Strong international business helps Rallis India overcome domestic challenges

Thanks to strong growth in its international business, Rallis India was able to overcome the challenges it faced in the domestic market. Compared with the year-ago period, the crop protection product maker’s sales increased 17% in the third quarter ended December 31, 2013.

The growth is driven by exports, which contribute one-third of Rallis India’s revenues. According to V. Shankar, managing director and chief executive officer of Rallis India, good demand for molecules led to strong volume growth in the export business. Add to this the monetary gains from a weak rupee and operating profits (EBITDA) grew by a healthy 18%. But EBITDA (earnings before interest, taxes, depreciation, and amortization) margins expanded only 19 basis points. One basis point is a hundredth of a basis point.

The tepid expansion in margins points to the challenges the company faced in the domestic market. Growth in the domestic business was mostly driven by price hikes. Cash flow problems at the farmers’ end led to down-trading. Some pulses crops were pest-free. Both these issues weighed on agrochemical volumes. Even though December is not a major quarter for the seeds business, the segment saw subdued sales. Inclement weather led to a shift in acreage from maize to other crops. Water problems hit hybrid paddy seed sales in some regions. These developments weighed on Rallis India’s seeds business as its product portfolio is more aligned to maize and hybrid paddy varieties.

That said, Rallis India continues to see better business prospects in the international business. The company is in discussions with prospective clients for contract manufacturing and is confident some of the talks will translate into orders. “Prospects really look good,” says Shankar. Compared with the year-ago period, the management expects the company to fare better in the current quarter.

To be sure, January-March is a relatively lean season for the domestic agriculture inputs industry. Most of the activity will take place in the international business. Nevertheless, even if the company delivers flat sales for the current quarter, it will end up delivering 17% revenue growth for the current fiscal year, slightly better than the growth it registered in the previous year.