Rallis India - Q4FY22 Result Update - RM cost headwinds being the spoilsport - HOLD

Mr. Himanshu Binani, Research Analyst at Prabhudas Lilladher

Quick Pointers:

- Domestic business up 25% YoY on the back of 12%/13% growth in volume and prices.

- International business declined 8% YoY led by RM shortage of one key product and phasing out of one customer.

- Gross margins declined 660bps YoY led by RM cost headwinds and inability to fully pass on prices.

Rallis India (RALI) 4QFY22 results were lower than our and consensus expectations primarily led by miss on margins front. Despite revenue growth being in-line with our/cons estimates, RM cost headwinds during the quarter dented overall performance. Key highlights are: 1) domestic revenue grew 25% YoY led by both price and volume growth of 13%/12% YoY respectively (FY22 +14% YoY); while crop care segment was up 8% YoY (FY22 +11% YoY), 2) export revenues were down 8% YoY (FY22 +6% YoY), 3) seeds revenue remained flat YoY (FY22 -13% YoY), 4) pricing and volume pressure in metribuzin eased out, 5) there was pressure on margins, largely led by inflated RM cost and inability to fully pass on the cost, 6) launched 19 new products in FY22- 2 fungicides; 4 herbicides; 1 insecticide; 2 water soluble fertilizers; 3 bio pesticides, 1 organic manure and 6 hybrid seeds respectively and 7) ITI for FY22 stood at 11% (12% in FY21).

Going forward, we believe headwinds related to supply chain and availability of certain intermediates will likely continue in subsequent quarter. Though RALI took price hikes in recent past however it was not sufficient to mitigate entire cost inflation, hence more such hikes are possible in the near term too. Citing above reasons, we trim our estimates for FY23/24 by 8%/4% respectively. We expect RALI to clock revenue/PAT CAGR of 11%/9% over FY21-FY24E, led by domestic market share gain and export ramp-up. Maintain HOLD rating on the stock with revised TP of Rs260 based on 18xFY24 EPS.

Decent revenue growth offset by lower margins: Consolidated revenues stood at Rs5.0bn up 8% YoY (PLe Rs5.2bn) aided by 25% YoY increase in domestic revenues and 8% YoY decline in exports business. However, seeds revenues remained flat on YoY basis. Gross margins declined by 660bps YoY to 34.8% led by a) higher RM cost; b) inability to fully pass on inflated cost and c) Rs70mn write-off in seeds inventory that has in turn resulted into an EBITDA loss of Rs28mn. Crop care EBITDA margin declined 310bps YoY to 4.5%, while seeds segment reported EBITDA loss of Rs250mn as against a loss of Rs160mn in the base quarter. Other income dipped by 7% YoY to Rs75mn led by a) lower export incentive and b) lower yield on liquid investments. Adjusted PAT came at a loss of Rs142mn.

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