Overview 05‐ 06

Investment Thesis 07‐ 13

Brand Building, Distribution and Relationship Models 07‐ 08

Product Portfolio and Contract Manufacturing agreements 09‐ 12

Dahej Plant to strengthen International Presence 12‐ 12

Acquisition of Metahelix 12‐ 13

Peer Group 14‐ 14

Key Management Profile 14‐ 14

Valuation 15‐ 15

Risk to the Rating 15‐ 15

Financials 16‐ 16

Disclaimer 17‐ 19

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We re-initiate coverage on Rallis India Ltd (Rallis). Our rating underpins the company’s

brand building activities, wide distribution network, and competitive research team with

technical innovation capabilities. Rallis has wide range of product portfolio, launching 3-6

new products every year. In addition to that, the company has strengthened relationship

with farming community and other end users through different service providing models

such as EAGLE, Rallis Kisan Kutumba, MoPu, Saathi, Bhagidari Sabhas, Apollo, and Disha.

Furthermore, commissioning of port based Dehaj facility to strengthen international

presence and acquisition of Seed Research Company Metahelix Life Sciences make Rallis

more attractive.

Investment Highlights

Brand building, distribution networks and maintaining relationship with the end

customers through various relationship models help the company to increase

market presence and therefore top line growth.

Technical innovation capabilities, deep understanding of organic chemistry and

systematic development of new products reduces product life cycle which are likely

to help Rallis launch 3-6 new products every year that helps the company to have

a wide range of crop and region specific product portfolios.

Port based Dehaj plant is likely to strengthen international presence through

capacity addition for contract manufacturing.

Acquiring 59.02% stake in Bangalore based seed research company Metahelix Life

Sciences, Rallis can access exclusive hybrid pipelines, regulatory clearance with

over 100 hybrids in pipeline, branded Dhaanya seeds, competent research team

which help the company to serve farmer in better way that is likely to make Rallis

competitive against the peers.

Rallis – Financial Performance at a glance

Particulars (In `Mn) FY2009 FY2010 FY2011 FY2012E FY2013E

Revenue 8,366.89 8,786.77 10,657.04 13,464.83 16,435.45

Growth(%) 24.03% 5.02% 21.29% 26.35% 22.06%

EBITDA 1,108.80 1,448.74 1,713.45 2,258.28 2,787.31

EBITDA Margins (%) 13.25% 16.49% 16.08% 16.77% 16.96%

Net Profit 720.19 1,014.88 1,260.37 1,566.24 1,952.44

Net Profit Margins (%) 8.61% 11.55% 11.83% 11.63% 11.88%

Net Profit Growth (%) ‐42.52% 40.92% 24.19% 24.27% 24.66%

EPS 6.01 7.83 6.48 8.05 10.04

BVPS 27.43 29.86 23.90 29.99 39.03

P/E 4.35 10.69 20.37 20.19 16.20

P/BV 0.95 2.80 5.53 5.42 4.17

EV/EBITDA 3.49 7.46 15.60 14.10 10.99

ROE 20.59% 23.91% 24.96% 23.68% 22.79%

Source: Company Data, Microsec Research

Rallis India Ltd- Rely on the Agro gold

BUY Sector- Agrochemicals

Current Market Price (INR) 162.60

Target Price (INR) 190.00

Upside (%) 17%

52 Week High/Low (INR) 174.3/116.67

Market Capitalization (In INR Mn) 31,620.66

Market Data

BSE Code 500355

NSE Code RALLIS

Bloomberg Ticker RALI IB

Reuters Ticker RALL. BO

Face Value (INR) 1.00

Equity Share Capital (In INR Mn) 194.47

Average P/E 21.9x

Beta vs Sensex 0.67

Average Daily Volume 74,186

Dividend Yield 1.2%

STOCK SCAN

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Company Overview

Rallis India Ltd (Rallis), subsidiary of Tata Chemicals Ltd is a leading crop protection player. The

company sells its products across 80% of India’s districts through the wide range of distribution

channels with supportive retailers and dealers. In addition to that, Rallis supplies technical grades

and intermediates to the different chemicals and agrochemical companies such as Bayer, Syngenta,

Excel, UPL, Gharda, Cheminova, Dhanuka and Nagarjuna. The company has manufacturing units for

pesticides and fine chemicals that are located in Ankleshwar, Akola, Turbhe, Lote, Patancheru and

Dahej. The flexible manufacturing process enables the company to produce new product in short

period of time with cost competitive advantages. It has got ISO 9002 certification for pesticides and

fine chemicals plants. By acquisition of 59.02% stake in Metahelix, Rallis has strengthened its

position in the seed business.

History & Background

Rallis was incorporated in the year of 1948 in Calcutta. It is headquartered in Mumbai.

Rallis: Event

Source: Company Data, Microsec Research

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Business Overview

Rallis has categorized its business into the Domestic Agri Business, Institutional Business,

International Business and Contract Services. Under the Domestic Agri Business, Rallis operates in

the area of pesticides, herbicides, fungicides, plant growth nutrients, seeds and also providing agri

services to the farming community. Rallis has about 13% market share in the `6000-7000 cores

insecticide business; a vertical which is estimated to have grown by about 12%-15% in India. This

segment is contributing 60% to the company’s total revenues.

Product Category Segment wise revenue contribution (%)

Source: Microsec Research, Company Data Source: Microsec Research, Company Data

Due to the performance of key brands, the domestic business showed 20% growth during FY11. In

the rising cost and labor shortage scenario, the company is providing knowledge to the farming

community about high yield seeds, crop management techniques and crop protection method to

improve the productivity of different crops. The domestic institutional business consists of crop

protections, seed treatment chemicals and household pesticides. Rallis has strengthen international

business through new registrations, alliances, contract manufacturing and also by setting up fully

owned subsidiary in Australia in the name of Rallis Australasia Pty Ltd to increase direct market

presence outside India. The International Business division registered 34% top line growth during

the year due to the rising price and demand of crop commodities.

Industry Overview

Global agrochemical industry is growing at a CAGR of more than 7.5% on account of rising food

prices during FY2009-FY2011. World’s total number of people is rising by about 75 million per year.

UN estimates that world population might reach 9 billion by 2050. Furthermore, the World Bank

estimates that food requirement will rise by 50% by 2030 driven not only by population growth but

also by an expanding middle class in developing countries with a growing preference for Western

diets. Besides rising population, decreasing rate of fertile land, changing weather pattern, growing

water scarcity are the other important factors for increasing food inflation. To reduce food inflation,

Government has to focus on increasing farm productivity by using sufficient region specific and crop

specific agri-inputs and investing in R&D-farm technology innovation.

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Indian agrochemical industry is one of the fastest growing sectors in the economy. With an

estimated worth of $28 billion, it accounts for 12.5% of the country’s total industrial production and

16.2% of the total exports from the Indian manufacturing sector. The future of pesticide industry’s

export is looking good as the share of generic products are going to increase driven by $4billion

agrochemical molecules are likely to go off patent and generic players will find opportunity to grab

the market share. In addition to that, the companies with strong R&D team and continuously

introducing new products are likely to be benefitted from the situation of getting banned of old

products or lose market share because pests are starting to become resistant.

Based on the application, agrochemical industry is segregated into insecticides, fungicides,

herbicides, bio-pesticides and plant growth nutrients. Out of the top 20 agrochemicals sold in India,

16 are from insecticide categories. However, global market is dominated by herbicides which have

48% share followed by 29% insecticides and 17% fungicides. In India, Andhra Pradesh, Tamil Nadu,

Karnataka and Punjab account for 50% of the total pesticide market.

Agrochemical Market Size (In ` Cr) Product Category in Agrochemical Industry


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Investment Thesis

Rallis is a leading crop protection player in India. In Q1 FY12, the company reported yoy growth of

19% and 12% in top line and bottom line respectively on standalone basis and after incorporate the

results of Metahelix, the consolidated top line and bottom line was escalated by 46% and 90%

respectively though it may not be comparable on yoy basis. The consolidated revenue of Rallis shows

12% growth (CAGR) over the period of 2007-2011 whereas bottom line jumped at an annual rate of

17% over the same period. The increasing trend of minimum support price of food commodity due to

the growing population and rising income level boost the demand of agri inputs. We expect Rallis is

likely to show good performance due to the acquisition of Metahelix and commissioning of Dahej

facility in the current fiscal year. The details analysis is as follows:

Brand Building, Wide Distribution Network and Relationship Model to increase market presence

Rallis has its presence worldwide over 50 countries through new registrations, alliances and contract

manufacturing. To increase direct market presence outside India, the company has also fully owned

subsidiary in Australia in the name of Rallis Australasia Pty Ltd. Around 23% of revenue

contribution coming from international markets like USA, South East Asia, Australia, and Africa.

According to the management, it is likely to contribute approximately 40% in the coming 2-3 years.

In domestic country, Rallis distribution network covers 80% of total districts with more than 4000

dealers and 30,000 retailers. The company has 7 regional offices, 28 area sales offices, 39 depots and

field staff headquarters with 400 field staff and more than 1000 field assistants across the country.

Worldwide Distribution Network of Rallis

Source: Microsec Research, Company Data

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Rallis is following differentiated strategies to penetrate market and promote its products. The

company has invested heavily in the brand building process. Through its wide distribution channels,

first it makes contact with the farmers; then different innovative strategies like posters, wall

paintings, video campaign, slides show in movie theaters, slogan designs, demonstrations, quizzes

and mass campaign Rallis creates awareness and enhances visibility of its products in the mind of the

farming community. Furthermore together with University of Agriculture and Department of

Agriculture, Rallis has conducted over 8000 demonstrations involving 20-25 farmers each for making

the farmers to familiar with good agriculture practices and right products. In addition to that, by

providing value added services like sms alert on crop prices, weather, and possible disease outbreak,

identifies current and future farmer’s needs, the company ensures customer satisfaction. Rallis

currently covers over 5 lakhs farmers and intends to scale up to 1 Mn farmers by FY12. Moreover

“Prema” visits are being organized wherein farmers from one area taken to other locations to observe

and learn good crop management practices from other farmers and newsletters in the name of Unnat

Kisan in local languages are circulated for better knowledge to the farming community. All of these

brand building and customer centric activities make the products of Rallis to be renowned and easy

to recall which in turn help Rallis for doubling the sales of Ergon, Takum, Applaud, Asataf, Manik,

Tata Metri and Taqat and help farmers to protect their crops effectively, improving yields and

ultimately improving farmers living of standard.

Relationship Models


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Product portfolios, new launches along with contract manufacturing agreements to boost growth

Agrochemical R&D is very similar to those Pharmaceuticals. Developing a molecule with registration

is time consuming, takes around 2-4 years and after that the product can be multibillion dollar

opportunity or a complete disaster. Indian agrochemical product registration process is one of the

stringent in Asia and takes around 2-3 years for approvals of each new formulation from the time of

registration as it has to undergo extensive field trials with respect to chemistry, toxicology,

metabolism, soil residue and packaging- labeling.

The strong R&D team of Rallis continuously focuses on developing innovative new products with

various combination and better efficacy. The technological superiority in the research department

and systematic development of new products reduces product life cycle which helps Rallis to launch

around 3-6 products every year that leads to have large number of innovative quality products in the

pipeline and make Rallis competitive in the Industry.

R&D Expenditure from FY2007-FY2011 Product Registration & Launched from FY2002-FY2011


Rallis Research Center is located at Patancheru, Andhra Pradesh. It is recognized by Department of

Scientific And Industrial Research under the Ministry of Science And Technology. During FY11, the

company has incurred R&D expenditure of `9.24 cores against `6.02 cores in FY10 towards the

product development and registration.

Awareness of Brands Rallis’ products in Safer & High Toxic Category (%)

YearProduct

Registration

Product

LaunchedKey New Products

2002‐03 4 3 Tata Reeva, Contaf Plus

2003‐04 7 6 Manik, Fateh, Samarth, Termex, Tatamida, Sentry

2004‐05 7 6 Anant, Daksh, Preet, Sartaj, Samarth, Prabal

2005‐06 4 3 Prabhaav, Spiro, Koranda

2006‐07 6 3 Applaud, Taqat, Nova

2007‐08 5 4 Takumi, Sedna, Royal, Ishaan

2008‐09 7 3 Mantis, Cartox S.P

2009‐10 5 3 Ergon, Balwan

2010‐11 4 3 Toran, Ralligold, Taarak

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New Products Launch in Proportion of Total sales Pesticides Revenue % Growth


Rallis has wide range of product portfolios depending on the nature of Indian climates and crop

pattern. Besides pesticides, herbicides, insecticides, the company has its presence in hybrid varieties

of maize, paddy, and cotton. Rallis’ new product sales contribute around 24-31% to its total sales.

Some of the popular products are Contaf, Contaf Plus, Master, Fujione, Fatch, Tata Metri, Tata

Panida, Daksh, Reeva, Asataf, Manik, Rogor, Ralligold, and Ergon. Our of these Contaf, Rogor,

Asataf, Tatamida, Contaf Plus, Applaud, Tatamono are the top seven brands out of twelve top crop

protection brands in India. In addition to that, the company has different household products such as

Termax, Sentry, and RalliGel to control cockroaches, houseflies, and mosquitoes.

Insecticides

Product Crop Pest

Asataf(Acephate) Tobacco, Sugarcane,Chillies,Fruits, Cereals Sucking & Chewing Insects

Anant(Thiamethoxam) Paddy, Cotton Plant Hopper, Green Leaf Hopper, Aphids, Jassids, Thrips

Applaud Paddy Nymph Stage of Whitefly, Planthoppers

Cartox G(Cartap Hydrochloride) Rice Stem Borer, Leaf Folder, Whorl Maggot

Cartox SP(Cartap Hydrochloride) Vegetables, Rice Stem Borer & Leaf Folder

Daksh(Indoxacarb) Cotton Bollworm, Diamond Back Moth

Electra(Carbamate Insecticide) Rice, chillies Caterpiller, Sucking pests

Endotaf(Endosulfan) Cotton, Pulses, Groundnut,rice,mango Chewing Pests,Hoppers

Impeder Cotton Bollworm,Whiteflies

Koranda 505(Chloropyrifos) Cotton Aphids, Jassids, Thrips, White fly, Bollworm

Manik(Acetamiprid) Cotton Aphids, jassids, White Flies

Nagata(Cypermethrin) Cotton,Fruit,Vegetables, Pulses Whiteflies,Bollworms,Caterpillars

Prabal(Profenofos) Cotton Bollworm,Jassids,Aphids, Thrips, Whiteflies

Ralo(Cypermethrin) Cotton, Fruit,Vegetables,Pulses Sucking, Chewing & boring pests

Reeva(Lambda cyhalothrin) Cereals, Potatoes,Vegetables, Cotton Chewing Pests,Hoppers

Rogor(Dimethoate) Crops Sucking pests, Chewing insects, Mites

Spiro(Thiodicarb) Cotton,Cabbage Bollworm

Tata Cyper(Cypermethrin) Cotton,Fruit, Vegetables, Pulses Sucking pests, Chewing insects, Boring pests

Tatamida SL(Imidachloprid) Cotton,Rice,Chilli,Mango,Sugarcane Aphids,Whiteflies,Hoppers,Thrips,Jassids,Termites

Tata Mono(Monocrotophos) Wide range of Crops Chewing & Boring insects

Tatafen(Fenvalerate) Wide range of Crops Chewing,Sucking,Boring insects

Tatafuran Cereals,Pulses,Oilseeds,Vegetables,Fruits Caterpiller, Sucking pests,Root grub

Tefethion(Ethion) Chillies,Cotton,Fruits, Vegetables Mites

Tritox Rice,Soyabean,Brinjal WhiteFlies,Leaf Folder,Girdle Beetle,Shoot & Fruit Borer

Volphor(Phorate) Rice,Sugarcane Stem Borers,BPH

Toran Cotton Sucking pests

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Herbicides

Fungicides


Over the year, Rallis has build strong relationship with different companies such as Bayer, Syngenta

India, Yara International, Borax International in the segment of agrochemicals, fine chemicals,

specialty chemicals, polymers and pharma intermediates for contract manufacturing of Technical

formulations and intermediates.

Product Crop Target Herb

Atrataf(Atrazine) Maize,Sorghum,Coffee,Oil Palm,Banana,pineapple,Guava Annual Grasses,Broad Leaved Weeds

Dhar(Isoproturon) Wheat Weeds

Fateh(Sulfosulfuron) Wheat Phalaris minor,Chenopodium album,Melilotus alba

Preet(Pretilachlor) Rice Echinochloa sp, Cyperus iria, Cyperus difformis, Pannicum repens

Sartaj(Piroxofop‐Propinyl) Wheat Polaris minor

Tata Panida(Pendimethalin) Soybean,Groundnut,Cotton,Mustard 51 types of annual grasses, broad leaved weeds

Tata Metri(Metribuzin) Wheat,Soybean,Potato,Tomato,Sugarcane Annual grasses,Broadleaf Weeds

Teer Paddy Broad Leafed Weeds

Teg(Metsulfuron Methyl) Wheat, Paddy Weeds

Taarak Paddy Weeds

Product

Blitox(Copper Oxychloride)

Captaf(Captan)

Contaf(Hexaconazole)

Contaf Plus(Hexaconazole)

Fujione(Isoprothiolane)

Master(Mancozeb+Metalaxyl)

Samarth(Hexaconazole)

Sultaf(Sulphur 80%)

Tata M45(Mencozeb 75%)

Target Fungi and Crops

Blights of potato,tomato,fruits diseases,mildew of tobacco,vegetables, diseases of coffee, tea

Wide variety of fungus in seeding stage & mature plant

Blight & leafspots of paddy,powdery mildew of grapes, Chillies

Powdery mildews, rusts,leaf spots in cereals, oil seeds, Rice Sheath Blight

Blast disease in Paddy

Downy mildew of Grapes, Late Blight of Potato & Tomato, Blotch of Onion, Damping off in Tobacco & Cardamom

Powdery Mildew & Fruit Rot in Chillies, Early Blight & Late blight in Potato

Powdery Mildew of Apple, Grapes, Cow pea, Moong, Urid, Pea, Chillies, Okra, Mango, Citrus

Brown & Black rust of Wheat, Blast of Paddy, Damping off of Chillies

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Contract manufacturing Agreements


Port based Dahej plant to strengthen International Presence

Rallis has set up agrochemicals manufacturing plant at Dahej in Bharuch district of Gujarat with an

investment of `180 cores. A portion of fund comes from internal accruals. As per Financial Times

Group, SEZ at Dahej is the top 25 best global economic zones. From this location, Rallis is likely to

get export benefit as well as tax benefit. The commercial production of this unit has been

commenced on June 2011. This plant is likely to add more production lines for its existing products

with the estimated production capacity of 45,790 MTPA besides 10,000 MTPA of formulations in the

solid and liquid form and make new room for introduction of new products for direct selling to the

farmers as well as contract manufacturing to serve its overseas clients in better manner.

Acquiring Metahelix a right strategic move for long term

A genetically modified seed company which develop pests resistance seeds to increase yield can be

the main competitor for an agrochemical company. From our view, the acquiring 59.02% stake of

seed research company, Metahelix through internal accruals is the right strategic move of Rallis for

the long tenure. As we know, seed industry has high entry barriers in the form of product

Intellectual Property, regulatory clearance, and substantial investment by the way of R&D,

manpower. In addition to that developing a typical product takes years of time to complete. By this

acquisition, Rallis is likely to be benefitted by getting diversified hybrid and genetically modified

product portfolio, regulatory clearance with over 100 hybrids in pipeline, competitive research team

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and well known Dhaanya brand. Furthermore, Metahelix is entering in Vietnam, Thailand,

Indonesia and Philippines for rice and maize hybrid.

Seed Industry Benefit of Rallis after acquiring Metahelix


The `6500 crores Indian seed market is the 6th largest in the world and growing at a rate of 12-13%

pa. Metahelix is an agricultural biotechnology company focusing on developing high technologies

crop protection and improved productivity hybrid seeds in rice, maize, cotton, millet, tomato, and

sunflower. Its research firms are situated at Bangalore, Hyderabad and Aurangabad.

Product of Metahelix


Product Varieties Duration(Days) Area of Adaptation

Paddy(DRH‐775) 120‐125 Haryana,Uttaranchal,Tamil Nadu, M.P, Jharkhand

Paddy)DRH‐748) 135‐140 A P, Karnataka, Maharashtra, Uttaranchal, Eastern UP, Orissa, Tripura

Maize(DMH‐8255) 115‐120 Irrigated‐assures rainfall areas

Maize(MM‐7314) 100‐105 All over India

Maize(DMH‐888) 100‐110 Assured rainfall areas

Maize(DMH‐849) 90‐100 All over India

Cotton(BADRI) 145‐150 Central & South India

Cotton(Badri plus Bt) 145‐150 A.P, Tamil Nadu, Gujarat, M.P, Karnataka

Cotton(MC 5112 Bt) 160‐170 A.P, Tamil Nadu, Gujarat, M.P, Karnataka

Cotton(MC 5103 Bt) 145‐170 Gujarat, parts of M.P

Cotton(MC‐3Bt) 145‐170 Punjab,Haryana, Gujarat, parts of M.P

Cotton(Rana Pratap Bt) 145‐170 Central & South India

Pearl Millet(MP 7792) 72‐75 Gujarat, Rajasthan, Haryana, UP, Maharashtra, Karnataka)

Pearl Millet(MP 7882) 78‐80 Gujarat,Rajasthan, Haryana, UP

Pearl Millet(MP 7872) 78‐80 Gujarat, Rajasthan, Haryana, UP, Maharashtra, Karnataka)

Sunflower(3389) 90‐105 All over India

Tomato(MANOHAR) 65‐70 All over India

Tomato(NISHA) 65 All over India

Tomato(AMRUTHA) 65‐70 All over India

Tomato(RANJITHA) 70‐75 All over India

Tomato(CHARMI) 70‐75 All over India

Tomato(PKM 1) 120‐125 All over India

Tomato(S22) 120‐130 All over India

OKRA(SENORA) 45 Southern States

HOT PEPPER(DCX‐3160) 65‐70 All over India

HOT PEPPER(DAMINI) 65‐70 A.P, Maharashtra

HOT PEPPER(PRIYA) 50‐55 Gujarat,A.P, M.P, Maharashtra

HOT PEPPER(UJJWAL) 53‐58 Central,Western & Northern Part of India

HOT PEPPER(REDHOT) 60‐65 All over India

HOT PEPPER(DHAANYA MEGA HOT) 65‐70 South, North, East

HOT PEPPER(ARUN) 70‐75 A.P, U.P,M.P

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Peer Group

Key Management Profile

R. Gopalakrishnan Chairman Vice Chairman in Hindustan Lever Ltd,

Chairman of Unilever Arabia, MD of Brooke

Bond Lipton & Director of Board of several

Tata companies

B.Sc(Physics) from Calcutta university,

Engineering from IIT Kharagpur, Advanced

Management Programme from Harvard

Business School

V. Shankar MD & CEO Chief Operating Officer in Phosphates

Business of Tata Chemicals

Chartered Accountant, Cost Accountant,

Company Secretary & Law Graduate

Girish Nadkarni CFO Vice President‐New Business, M&A,

Finance at Tata Chemicals Ltd & Tata

Industries Ltd, Head of Capital Markets

Practice at Avendus Advisors Private Ltd,

CFO of International Business, Placement &

Merchant Banking at HSBC

InvestDirect(India) Ltd

PGDM from IIM(A), ICWA

K. Venkatadri Executive Vice

President‐Sales &

Marketing

Senior Manager(Strategy & Business

Devlopment) of Tata Chemicals Ltd

Bachlor of Engineering(Mech)

Key Members in the Board

Revenues 10,657.04 56496.9 5412.25 3582.6

Growth (%) 21.29% 6.80% 21.47% ‐12.65%

EBITDA 1,713.45 10596.4 778.63 652

EBITDA Margins (%) 16.08% 18.76% 14.39% 18.20%

Net Profit 1,260.37 5576.2 511.12 428.3

Net Profit Margins (%) 11.83% 9.87% 9.44% 11.96%

Growth (%) 24.19% 5.98% 40.66% ‐20.42%

EPS 6.48 12.45 10.22 49.63

BVPS 25.96 80.68 34.08 433.74

P/E 20.37 12.08 7.63 38.84

P/BV 5.09 1.86 2.29 4.44

RoE 27.12% 16.60% 38.20% 11.80%

EV/EBITDA 15.70 12.35 5.72 29.03

Source: Microsec Research, Company Data, Bloomberg, Ace Equity; FY11

Particulars (In `Mn) Rallis IndiaUnited

Phosphorus

Monsanto

India

Dhanuka

Agritech

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Valuation

We adopted a comparable valuation method to value Rallis based on Price-to-Earning (P/E)

multiples. Currently, Rallis is trading at 16.2x on its FY13 EPS (E) of `10.04. In the longer

run, we expect the company continue to trade at a premium over the peer group average

P/E based on its right strategic move and outperformance. As a result, we assign the multiple

of 19x and arrive at a target price of `190 for the stock. Our target price translates a 17%

upside over Rallis’ current stock price.

Rallis: P/E Bands:

Source: Company, Microsec Research, Bloomberg

Rallis: EV/EBITDA Bands:

Source: Company, Microsec Research, Bloomberg

Risks to the Rating

Rallis is highly dependent on weather. The fluctuation of rainfall and its distribution

may affect the top line growth of the company.

Fluctuation of exchange rate and oil price has effect on margins as well as earnings.

Any legislation related issue on key products may affect its revenue.

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Financials (All numbers in ` Mn unless specified)

Income Statement (In `Mn) FY2009 FY2010 FY2011 FY2012E FY2013E

Revenue 8,366.89 8,786.77 10,657.04 13,464.83 16,435.45

Gross Profit 3,295.03 3,731.60 4,320.93 5,557.16 6,797.56

EBITDA 1,108.80 1,448.74 1,713.45 2,258.28 2,787.31

Dep 229.49 183.10 174.85 295.51 444.45

EBIT 879.31 1,265.64 1,538.60 1,962.77 2,342.86

Interest 34.31 27.29 39.85 51.69 57.84

Other Income 227.39 288.75 345.96 511.66 706.72

PBT 1,072.39 1,527.11 1,844.71 2,422.74 2,991.74

Tax 352.20 512.22 580.41 799.51 978.30

Net Profit 720.19 1,014.88 1,260.37 1,566.24 1,952.44

Adj EPS 6.01 7.83 6.48 8.05 10.04

Cash Flow Statement (In `Mn) FY2009 FY2010 FY2011 FY2012 FY2013

Net Profit Before Tax 1,072.39 1,527.11 1,844.71 2,422.74 2,991.74

Dep 229.49 183.10 174.85 295.51 444.45

Intertest(Net) 30.73 22.73 25.01 51.69 57.84

Operating Profit before WC Changes 1,297.34 1,723.38 1,920.37 2,769.94 3,494.03

Operating Cash Flow 1,391.47 2,150.25 987.26 1,961.22 2,175.75

Investing Cash Flow (1,423.49) (912.47) (1,441.07) (1,013.33) (859.41)

Financing Cash Flow 30.29 (1,202.83) 452.63 (46.05) (52.23)

Net Change In Cash (1.73) 34.95 (1.18) 901.84 1,264.10

Opening Balance 70.25 68.53 103.48 116.90 1,018.74

Closing Balance 68.53 103.48 116.90 1,018.74 2,282.85

Balance Sheet (In `Mn) FY2009 FY2010 FY2011 FY2012E FY2013E

Share Capital 999.85 129.65 194.47 194.50 194.50

Reserves & Surplus 2,497.54 4,114.91 4,854.75 6,420.98 8,373.43

Shareholders' Funds 3,497.39 4,244.56 5,049.22 6,615.48 8,567.93

Secured 248.11 16.12 1,087.31 1,092.92 1,098.53

Unsecured 576.64 65.01 84.82 84.82 84.82

Loan Funds 824.75 81.13 1,172.14 1,177.75 1,183.36

SOURCES OF FUNDS 4,322.14 4,325.69 6,275.11 7,903.99 9,923.04

Gross Block 3,376.57 3,090.97 4,056.88 5,056.88 5,856.88

Accumulated Dep/ Amor 1,790.68 1,563.50 1,742.53 2,038.04 2,482.49

Net Block 1,585.88 1,527.47 2,314.34 3,018.84 3,374.39

Capital Work in Progress 290.71 1,120.29 1,694.51 1,694.51 1,694.51

Fixed Assets 1,876.59 2,647.76 4,008.85 4,713.35 5,068.90

Investments 1,361.53 1,402.30 255.97 269.30 328.71

Inventories 1,492.51 1,488.70 2,289.20 2,379.47 2,897.89

Sundry Debtors 1,159.91 755.06 1,063.50 1,106.70 1,350.86

Cash & Bank Balances 81.86 118.97 145.75 1,047.59 2,311.69

Other Current Assets 11.26 14.59 12.84 15.86 21.61

Loans & Advances 773.57 886.17 1,154.22 1,280.34 1,568.08

Current Assets, Loans & Advances 3,519.11 3,263.47 4,665.51 5,829.96 8,150.14

Current Liabilities & Provisions 2,607.92 3,041.32 3,891.49 4,144.89 4,860.98

Net Current Assets 911.18 222.15 774.01 1,685.07 3,289.16

APPLICATION OF FUNDS 4,322.14 4,325.69 6,275.11 7,903.99 9,923.04

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[email protected]

Microsec Research: Phone No.: 91 33 30512100 Email: [email protected]

Ajay Jaiswal: President, Investment Strategies, Head of Research: [email protected]

Fundamental Research

Name Sectors Designation Email ID

Nitin Prakash Daga IT, Telecom & Entertainment AVP-Research [email protected]

Naveen Vyas Midcaps,Market Strategies AVP-Research [email protected]

Nitesh Goenka Metal & Mining Sr. Research Analyst [email protected]

Abhisek Sasmal BFSI Research Analyst [email protected]

Sutapa Roy Economy Research Analyst [email protected]

Gargi Deb Agriculture & Pharma Research Analyst [email protected]

Technical & Derivative Research

Vinit Pagaria Derivatives & Technical VP [email protected]

Ranajit Saha` Technical Research Sr. Manager [email protected]

Institutional Desk

Rajiv Lilaramani Institutional Equities Sr. Manager [email protected]

Dhruva Mittal Institutional Equities Manager [email protected]

PMS Division

Siddharth Sedani PMS Research AVP [email protected]

Sarmistha Rudra PMS Technical Research Analyst [email protected]

Research: Financial Planning Division

Shrivardhan Kedia FPD Products Manager Research [email protected]

Research-Support

Subhabrata Boral Research Support Executive [email protected]

**Rating Scale

Recommendation Expected absolute returns (%) over 12 months

Strong Buy >20%

Buy between 10% and 20%

Hold between 0% and 10%

Underperform between 0% and -10%

Sell < -10%

- 18 -


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