Rallis's domestic business on firm footing; export recovery holds key

Shares of Rallis India Ltd. have gained about 54% in FY21 so far, and are in sweet spot given strong demand prospects for farm inputs. A good rabi season, robust water levels in reservoirs following a good monsoon, and relatively higher farmers' income boosted by the previous kharif crop, all bode well. As such, demand for crop protection solutions such as insecticides and pesticides, crop nutrition products, and seeds remains strong.

The Street, however, is watchful and is awaiting fresh growth triggers in Rallis' export business. The stock has therefore traded largely flat over the past few months.

Analysts at Elara Securities (India), after the company's Q3 results, had said, “We believe margin will remain under pressure in the exports segment for the next few quarters, which will offset gains in the domestic and seeds segments."

While the company’s domestic business have remained on a firm wicket, its exports had come under pressure with the onset of the pandemic. Though some recovery was seen in Q3, investors want to see how Q4 panned out.

The company has reported a strong first nine months performance, led by a rebound in domestic business. Revenue/EBITDA/PAT growth of 3%/13%/19% YoY during 9MFY21 impressed investors.

The exports business, on the other hand, witnessed an 11% decline during the same period, point out analysts. This was the result its key product 'Metribuzin', where Rallis commands a large share of 15-20% in the global market, seeing lower volumes and realisations. Some recovery was evident in Q3 and analysts expect improvement, with Metribuzin realisations likely to have bottomed out.

Meanwhile, CRAMS (Contract Research and Manufacturing Services) are catching up with improving economic activities. The benefits are seen accruing, but gradually.

Analysts at Antique Stock Broking Ltd who expect a ramp-up in exports remain optimistic and have reiterated their positive stance on Rallis. Strong prospects of the domestic agrochemical industry on the back of positive farm sentiment, remunerative crop prices, and early indications of normal monsoons this year as well have led to optimism for the stock.

The company will also see growth triggers falling in place, with the completion of capacity expansion at its Dahej formulations plant, likely by March. Expanded capacities of three of its molecules should also start accruing benefits by April. Investments in capacity expansions being undertaken should aid growth over medium-to-long term.