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Uncertain outlook for agriculture poses risk for Rallis Indiaqrcode

Nov. 2, 2015

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Nov. 2, 2015

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Rallis India Ltd reported weaker-than-expected performance for the September quarter. Consolidated sales dropped 21%, whereas the Street was expecting low single-digit sales growth. Operating profit and net profit fell by around one-fifth.

Its export business, which was supposed to cushion the company from domestic weakness, did not fare better either. Business from Brazil, a major market, has been hit by currency devaluation and drought. Higher inventories and low crop prices impacted demand in the US.

In India, deficient monsoon rain and a long dry spell has hit Rallis hard. Monsoon deficiency has affected acreage growth and yields. Add low farmer incomes to this and the situation has put “enormous pressure” on the industry, V. Shankar, managing director and chief executive officer of Rallis, said in a statement.

In states such as Maharashtra, agrochemical usage was hit by low pest infestations. A substantial part of the cotton crop in Punjab was damaged by the whitefly pest, reducing the market for agrochemicals. In other states, uneven rain affected insecticide and fungicide usage.

The indications for the coming rabi season suggest the tough conditions may continue. The winter crops are mostly river-fed and are facing uncertainty due to low soil moisture and water levels. By the third week of October, reservoir levels reached only 58% of the total storage capacity. This is 76% of the average availability during the last decade, according to the Central Water Commission.

Such low reservoir levels cloud the crop outlook which, in turn, dims the prospects for agriculture inputs such as agrochemicals, analysts say. “India’s rabi crop is primarily irrigation or reservoir dependent. Overall reservoir storage is down 22-23% versus last year and the past 10 years’ average,” Edelweiss Securities Ltd said in a note. “We believe sustenance of the situation will cloud rabi crop outlook as it is largely dependent on reservoirs.”

If the domestic situation plays out as feared, and the international business does not pick up, Rallis may see a drop in full-year sales. The first half of a fiscal year is seasonally strong for Rallis. Last fiscal, 61% of annual sales were booked in this period.

In FY16, the first half’s sales declined by 12% and reached only 53% of the previous year’s sales levels.

Thus, even if the second half sales match the year-ago number, it could end the full year with lower sales. The outlook for the company, for now, does not look good. These concerns are also weighing on its share price, which is down by 21% since mid-July.

Source: livemint.com

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