Capacity expansion, new launches to drive growth for Rallis India

While revenue growth was robust in Q4, weak mix, costs dented profits

Led by strong showing in the exports segment, Rallis posted better than expected revenue performance in the March quarter. The international segment sales was up 75 per cent over the year ago quarter (24 per cent growth adjusted for lower base) on the back of volume gains across products. For FY21, though the volume growth remained strong, revenue growth in the segment came in at just under 3 per cent due to a 40 per cent decline in prices of herbicide Metribuzin. Prices of the product in which the company has a 20 per cent global market share however have been improving over the last quarter.

To improve the growth momentum in the exports market, the company is looking at capacity expansion which includes doubling the manufacturing capacities of Metribuzin and increasing the product basket with a new product addition to the existing portfolio of five products. Further, it is looking at improving its product mix through registrations, higher share of formulations, lower dependence on China through backward integration and tappin into the contract manufacturing opportunity. The company is planning to increase the revenue mix of international business to 40 per cent by FY25 from the current 37 per cent. 

For the domestic segment, sales growth came in at 15 per cent led largely by volume growth even as prices were under pressure. The company launched a new fungicide and insecticide combination in the quarter taking the total new launches to four in FY21; it plans to introduce two new products every year. The company’s plan to expand its distribution footprint both for the crop protection and seeds business should help support growth. The outlook for the domestic market in FY22 is strong led by forecasts of normal monsoon. 

While topline growth was robust, there was pressure on profitability due to a delay in the ramp up of new products resulting in higher share of lower margin legacy products. Lower gross margins, higher sales and marketing as well as employee costs dented profits in the quarter. 

Despite the Q4 profit miss, most analysts are positive on the long term prospects of the company. IIFL Research is optimistic given the commissioning of growth capacities and tailwinds from the Indian government’s much-anticipated Production-Linked Incentive (PLI) scheme and possible contract manufacturing tie-ups.