Rallis India surges 10% in weak market; stock nears record high

Shares of Rallis India have moved higher by 10 per cent to Rs 297.40 on the BSE on Tuesday in otherwise weak market. The surge comes on the expectation of strong earnings in the June 2020 quarter. In comparison, the S&P BSE Sensex was down 1.65 per cent, or 602 points, at 36,091 at 02:52 pm on Tuesday.

The trading volumes on the counter jumped an over five-fold with a combined around 4 million shares changing hands on the NSE and BSE so far. The up move has taken the counter close to its record high level of Rs 299 hit on May 3, 2015.

In the domestic market, an early start to kharif sowing aided by good water availability across reservoirs is likely to yield double-digit growth for domestic agrochemical companies. However, production challenges and logistics issues over April and May are likely to dent growth momentum of export-oriented companies.

For Rallis India, analysts at Edelweiss Securities expect the seed business to remain key growth driver and the brokerage firm is building in a double-digit growth for the segment.

“We have built in a 13 per cent year on year (YoY) revenue growth for Rallis aided by a 12 per cent YoY growth in seeds segment and spillover of sales from Q4FY20 to Q1FY21. While we do see good demand in the domestic agrochemical segment due to strong progress of kharif, given pricing pressure along with inventory overhang for couple of molecules in exports, we believe the overall growth in agrochemical segment to taper down to 5 per cent YoY,” analysts said in quarterly preview note.

Adding; "Given the moderation in technical prices, we estimate gross margins to see a 100bps YoY improvement, while benefits of operating leverage to keep EBITDA margins at 17 per cent versus 15.2 per cent in Q1FY20. Assuming tax rate to stand at 25 per cent, we estimate PAT to remain at Rs 83.1 crore versus Rs 67.6 crore in Q1FY20."

Rallis delivered operational cash flow (OCF) of Rs 330 crore despite increasing credit period as part of its new trade terms. Its receivable days improved by 10 days to 73 days in FY20. According to management, the new trade policy offers lucrative cash discounts for early payments while it penalizes late payments, analyst at Emkay Global Financial Services said.