Rallis India Ltd change to propel growth
Date:12-09-2019
Rallis is one of the oldest agrochemicals players in India offering agri solutions to the farmer through hybrid seeds, pesticides, and plant growth nutrients. Over the years, the company has also ventured into contract manufacturing for agrochem active ingredients (AIs), intermediates, and polymers.
Recent leadership change at the top level along with market conducive strategies is likely to help in expanding Rallis’ domestic business along with fostering strong growth in exports segment. Alongside, burgeoning research team and expanded capabilities across chemistry, formulation etc., Rallis Innovation Chemistry Hub (RICH) has been helping the company to expand its product basket. It is believed that Rallis’ stable performance over the past 6 years to shift towards growth backed by multiple levers such as leadership change, rejuvenated strategy, new product launches, and massive ₹ 8.0bn investments across segments.
Domestic business growth supported through new product introductions
Rallis is focusing on new product introductions in domestic market to increase its market share in turn benefitting revenue growth. Its internal benchmark, Innovation Turnover Index (ITI) which represents revenues from new products introduced over previous four years has been improving post a dip in FY17 (FY19 – 10%). Incrementally, the company plans to introduce 2-3 new products p.a. supporting domestic business growth.
Massive 8.0bn capex plan to foster higher growth
Rallis has invested in expanding its Metribuzin capacity (2,000MTPA), is investing in formulation expansion at Dahej, and plans to invest in backward integration for 2 technical molecules. Total investment across these projects is envisaged at ₹ 2.7bn. To sustain long-term growth of the company, Rallis has also announced a massive capex of ₹ 8.0bn till FY24/25 which is expected to more than double its gross block.
Aligning corporate strategies
Leadership change at the top, restructuring the dealer/ distributor credit structure, concentrated focus on exports, merger of subsidiaries, alliances with global innovators (Dow, BASF, Syngenta, Nihon etc.) to introduce new molecules in domestic market form some of the key strategies Rallis is banking on to achieve next leg of growth.
R&D/ Innovation
Rallis has strengthened its R&D manpower (more than doubling to 60+) at Bangalore hub over the past couple of years enabling the company to widen its scope of research with a healthy pipeline of over 40 products and 10 molecules (sufficient for new launches over the next 3-5 years). During the past 5 years, the company has invested over ₹ 1.0+bn in R&D which is expected to go up, to tap incremental opportunity across off patent molecules and contract manufacturing.
Expanding contract manufacturing foot print
Currently Rallis manufactures only two products Poly Ether Ketone Ketone (PEKK) polymer and Metconazole agrochemical in its contract manufacturing activity. It is planning to increase capacity due to rising demand for these products while focusing on new products to tap the opportunity partially vacated by China.
Concerns
Vagaries in monsoon, currency fluctuation, ban on certain molecules in India and abroad, dumping of certain molecules from China.
Valuations
It's believed Rallis with its renewed focus across different verticals such as exports, contract manufacturing, new product launches, coupled with massive capex plan is likely to report improved performance in coming years. At CMP of ₹181, Rallis is trading at 20.0x and 15.1x FY20E and FY21E EPS of ₹ 9.1 and ₹ 12.0 respectively. Valuing at 20.0x FY21E earnings, it's recommend ‘Buy’ with a price target of ₹ 240.
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