Global business holds promise for Rallis India

Thanks to the high crop acreage and the consequent pick-up in demand for agriculture inputs, Rallis India Ltd reported strong performance for the September quarter. Revenue increased by 24%, driven by volume, which increased by about 15%. Had there not been crop damage due to excess and untimely rains in some parts of the country, revenue could have been even higher.

To compensate for the rising costs, Rallis increased product prices. Intense competition, though, meant that the price hikes were confined to certain categories of products. Still, operating profit increased by 24% on better realizations and the slow pace of increase in raw material expenses. The company’s strategy to place products close to the consumption cycle and reduce working capital requirements have begun to yield results. Finance costs fell sharply and the company became debt free at the net level. Growth in net profit stood at 21%, with foreign exchange losses and greater tax expense weighing it down.

The results have beaten analysts’ expectations and the stock rallied on Tuesday. Rallis’ management is more optimistic on the international business. The segment, which contributes close to one-third of overall revenue, is witnessing good demand from Asia and Latin America. “The international business looks robust. There is buoyancy in the market,” V. Shankar, Rallis India managing director and chief executive officer told Mint. On the domestic business front, the management is slightly cautious. Even though comfortable reservoir levels augur well for the next crop season, it fears that a repeat of dry weather conditions, seen a couple of years ago, may depress sales. “As of now, the undertone is positive, but we also need follow-up rains,” Shankar added.

The firm is confident about faring better than the last fiscal, when revenue increased by about 15%. The management is wary of committing to the sustainability of the 22% sales growth it delivered in the first half of this fiscal, but continued traction in the international business and domestic sales may help it deliver strong growth for the rest of the fiscal year.