Rallis India and UPL posted healthy profit growth for FY15

The challenging conditions for Indian agriculture for the January-March 2015 quarter didn't prevent Indian agrochemical majors from posting a healthy profit growth. For the quarter, the net profits of Rallis India and UPL grew at a faster pace than the growth in their respective annual profits for FY15 underlining their resilience and the growth opportunity for the industry.

Going ahead, too, the companies remain hopeful for healthy growth despite weak monsoon predictions. Rallis India's consolidated net profit for the January-March 15 quarter expanded 17.5% to Rs 21.2 crore, when for the whole FY15 its net profit was up 4.7%. Similarly, UPL's consolidated net profit grew 22.1% to Rs 440 crore, against 20.5% growth for the FY15 to Rs 1,143 crore.

Both companies are launching products in agrochemicals as well as seeds for the upcoming kharif season that will help them maintain the growth momentum while supporting margins.

According to a report from brokerage house Edelweiss, UPL's management guided for 12%-15% revenue growth in FY16 led by volumes, with a 70-100 basis points improvement in operating profit margins. "We believe the stock's rerating to continue given management's focused strategy, Ebitda margin improvement, strengthening balance sheet and return ratios. In view of the attractive valuation, maintain 'buy' with TP of Rs 500 based on 12x FY17E EPS," it said.

Are the companies worried about IMD's prediction for a below-average monsoon? Not really. "Good or bad monsoon, agriculture will happen in the country. What the monsoon pattern will impact is which crops the farmers take, when they sow and in which areas," said V Shankar, managing director, Rallis India.

"For this purpose we are ensuring our product portfolio is wide enough, geographical reach is extensive and our internal processes as well as supply chains are sensitised to the need to adapt to any changes at short notice," he added. "India is one of the world's lowest agrochemical using country. As against India's $2 billion market size Brazil is $12 billion, China is $13 billion, the US is over $8 billion.

Even per hectare usage of pesticides is the lowest in India compared to any other notable economy. It is only now that Indian farmers are learning to use agrochemicals to improve productivity. Hence, there is immense scope to grow," said RD Shroff, C&MD, UPL.