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Hebei Lansheng Biotech Co., Ltd. ShangHai Yuelian Biotech Co., Ltd.

Rallis likely to feel margin pressure in the short termqrcode

May. 11, 2011

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May. 11, 2011

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Rallis India, a Tata Group agrochemical company, has posted a stellar performance on the bourses over the past one year, gaining 40% against a marginal 6% growth in the benchmark Sensex. This was mainly driven by its consistent double-digit profit growth over the past five quarters. However, the scrip seems to have lost its tempo after a weak March 2011 quarter result.

During the March quarter, Rallis' topline grew 14% to Rs 220 crore against the year-ago period on the back of a strong volume growth in the domestic formulation business and traction in the international business. However, margin pressure led to a 13% year-on-year fall in the company's net profit to . 19 crore, breaking the nine quarters' long tradition of consistent profit growth. The operating profit margin dropped 260 bps to 16% compared to the March 2010 quarter.

The shift in the company's focus on herbicides segment, which is a low-margin business, led to a sharp decline in the margins. Fungicide and herbicides business contribute nearly 40% to the company's overall business while the insecticides business constitutes the rest. Also, the company's raw material cost, relative to net sales, jumped 740 basis points (bps) to 62% during the quarter against the corresponding period last year. Over the past three quarters, the company has witnessed an erosion in its operating profit margin.
 

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