Rallis: Investors should wait for consistent performance in upcoming qtrs

What has helped the performance in the quarter, especially in the domestic business, is the early kharif season which resulted in stocking up of products in the June quarter

Led by its domestic crop protection business, Rallis India posted a better-than-expected performance in the June quarter. A strong rabi season, remunerative prices, good monsoon, and reservoir levels led to higher demand for its products in the domestic market, helping buttress revenues which were up 6 per cent year-on-year.

What helped the performance in the quarter, especially in the domestic business, was the early kharif season. This resulted in the stockpile of products in the June quarter.

The domestic formulations segment saw 26 per cent growth. This could moderate in the coming quarters. Its seeds business, however, disappointed, with lower volumes due to underperformance in the cotton segment. The international segment, too, saw pricing pressure, especially in herbicide Metribuzin, though the company indicated that profitability for the product is intact, given the lower raw material prices.

The higher share of formulations and better price realisations led to a sharp 35 per cent increase in operating profit. This, coupled with lower fixed costs, helped improve the operating profit margins by over 400 basis points to 19.3 per cent. Its bottom line saw higher growth of 38 per cent in the quarter as the company opted for a lower tax rate.

 

 

The company is looking at maintaining its growth momentum on the back of new product launches. 
 

It had launched six products in 2019-20 and expects to get the full benefits of the launches in the current financial year. The management also indicated that logistics- and labour-related issues have reduced. With the September quarter being a peak season for fungicides and insecticides, the company expects volumes to remain strong in the current quarter as well.

In addition to the product pipeline, enhanced distribution and changes in channel policies are expected to help perk up sales. The company, which has 6 per cent market share in the domestic crop care space, is looking at growing its business at a faster clip than the industry average and take its share to 8 per cent. It is planning to launch two new formulations annually and increase the launches in the herbicides segment.

The stock, which has doubled since its lows in March, was down 1.2 per cent in trade. Given the sharp gains, investors should await consistent performance in the next few quarters before taking exposure to the stock.