Rallis earnings were largely in line with estimates, with international business and seeds segment dragging the overall performance while domestic segment did modestly better than expectations. Though, on-ground sentiment in domestic crop care and seeds business remains positive with pick-up in Monsoon, the outlook for international business remains challenging given pricing headwinds and high channel inventory. Ramping up of MPP remains the only driver for earnings in FY24. Analysts of IIFL Capital Services cut FY24-25 EPS by 13-5% to factor near-term pricing pressures. With a Sep’25 EPS (roll forward from Jun’25) target multiple of 18x, their TP moves up from Rs215 to Rs220.
Weak results:
Sales decline of 9.4% was led by ~30% decline in international business while domestic crop care was down 4.5% YoY. Seeds segment was flattish (down 1.9% YoY). Adjusting for Rs200mn provision in seeds segment during Q1FY24, Ebitda margins contracted by 129bps YoY to 14.1%. Seeds business declined by 2% YoY while higher marketing spends which led to contraction in margins. As per the management, the company was able to protect margins due to better product mix, timely pricing intervention and efficient sourcing of raw materials.
Pricing pressure and high channel inventory to persist:
International business was impacted due to steep price correction, depressed selling amid higher channel inventory. Generic agrochemicals like Acephate, Hexaconazole and Metribuzin have seen steep price decline while Pendimethalin was largely stable. The pricing pressure continue to persist and will flow through Q2FY24 as well.
Cautious outlook:
Rallis gave a cautious outlook for its international business and remained optimistic about domestic crop care segment. New product launched in FY24 (3 so far) and ramp up of MPP (trial batches have commenced, 60% utilisation by end FY24) will drive earnings for FY24. The focus would remain on maintaining absolute EBITDA and cash flows amid challenging business environment.
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