> The company aims to leverage its increased distribution reach to drive sales in the domestic market
> Rallis’s key export products Pendimethalin and Metribuzin are seeing pricing pressure due to excess inventories in the US
Rallis India Ltd’s weak performance in the March quarter (Q4) did not upset investors much. The stock is more or less flat since its results announcement last week. Note that the company’s profit almost halved from the year-ago period, even as revenue growth dropped to merely 2%.
The impact of the covid-19 lockdown is already weighing on the company’s performance.
Operations were disrupted at some manufacturing facilities. Due to logistics constraints, Rallis was unable to ship products worth ₹69 crore. A large part of the revenue loss is due to deferment of exports ( ₹53 crore of the ₹69 crore). Even so, the 2% growth on a favourable base of 8% revenue fall in the year-ago quarter is uninspiring. Also, this is in variance to the steady rabi season the Street is banking on.
According to analysts, export revenues fell 25-27% and weighed on overall performance.
Domestic revenues grew in healthy double digits on a low base. “Domestic revenue grew 57% y-o-y in Q4 on low base. However, export revenues declined 27% y-o-y in Q4 led by deferment of sales into the next few months," analysts at Antique Stock Broking Ltd said in a note. Things are gradually recovering, with the company resuming production on 27 April.
The company aims to leverage its increased distribution reach to drive sales in the domestic market. “Management has indicated that demand for agri-inputs is robust and placement of products in the channel is key in capitalizing the robust demand. Rallis has successfully placed seeds products in the channel in April despite peak lockdown, which offers hope," Emkay Global Financial Services Ltd said in a note.
Agriculture inputs providers typically use the April-June period (Q1) to place products at retailers. Timely onset of monsoon helps them capture kharif demand, a major crop season in India.
Even so, challenges persist. One is the limited availability of manpower which can restrict production ramp-up. The other challenge is on the logistics front, which is not only delaying raw material imports from China but also exports.
Besides, the company has to contend with weak export market conditions.
Rallis’s key export products Pendimethalin and Metribuzin are seeing pricing pressure due to excess inventories in the US. This can weigh on profit margins, though easing feedstock prices can offset the impact to some extent. Last fiscal year, Rallis derived 38% of its revenues from overseas.
“Though kharif season’s prospects remain bright, meeting demand could be a challenge given labour issues across key facilities. Moreover, demand and price overhang on key international products are likely to keep the export business under pressure," analysts at Edelweiss Securities Ltd said in a note.