Rallis India - Q4FY21RU - New Strategy paying off, Focus on new products and expanding reach

Date:04-27-2021

Despite seasonally weak quarter, Rallis still reported commendable performance with positive operating margins as well as bottom-line. Q4FY21 revenues surged 36.1% YoY at ₹ 4.7bn (₹ 3.5bn) while operating profit came in at ₹ 178mn (loss of ₹ 99mn) and PAT at ₹ 82mn (₹ 6mn, due to exceptional income). 

Similarly, for FY21E, Rallis reported good 7.9% top-line growth with healthy 180bps YoY operating margin expansion at 13.3% (11.5%) leading to 24.8% YoY surge in bottom-line at ₹ 2.2bn (₹ 1.8bn). Growth for the quarter and year was driven by volumes while pricing declined marginally despite ~40% decline witnessed in one of the international molecules, Metribuzin. Management indicated that pricing of Metribuzin is recovering since Q3 and shall recover in coming quarters. 

During FY21 Rallis introduced 4 new products (3 inhouse, 1 co-marketing, FY20 – 6) while suggesting that the pipeline remains healthy with at least two new product introductions per year. On capex front, the company is on track and has already invested ~₹ 1.6bn in FY21 of the ~₹ 4.6bn firmed up capex plan while expected to invest ~₹ 2.0bn in FY22E across different products and facilities. 

The management has outlined separate strategies across its domestic crop protection, seeds, international business, and contract manufacturing which would start yielding results over the next couple of years, further elevating Rallis’overall performance. Post management change at Rallis and introduction of new strategy, company’s financial as well as operational performance has improved and it's believed that it shall further enhance in coming years. 

 

Domestic crop protection business driven by volume growth: Rallis’s Q4FY21 domestic crop protection segment’s growth was primarily driven by volumes with similar feat for FY21 where ~14% revenue growth was driven by ~16% growth in volumes while impacted by marginal price correction. Segment’s Q4 EBITDA margins were robust at 7.7% (1.9%) while FY21 EBITDA margins jumped 200bps YoY at 13.3% (11.3%). Seeds segment too reported good FY21 performance with 100bps YoY EBITDA margin expansion at 13% (12%). During FY21, the company launched 4 new products in crop care and 4 new products in seeds segment. 

Q4 International business benefitted from significant volume growth: During Q4FY21, international business reported ~73% YoY surge revenues at ₹ 2.3bn driven by significant volume growth while impacted by pricing pressure. Contract manufacturing continued to suffer from demand issues for PEKK (catering to aviation industry). However, Metribuzin pricing is improving on a sequential basis which shall be positive for FY22E. 

Management cites new Strategic Focus Areas across business segments: Besides its firmed-up capex plan, Rallis outlined detailed Strategic Focus Areas to be worked upon across its business segments. Key focus being filling up portfolio gaps, augmenting dealer/ retailer network, renewed focus on contract manufacturing, reducing dependency on China among others. It's believed that the change in management, couple of years back with a new strategy worked well with tangible benefits in overall performance seen in FY21 and the new strategy is expected to fuel future growth.  

New strategy to fuel future growth: Rallis reported commendable Q4 performance with significant improvement in operational performance for FY21 driving EBITDA margin expansion. New management and its strategy thereof is paying off while the next leg of growth is expected to be fueled by renewed Strategic Focus Areas. It's believed that the new strategy would expand Rallis’ reach both domestically as well as internationally thus driving growth.