0
Home
News
Directory
E-newsletter
Magazine
Events
Data
AgReport
Subscribe
Weak farm economics take a toll on Rallis India
Jan. 27, 2015
Rallis India Limited
IndiaFollow
IndiaLow prices for agriculture produce and weak farm economics have adversely impacted Rallis India Ltd. The agrochemicals maker, whose sales were hit by delayed and untimely rains in the first half of the current fiscal year, has seen its stand-alone sales drop 6% in the December quarter. In the year-ago period, the sales were up almost 17%. The weak performance is not completely unexpected. Poor farmers’ sentiment and slow progress of winter crop sowing made some analysts pare their agrochemical sales expectations last month.
Still, strong brand equity meant some were expecting organized firms like Rallis India to sustain sales at the level seen in the previous year. But headwinds proved to be stronger than expected. “The quarter saw reduced farmer sentiment due to impacted kharif yields and lower prices of key crops. Deficiency in NE (northeast) monsoon also reduced crop acreages in Andhra Pradesh, Maharashtra and Gujarat,” V. Shankar, managing director and chief executive officer of Rallis India, said in a statement.
The reduction in crop acreages limited business opportunities for Rallis India. Bihar has seen the crop acreage shift to wheat, where the firm does not have significant presence. Similarly, Telangana saw a considerable drop in paddy acreage, the management told analysts. The changes in crop patterns impacted the volumes in India. Overseas business, on the other hand, was weighed down by weak crop acreages in Brazil, one of the biggest users of agrochemicals. As a result, sales at the consolidated level fell 3%. Earnings before interest, taxes, depreciation and amortization, and net profit fell in the range of 13-16%.
The stock is underperforming the broader markets since October 2014. For it to revive, the business environment in India—clouded by low product prices and poor farm economics—has to improve. If the situation does not improve by the next crop season, which begins in June-July, it will be difficult for the company to report strong sales growth in the next fiscal year.
To make up for the slowdown in domestic business, the company is focusing on exports and contract manufacturing. In the current quarter, it plans to execute a fresh order, through which it hopes to add a new customer.
Commentary on contract manufacturing business is encouraging. But it is the domestic business that still creates major value for the company. The outlook for this business is hazy as of now and could weigh on the stock’s performance in the near term. “While we remain positive on Rallis’s medium term business prospects driven by domestic agrochemicals market and growth in non-pesticide portfolio, we believe current valuations discount most of the positives,” B&K Securities India Pvt. Ltd said in a note to clients.
Source: livemint.com
More from AgroNews
Change
Hot TopicSubscribe
| Subscribe Email: | * | |
| Name: | ||
| Mobile Number: | ||
Comment
0/1200
NEWSLETTER