Despite good Kharif season, analysts cut earnings estimates for Rallis

Analysts have cut earnings estimates due to labour and logistic issues in India, demand and price overhang in international business

The impact of the Covid-19-led disruption is clearly visible on Rallis India’s March quarter (Q4) performance. What’s worse is that analysts believe the disruption, along with other business-related issues, will weigh on the agri products and services major’s performance in FY21, too. Not surprising then that its stock price is down nearly five per cent to Rs 214.15 in the past two trading sessions.

Dispatches, both in international and domestic businesses, are impacted, leading to a modest 2 per cent year-on-year growth in topline. Rallis highlighted that supplies worth Rs 16.04 crore could not be completed in the domestic arena, while the impact on transportation services meant that exports saw lower shipments, to the tune of Rs 53.18 crore. Analysts say adjusting for the loss of supplies, the top line would have grown by 22 per cent in Q4. Rallis also took a one-time charge due to slow movement of stock and receivables amid the lockdown. This, coupled with mark-to-market loss due to rupee depreciation and actuarial losses, led to an operating loss of Rs 9.8 crore. The firm benefited from extraordinary income of Rs 11 crore, without which it would have clocked a loss at the net level too, as compared to the reported profit of Rs 0.65 crore.

 

Rallis expects gradual recovery with improved manpower availability and logistic issues being addressed. The off-take of five of the six new products launched in FY20, too, has been encouraging, and Rallis has reaffirmed its plan of introducing at least two new formulation products annually in the medium term. Export opportunities lost in Q4 will also be recovered in subsequent quarters. However, there are challenges as well.

Though the kharif season’s prospects remain bright, meeting demand could be a challenge, given labour issues across key facilities, say analysts. Further, two key products – Pendimethalin and Metri-buzin – continue to see pricing pressure due to inventory overhang in the US market and pickup in realisations is seen only from the second half. While Rallis may get some respite from lower raw material prices, a contract manufacturing product is facing issues due to its application in the aerospace business, say analysts. Likewise, expansion of Metribuzin phase 2 may start soon and support volumes in FY21, but the upcoming formulation plant at Dahej is expected to get delayed by six months. In this backdrop, analysts have cut estimates. Pratik Tholiya at Elara Capital has cut earnings estimate by 10 per cent for FY21 and 13 per cent for FY22, and the stock’s target price to Rs 253-Rs 292. Kotak Institutional Equities, too, has given hold rating after cutting FY21 earnings by 15 per cent. Overall, FY21 earnings is expected to grow by only 10-12 per cent.