Monday, September 20, 2010

>RALLIS INDIA: Strong volume driven growth

We met Rallis India's (Rallis’) management recently and key takeaways of the meeting are:

Strong volume growth in domestic market: Domestic market is growing well, aided by a strong volume growth (YoY) of more than 15% along with a good Kharif season owing to a well-distributed rainfall. Domestic agrochemical prices, though lower on YoY basis (~3% YoY), are stable on QoQ basis. We believe that on the back of a strong product portfolio and distribution network, Rallis is expected to show higher growth than an overall domestic market.

Adverse exchange rate and lower prices affect exports adversely: Rupee has appreciated ~4% v/s USD, while agrochemical prices are still lower by ~10% on YoY basis during the Q2FY11. Both are affecting the exports of agrochemical industry adversely at present. We believe that companies which have a higher exposure in the export market could take a hit in the revenue growth. EBITDA margin is also expected to be under pressure. Further, we believe that Rallis is expected to show higher growth (during Q2FY11) on the back of a low base effect.

Strategic investment has started bearing fruits: Rallis has a ~16% stake in Advinus Therapeutics (Advinus), with a total investment of ~Rs27cr. Advinus is a research-based pharmaceutical company founded by a leading global pharmaceuticals executives and promoted by the Tata Group. Company offers development services to pharma, agro and biotech industries and is in loss at the current net profit level. Advinus discovered a novel molecule for the treatment of diabetes. Earlier, lots of other companies tried to discover this molecule, but failed. Advinus is now looking for a JV with global pharma companies to market the product. We believe that this type of single product could turn Advinus profitable and create a huge value for strategic investor like Rallis.

To read the full report: RALLIS INDIA