Q3FY24 Review: Rallis India: Domestic sales holding up…

25 Jan 2024 , 03:06 PM

Rallis reported a 5% YoY decline in revenue, despite a 3% increase in volumes. Exports declined 26%, driven by a 15-30% drop in prices and weak demand, due to industry-wide inventory overhang. Domestic business reported a volume growth of 7% mainly in insecticides, while fungicide continued to face challenges. Margins have improved due to agile pricing, shorter procurement timelines and effective cost control measures. Management expects int’l business to recover only by end of Q1FY25. Analysts of IIFL Capital Services keep FY25-26 EPS largely unchanged. Analysts of IIFL Capital Services roll forward their TP to Mar’25 (from Dec’24). Their 1YF 18x Mar-26 P/E-based TP moves up to Rs235 (earlier Rs220). 

Volume growth in domestic despite flattish Rabi sowing: 

Rallis reported better than expected volume growth in the domestic crop care business on the back of new product launches. Domestic crop care reported 6% sales growth driven by 7% volume growth as the company aligned its placement and focused on marketing. Volume growth was largely visible in insecticides and in geographies like Andhra Pradesh and Telangana. However, fungicides faced challenges and registered volume decline. 

Headwinds continue in exports market: 

Exports business declined 26% mainly due to 15-30% price erosion in agrochemical prices. Latin America, a significant market for many Indian Agrochemical companies, posed challenges as demand remained subdued. North America and Europe encountered volume declines primarily due to channel inventory. The business is expected to recover by the end of Q1FY25. CSM business has seen slight improvement in the PEKK sales. The management was confident about growth in CSM business over the next 2-3 years as new products for catalog sales are being introduced. 

Seeds performance to be mixed next year: 

Seeds sales were better in Q3 as in addition to Diggaz, Aatish express also gained traction in cotton belts. Sales of other crops such as Paddy, Maize and Millet were steady. Though cotton seeds are expected to do well next year too, hybrid seeds production faced challenges this year which is likely to pose challenges to sales next year.