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Company Report Industry: Agro Chemicals

Nishna Biyani ([email protected]) +91-22-66322239

Keyur Pandya ([email protected]) +91-22-+91-22-66322247

Rallis India “SEED”ed for a long haul

June 18, 2015 2

Rallis India

Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.

Please refer to important disclosures and disclaimers at the end of the report

Contents Page No.

Investment Rationale .................................................................................................. 4

Penetration of pesticides still low in India vis-a-vis global standards ............................................... 4

Diversification in high growth Non-Pesticide portfolio (NPP) and exports creates a robust business model ................................................................................................................................................. 4

Metahelix- on an exponential growth ............................................................................................... 5

Back to free cash generation over FY15-FY17E and healthy return ratios ........................................ 6

Industry Dynamics ...................................................................................................... 7

1. Indian Crop Protection market and Plant growth Nutrients ......................................................... 7

2. India continues to be a reliable low cost production hub; Exports opportunities galore ........... 16

3. SEED Segment .............................................................................................................................. 18

Key Financials: Operating leverage to kick in over FY15-FY17E ............................... 23

Seeds, PGN and exports to drive revenues over FY15-FY17E .......................................................... 23

EBITDA growth to be strong, margins expansion getting back to FY10 levels ................................ 23

Strong pedigree to result in re-rating for Rallis ............................................................................... 24

Rallis has strong balance sheet and has demonstrated excellent working capital management ... 24

Key Concerns ............................................................................................................ 25

Poor or delayed monsoon ............................................................................................................... 25

Environment regulations and registration hurdles to add cost and time ....................................... 25

Spurious products in crop protection segment now a serious number .......................................... 25

Threat from Genetically Modifies (GM) Seeds ................................................................................ 25

Assumption Sheet ..................................................................................................... 26

Valuation & Recommendation ................................................................................. 27

Rallis has certain non-core assets which can be used for future business opportunities in Agro-space ................................................................................................................................................ 28

Land bank ................................................................................................................................... 28

Strategic stake of 15% in Advinus Therapeutics ........................................................................ 28

Company Background ............................................................................................... 29

Senior Management Profile ............................................................................................................. 29

Rallis India

Company Report June 18, 2015

Rating BUY

Price Rs224

Target Price Rs270

Implied Upside 20.5%

Sensex 26,833

Nifty 8,092

(Prices as on June 17, 2015)

Trading data

Market Cap. (Rs bn) 43.5

Shares o/s (m) 194.5

3M Avg. Daily value (Rs m) 126.8

Major shareholders

Promoters 50.09%

Foreign 15.10%

Domestic Inst. 7.01%

Public & Other 27.80%

Stock Performance

(%) 1M 6M 12M

Absolute 5.1 9.0 11.1

Relative 6.9 8.6 6.0

How we differ from Consensus

EPS (Rs) PL Cons. % Diff.

2016 9.6 10.0 -4.1

2017 11.7 12.3 -4.4

Price Performance (RIC: RALL.BO, BB: RALI IN)

Source: Bloomberg

0

50

100

150

200

250

300

Jun

-14

Au

g-1

4

Oct

-14

De

c-1

4

Feb

-15

Ap

r-1

5

Jun

-15

(Rs)

Rallis India has de-risked its domestic pesticide portfolio over the last three years by diversifying in high growth agri-segments like Seeds (33% revenue CAGR over FY15-FY17E), PGN (23.5% CAGR) & Exports (12.2% CAGR FY15-FY17E). Rallis is expected to deliver 21% earnings CAGR over FY15-FY17E, stable margins at ~16% and high RoEs in the range of 23%. With the capex cycle behind, Rallis is expected to generate Rs4.1bn free cash over FY15-FY17E. The stock is trading at a P/E of 19x FY17E earnings and an EV/EBITDA of 11.7xFY17E. Strong parentage, new product launches, diversification across Agriculture value chain and a lean balance sheet makes Rallis a compelling “BUY” for the long term.

Seed business on an exponential growth path, operating levers to kick-in: With virtually insignificant revenues in FY11 from Seeds, Rallis has clogged a turnover of Rs3.1bn in FY15, further growing to Rs5.3bn@33% CAGR by FY17E. Rallis is still having margins in single digits vis-a-vis other seed companies where margin profile is ~20%. Rallis’ learning curve in the seed business and better product awareness created amongst farmers over the last four seasons leaves significant room for operating leverage between FY15-FY17E.

Huge CRAM opportunity to unfold globally, Rallis well positioned with Dahej facility: Though the initial ramp-up at Dahej has been slow, management commentary in the Annual report is encouraging, with slew of projects in different stages of execution. We strongly believe that the shift in manufacturing base from China (due to stringent EHS) and Japan (diversifying ingredient base due to Tsunami disruptions) will benefit Indian CRAM companies like Rallis. Further, ~US$5bn worth products are going off-patent over the next three years providing immense opportunity for Rallis with proven CRAM expertise.

Strong franchise available at reasonable valuations, recommend “BUY”: Rallis has successfully turned around its seed subsidiary (Metahelix) and has shown remarkable performance in exports. We expect the seed business and exports to aid growth over the next two years, thus, diversifying it from the domestic crop protection business to some extent. Rallis is a positional structural story and the best diversified play in the Agro-value chain currently and deserves to trade at premium valuations vis-a-vis other domestic players. We recommend “BUY” for the long term with an initial target price of Rs270, an upside of 21% from the CMP.

Key financials (Y/e March) 2014 2015 2016E 2017E

Revenues (Rs m) 17,466 18,218 20,325 23,361

Growth (%) 19.8 4.3 11.6 14.9

EBITDA (Rs m) 2,612 2,771 3,188 3,808

PAT (Rs m) 1,518 1,572 1,866 2,284

EPS (Rs) 7.8 8.1 9.6 11.7

Growth (%) 27.6 3.5 18.7 22.4

Net DPS (Rs) 2.4 2.5 2.7 3.0

Profitability & Valuation 2014 2015 2016E 2017E

EBITDA margin (%) 15.0 15.2 15.7 16.3

RoE (%) 22.7 20.5 21.4 22.7

RoCE (%) 29.6 26.5 27.7 30.6

EV / sales (x) 2.5 2.4 2.1 1.8

EV / EBITDA (x) 16.8 15.8 13.4 11.0

PE (x) 28.7 27.7 23.3 19.1

P / BV (x) 6.1 5.3 4.7 4.0

Net dividend yield (%) 1.1 1.1 1.2 1.3

Source: Company Data; PL Research

Rallis India

June 18, 2015 4

Investment Rationale

Penetration of pesticides still low in India vis-a-vis global standards

In India, per hectare consumption of pesticide is 0.75kg/hectare which is very low as

compared to 7kg/hectare in USA and 13kg/hectare in China. Low purchasing power

of farmers, lack of awareness amongst them and limited reach are some of the

reasons for low consumption of pesticides in India, thus, creating tremendous

opportunity for growth of crop protection industry in India. India consumes ~2%

pesticides of the world, while agriculture acreage is 16%. The same is the case with

seed sector where penetration of Commercial seed is still at 25% of the total seeds

consumed in agriculture and remaining 75% are farm saved seeds. This shows

immense opportunity of growth despite the presence of large number of global

majors and a large unorganized sector across the agro-input industry.

Exhibit 1: Per capita Consumption of pesticides

17.0

13.0 12.0

7.0 7.0

5.0 5.0

0.8

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Taiwan China Japan USA Korea France UK India

(kg

/ h

a)

Source: Industry, PL Research

Diversification in high growth Non-Pesticide portfolio (NPP) and exports creates a robust business model

Rallis, over the years has diversified from a plain vanilla domestic Crop protection

company to lucrative segments like Seeds, Plant growth nutrients (PGN) and exports.

This has not only insulated business from single point shocks but has also laid the

foundation for next level of growth opportunities. Rallis is concentrating on global

markets by entering into strategic alliances with global agrochemical companies for

supplying generic ingredients. Rallis is well placed with the capacity expansion at

Dahej facilities (significant capex of Rs1.8bn over FY12-FY15 period) to grab the

upcoming demand due to patent expiry of generic products worth US$5bn in the

global markets over the next 3-5 years.

Non-Pesticide portfolio & Exports on a rise

Rallis India

June 18, 2015 5

Exhibit 2: NPP and exports as a % of sales on a rise

67.151.1 45.2

30.4

27.727.2

2.521.2 27.6

0.0

20.0

40.0

60.0

80.0

100.0

FY12 FY15 FY17E

(%)

Domestic Pesticides Exports Non Pesticide Business

Source: Company Data, PL Research

Metahelix- on an exponential growth

Rallis has successfully turned around the loss-making Metahelix business to its

fastest growing business segment. The initial ramp-up over the last two years to

Rs3.1bn turnover and further projected to reach Rs5.3bn by the end of FY17E will

not only help in better synergies and cost apportionment but aid margin

improvement also.

Exhibit 3: Five-fold revenue growth over FY13-FY17 period

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

-

1,000

2,000

3,000

4,000

5,000

6,000

FY13 FY14 FY15 FY16E FY17E

(%)

(Rs

m)

Revenues EBIDTA EBIDTA Margin (RHS)


Rallis India

June 18, 2015 6

Back to free cash generation over FY15-FY17E and healthy return ratios

Rallis has a very strong balance sheet with a net debt of mere Rs1.1bn. With no

significant capex planned for the next two years barring acquiring the balance 19.5%

stake in Metahelix by end FY16, Rallis shall generate ~Rs4.1bn of free cash. Working

capital intensity is also expected to ease as FY15 had significant inventories in the

system already. Also, Rallis enjoys strong return ratios due to low asset base and

high margin pesticide business.

Exhibit 4: Return ratios slowly inching higher

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0


RoAE (%) RoACE (%)


Exhibit 5: Free cash flow of Rs4.1bn over FY15-FY17E

0

500

1,000

1,500

2,000

2,500


(Rs

m)


Rallis India

June 18, 2015 7

Industry Dynamics

1. Indian Crop Protection market and Plant growth Nutrients

Increasing demand for food-grains and declining farmlands in India have increased

pressure on farm yield improvement and reduction in crop losses due to pest

attacks. Crop protection products are also in demand due to high MSPs, rising

awareness amongst farmers and higher provision of credit to the Agriculture sector

by the Govt.

India, with diversified agro-ecosystems, has adapted quickly to the introduction of

high yielding varieties of seeds, hybrids, usage of new agro-chemicals and adoption

of intensive crop cultivation techniques to spur agricultural produce.

According to industry estimates, India’s agrochemical industry was estimated at

~US$4.25bn at the end of FY14E (53% domestic & 47% exports) and expected to

grow at 12% CAGR to US$7.5bn by FY19E. Domestic industry is expected to grow at

~8% CAGR to US$3.3bn, while exports are growing much faster at ~16% CAGR to

US$4.2bn. Indian Crop protection market is more fragmented, with 55-60% market

catered to by 15 to 20 players. Globally, the trend is that 70-80% market is catered

to by top six players.

Exhibit 6: Indian Agrochemical Industry to grow 12% CAGR between FY14 to FY19E

2.3 3.3

2.0

4.2 4.3

7.5

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

FY14 FY19E

(US$

bn)

Domestic Exports Industry

Source: FICCI, PL Research

Rallis India

June 18, 2015 8

Exhibit 7: Flow of Institutional credit to the agri Sector growing at 20% CAGR in past 10 yrs

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

(Rs

Tr)

Source: RBI, PL Research

Exhibit 9: MSPs over the past 5 yrs have risen between 6-13% CAGR

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

FY10 FY11 FY12 FY13 FY14 FY15

(Rs

/ To

nne

)

Rice Wheat Corn Cotton Soybean

Source: Department of Agriculture, PL Research

Structural challenges for Agri-Industry are a boon for Agri-input providers

Over the past four decades, average size of operational holdings of farmland per

farmer has decreased from 2.82ha in 1970 to 1.16ha in 2010-11. This fragmented

nature of farm holdings limits the scope for greater farm mechanization and also

hurts economies of scale which has resulted in higher focus on crop safety and

increasing yield by use of agri-inputs like hybrid seeds and pesticides. Further,

according to different industry estimates, crop losses vary anywhere between Rs600-

Rs900bn annually due to non-use of pesticides.

Exhibit 8: MSPs over the past 5 yrs have risen between 6-13% CAGR

Crops Last yr Last 5 yrs

Rice 3.8% 7.4%

Wheat 3.6% 5.7%

Corn 0.0% 9.3%

Cotton 1.4% 8.4%

Soybean 0.0% 13.1%


Growth within the crop protection sector is

directly linked to support for agriculture,

crop commodity prices and farm incomes

Rallis India

June 18, 2015 9

Exhibit 10: Fragmented land holding limits scale benefits

2.8

1.8

1.6 1.3

1.2

-

0.5

1.0

1.5

2.0

2.5

3.0

1970-71 1980-81 1990-91 2000-01 2010-2011

Ave

rage

Siz

e in

He

ctar

es


Exhibit 11: Loss of crops due to pests worth ~Rs600bn every year

Weeds33.0

Insects26.0

Diseases

26.0

Rodents

6.0

Others9.0

Source: Industry, Company Data, PL Research

Global Trend v/s India: Herbicides - the largest selling segment globally

The Indian market is different from the global industry in terms of consumption

patterns of crop protection products. Globally, herbicides constitute about 44% of

the crop protection market, followed by fungicides at 27%, insecticides at 26% and

others at 3%. Favourable climatic conditions in North America and Europe drive

herbicide consumption in those areas. Insecticides usage has also gone down in

developed markets with increased usage of GM crops.

Tropical climatic conditions and high production of paddy, cotton, sugarcane and

other cereals in India drive the consumption of insecticides. Availability of cheap

labour for manual weed picking also contributed to low consumption of herbicides in

India. However, the trend is changing with increase in farm labour wages in India.

Herbicide now is the fastest growing segment.

Rallis India

June 18, 2015 10

Exhibit 12: High Production of Paddy, Cotton & Sugarcane drives consumption of insecticides in India

Insecticides48.0

Fungicides23.0

Herbicides

25.0

Others4.0

India


Exhibit 13: Farm wages and Labour shortage drives Herbicides use globally

Insecticides26.0

Fungicides

27.0

Herbicides44.0

Others3.0

Global


Exhibit 14: Herbicides is the fastest growing segment in India currently

55 52 50 49 47 50 48

22 23 24 24 25 23 23

20 21 23 24 25 25 25

2 3 3 3 3 3 4

FY08 FY09 FY10 FY11 FY12 FY13 FY14

Insecticides Fungicides Herbicides Others


Rallis India

June 18, 2015 11

Exhibit 15: Opportunity v/s Challenges profile for Indian Manufacturers

Opportunities

Export opportunities

Low cost manufacturing

Strong presence in generics pesticides

Trained labour

Diversification from Domestic vagaries

Growth opportunity from generic space Almost US$5bn products expected to go off-patent till 2019

Growth in herbicides and fungicides Rising labour costs

Growth in GM crops

Low crop yields Crop yield in India is amongst the lowest in the world

Pesticides used per hectare almost 1/6th as consumed by china

Availability of Credit facilities Agri credits given to farmers in rural area may spurt demand as their awareness grows

Challenges

Cumbersome registration process and cost Almost 10 years to bring a new molecule to market

~Rs10bn capital investment required for a product

Stringent regulations and monitoring

Cost of R&D going up for developing new products

Global MNCs incurring 10% as R&D cost currently

Delays product introduction in the market

Source: PL Research

India is one of the most dynamic generic pesticide manufacturers in the world. More

than 60 technical grade pesticides are manufactured indigenously by ~40-45

producers consisting of large scale enterprises including about ~10-12 multinational

companies.

Exhibit 16: Major players in domestic Crop protection market

Player type Companies operating Approx No. of players

MNCs Bayer Crop, Du-Pont, Dow Agroscience, BASF, Syngenta ~10-12

Organised Indian Players UPL, Rallis India, Insecticides India, Excel Crop Care, Dhanuka Agritech ~20-30

Un-organized Indian Players Small and mid-sized companies (majorly regional) catering to specific market or client needs >600 players

Source: PL Research

Exhibit 17: Major Agro Chemical product categories in India

Segment Main Products Main Applications

Insecticides Acephate, Monocrotophos, Cypermethrin Cotton, Rice

Fungicides Mancozeb, Copper Oxychloride, Ziram Fruits, Vegetables, Rice

Herbicides Glyphosate, Isoproturan, 2,4-D Rice, Wheat

Bio-pesticides Spinosyns, neem based Rice, Maize, Tobacco

Others Zinc Phosphide, Aluminium Phosphide Stored produce


Rallis India

June 18, 2015 12

Capacity utilization is hovering between 60-70% in the pesticides segment

According to interactions with different companies, there is still significant capacity

being under-utilized in the pesticide segment (technicals) for want of long-term

manufacturing contracts. The industry suffers from high inventory (owing to

seasonal & irregular demand on account of monsoons) and long credit periods to

dealers in the domestic market or B2B for exports, thus, making operations more

working capital intensive.

Exhibit 18: Growth in pesticide (technical) capacities and actual production

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

0

50

100

150

200

250

300

350

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

('00

0 M

T)Capacity Production Utilization (RHS)

Source: Ministry of Chemicals & Fertilisers, PL Research

Domestic market place getting increasingly competitive with in-licensing introduction

Historically, Indian players in the pesticides and agrochemicals markets have focused

on marketing generic and off-patent products, whereas MNCs have focused on

launching their successful products and take advantage of their superior R&D and

financial resources. Off-late, global MNCs like Bayer Crop, Du-Pont, Syngenta, BASF

etc. have become more aggressive to garner the growing Indian opportunity in

pesticides. To maintain their respective market share, domestic manufacturers are

increasingly resorting to seek alliances with Japanese majors with weak domestic

presence to launch new products in the market place.

Exhibit 19: Marketing alliance/In-licensing arrangements with Japanese majors

Rallis India Kureha Japan, Nihon Nohyaku

PI Industries Nihon Nohyaku, Kumiai Chemicals

UPL ISK ( Ishihara Sangyo Kaisha)

Dhanuka Agritech Nissan Chemicals, Mitsui Chemicals, Sumitomo Chemicals, Hokko Chemicals

Source: Media Reports, Company Data, PL Research

Rallis India

June 18, 2015 13

Rallis in Domestic market

Rallis’ crop protection products are designed keeping the Indian crops in perspective,

with emphasis on rice, cotton and vegetables. The company offers 55-60 products in

the domestic markets, out of which, 15 products contribute almost 70% of its

revenues. Though there were no big launches in FY14, Rallis has launched six

products in FY15 and has a slew of product launches lined up for FY16. Tie-ups with

International companies such as Dow Agro Sciences, Syngenta and Nihon Nohyaku,

have led to Rallis introducing internationally proven products into the Indian

marketplace at regular intervals.

Exhibit 20: Marketing alliances/In-licensing with Agro majors in the domestic market

Alliances Tie-up Rallis Brand

Bayer India Tata Mida

Borax International Solubar

Dow Chemicals DuTon

Gharda Chemicals Fateh

Nihon Nohayaku Fujione, Applaud

Syngenta India Preet, Anant, Sartaj, Prabhav, Paralac

Yara International Water Soluble NPK Fertilisers

Source: Media Reports, Company Data, PL Research

Exhibit 21: Major Product launches by Rallis India in the last three years

Year Product details

2011-2012

Neon - Insecticide for Tea and Cotton

Sonic - insecticide for Sugarcane and Paddy

Taffin - Insecticide for Paddy

Honcho - Herbicide for Vegetables

CYLO- Herbicide for Paddy

FYCOL -Herbicide for Oilseeds

VAAR-Herbicides for Oil seeds

SARAS-Fungicide for fruit and vegetables

DITAF-Fungicide for fruit and vegetables

TATA BAHAAR-Plant growth nutrient for all crops

2012-2013 Rallis Gloco Beta - Zinc Supplement

Tata Uphaar - vegetable crops

2014-2015

Duton - Herbicide - post emergent herbicide for paddy crop

Hunk - Insecticide - Larve and sucking pests in paddy and other crops

Origin – Insecticide + Fungicide for paddy

Blend-Fungicide

Sonic Flo- insecticide for control of sucking pest

Amplus-Plant growth Nutrient


Rallis India

June 18, 2015 14

Normally, a product takes at least two crop seasons to take off and create a market

for itself. The next three to four years are strong, both for product sales and margins.

Finally the product gets matured and demands newer add-ons of characteristics or

an altogether new product.

Exhibit 22: Innovative turnover index (ITI)(%)

30 30 31

20

11

15 15

0

5

10

15

20

25

30

35

FY08 FY09 FY10 FY11 FY12 FY13 FY14

Source: Company Data, PL Research ITI : It measures the contribution of new products to the total product mix in the last four years

Exhibit 23: New product launches were slow over last 2-3 years

3

10

21

6

0

2

4

6

8

10

12

FY11 FY12 FY13 FY14 FY15


Exhibit 24: Major pesticides brands of Rallis

Popular Others

Insecticides Tata Mida, Reeva, Asataf, Manik Applaud, Cartox G, Hunk, Nagata, Rogor, Spiro, Takumi, Tata Mono, Tefetheion

Herbicides Fateh, Tata Metri, Tata Panida Atrataf, Dhar, Preet, Sartaj, eer, Teg

Fungicide Contaf, Contaf Plus, Master, Fujione Biltox, Samarth, Sultaf, Taqat, Tata M45

Source: Company website, PL Research

Exhibit 25: Mega brands under Rallis domestic portfolio

Brand Molecule Type Crop Turnover/year (Rs m)

Asataf Acephate Insecticide tobacco, sugarcane, cotton, chillies, vegetables, fruits and cereals

~1,300

Contaf series & Taqat Hexaconazole Fungicide Contaf --Paddy, grapes, clillies etc Taqat --Fruits , vegetables and cotton crops

~1,200

Applaud Buprofezin Insecticide Rice planthoppers, almonds, banana, citrus & grapes Upwards of Rs 1000

Source: Company website, PL Research (Mega brand =Turnover of Rs 1bn and above for 3 consecutive years)

Rallis India

June 18, 2015 15

Plant growth nutrients (PGN) business, though small currently, but growing @33%

Farming in India has become more commercialized and there is a growing awareness

on the need for improved high-yielding varieties and efficient management of inputs

such as water and nutrition. It is estimated that 88% of the total available water is

being currently used in agriculture. Due to the indiscriminate use of irrigation water

and fertilizers, fertile soils have become water-logged and saline. The use of plant

growth nutrients is the only way to enrich the soil and effectively increase the yield.

Rallis has almost six products in this space, including Ralli-gold GR (used for Cotton,

Paddy, Sugarcane, Wheat, Potato etc.) which is one of the well-known branded

products. Solubor (marketing arrangement with well-known international supplier

Borax Europe) and Amplus are the other two products which are expected to have

strong connect with the farmers.

Exhibit 26: Revenues from Plant growth nutrient business strong, albeit on a lower base

40.5%

22.4%

37.3%

25.0%

22.0%

450 550 755 944 1,151 0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

-

200

400

600

800

1,000

1,200

1,400


Plant growth Nutrients (Rs m) YoY gr. (RHS)


Zero waste Agro organics (ZWAOL):

ZWAOL is a Maharashtra-based subsidiary company of Rallis, making high quality

organic manure and soil conditioner under the brand name Geo-Green. Rallis owns a

majority stake (73.6%) in ZWAOL with an investment of Rs420m. The farmer

response for this product is encouraging and Rallis is targeting cumulative sales of

Rs1bn over FY15-FY19E from this product.

Geo-Green is an organic compost soil

conditioner which can turn poor soils into

productive economic farmlands. Geo-Green

is the most advanced organic compost

available in India currently

Rallis India

June 18, 2015 16

2. India continues to be a reliable low cost production hub; Exports opportunities galore

India is the fourth largest producer of crop protection chemicals globally, after US,

Japan & China. Over the last decade, India has gained significant traction and is

perceived as a reliable (quality-wise and timely execution) and low-cost producing

hub by leading MNC Innovator companies. China’s increasing stringent pollution

control norms and increased focus by Japanese players for diversified raw material

source has helped India emerge as the preferred supplier and manufacturing

destination for key active ingredients/formulations. This business is recurring in

nature as India is being used as a diversified source for continuous disrupted product

supplier by other countries.

Exhibit 27: Discovery and development of a crop protection product takes 8-9 years and a cost of ~US$250-270m

Research optimization Early development Late development

Year 0 1 2 3 4 5 6 7 8 9 Estimated Cost (US$ m)

Chemistry

Synthesis

Formulation of Product

80

Biology

Research

Trials

Field Development

85

Toxicology

70 Environment

Registrations

25

~US$260 M

Source: Industry data, PL Research

The Indian domestic Pesticides companies are playing to their basic strength i.e. low

cost of operations, which include developing processes to manufacture off-patent

products. Generally speaking, Indian manufacturers lack the financial resources to

undertake basic research.

Rallis is concentrating only on the generic space, with major revenues in the form of

contract manufacturing/custom synthesis. However, over the years, it has started

branding some products and developing its direct sales channel.

China is the cheapest supplier of pesticides,

with average product quality, whereas

Japan is perceived as a quality pesticide

supplier by global majors. India over the

years has positioned itself as a quality

product supplier available at reasonable

costing.

Rallis India

June 18, 2015 17

Rallis’ export market offerings constituted by CRAM, B2B and branded formulations

Rallis’ export market is divided into three core segments which include technical

grade pesticides B2B sales (40%), bulk and branded formulations (10%) and contract

manufactured products 50%).

Exhibit 28: Export split Segment wise

Contract manufacturing

50%Technical grade Pesticides (B2B)

40%

Branded Sales10%


Rallis is increasingly exploring international markets through contract manufacturing

With an established brand image in the domestic market, Rallis is concentrating on

global markets by entering into strategic alliances with global agrochemical

companies for supplying generic ingredients. The company is well-placed with the

capacity expansion at Dahej facilities to grab the upcoming demand due to patent

expiry of generic products worth US$4-5bn in the global markets over the next 2-3

years. Rallis has a facility at Dahej with two lines operating on a pilot basis and third

line almost ready for use. The company is in the process to ramp-up Dahej facility to

four lines by the end of FY17, thus, leaving lot of unused capacity. A single molecule

contract by an Agro MNC globally has the potential of incremental Rs1bn

turnover/year. Rallis has in the past received big orders like Rs4bn exports order by

Cytec Engineering, USA executable over a period of five years.

Rallis India

June 18, 2015 18

Exhibit 29: Key Partnerships globally

Product Use

Cytec Engineering USA PEKK* Used in Aircrafts

Kureha Chemical Japan Metconazole Fungicide

In talks with many global agro majors

Syngenta Switzerland

Dow Agro Sciences USA

Dupont USA

Source: Media Reports, Company Data, PL Research *Poly Ether Ketone Ketone

We remain constructive on the exports business of Rallis over the long haul as it

largely caters to the generics segment. Low cost hub and better product quality

when compared to China will make Indian suppliers and Rallis in particular a

preferred supplier to the global agro majors.

3. SEED Segment

Rallis entered the seed business with the acquisition of 60.2% stake in Metahelix Life

Sciences for a consideration of Rs1.26bn in FY11 with an option of increasing its

stake at regular intervals in the future. Metahelix is an agricultural biotechnology

enterprise focused on crop improvement and increased productivity. The company

has proven its mettle in the creation of high performance Hybrid seeds for rice,

maize, bajra, millets, tomato, hot pepper, okra and some fruits and vegetables.

Metahelix’s strategy is to target the hybrid market of Rice, Maize and Vegetables

where penetration still has been quite low.

Exhibit 30: Metahelix acquisition details Rs1.71bn spent for 80.5% stake

FY11 FY12 FY13 FY14

Stake (%) 60.2 75.6 77.0 80.5

Consideration cumulative (Rs m) 1,263 1,582 1,637 1,710


Exhibit 31: Hybrid penetration quite low

Crop Hectare (m) Penetration (%)

Vegetables/ others 65 25

Rice 44 5

Wheat 29.8 0

Cotton 11.5 95

Soyabean 8.1 60

Corn 7 55

Ground nut 6.6 50

Source: Nuziveedu DRHP, PL Research

Rallis is partnering with many global MNCs

for contract manufacturing of technical

grade formulations and intermediates.

However, Rallis faced significant challenges

over the last two years in ramping-up

utilization

Rallis India

June 18, 2015 19

Product Life Cycle of the seed Business is approximately 10-15 years

The typical life cycle of a seed product is approximately a 10-15 year cycle. This

breaks down into (i) four years to develop test and commercialize the product, (ii)

three years of ramp-up, (iii) four years of the product’s growth phase, during which

the seed products supply high volumes and margins, and (iv) two-three years of

maturity, during which crop volumes stabilize and decline, however, margins remain

high.

The key success factors for Seed companies are (i) Existing product profile and (ii)

Depth in R&D & Technological capabilities to manage product life cycle,

Exhibit 32: Product life cycle of the Seed Business

Source: Industry Data, PL research

Overview of the Indian Seed market

India is the sixth largest seed market in the world, accounting for 4.5% of the global

seed market after the US (27%), China (22%), France (6%), Brazil (6%) and Canada

(5%). In terms of global trade, Indian seed demand is mainly met by domestic seed

producers.

No. of Years

0-4 4-7 7-11 11-13

Initial 4 years for development,

testing and commercialization

3 years product ramp-up

4 years of product growth phase; high volumes and high

margins

2-3 years of

product maturity; price

stabilize, volume

decline, but supported by high margins

Re

ven

ue

s

Rallis India

June 18, 2015 20

Exhibit 33: Indian Seed Market Segment Profile

Type Size (Rs bn) % Market

share Characteristics

Replacement rate

Leading Players R&D

Industry

Varietal 10 7% Open-pollinated seeds which are

saved over years for their desirable traits

20-80% Small regional players

and govt agencies Low

Hybrid 85 65% Produced by artificially cross

pollinating plants; offer better characteristics over the parents

100%

Nuziveedu Seeds, Mahyco, Rasi, Bayer, Pioneer, Syngenta,

Kaveri, etc

Medium

GM Crops (mostly hybrid) 37 28% Seeds whose genetic material has

been altered using genetic engineering techniques

100% Nuziveedu Seeds,

Mahyco, Rasi, syngenta, Pioneer, etc

High


Exhibit 34: Indian Seed market Crop Profile (FY14)

Size (Rs bn) % of total seed business Hybridization Replacement Rate

Cotton 37 28% 95% 100%

Fruit and vegetables 19 14% 15-90% 100% hybrid

Corn 15 11% >60% 60% OPV, 100% Hybrid

Rice 8 6% ~5% 40% OPV, 100% Hybrid

Others 53 41% Varies Varies

Source: Nuziveedu DRHP, PL Research

Exhibit 35: Seed business crop-wise split in value for FY14

Cotton

28.0%

Vegetables

14.0%

Corn

11.0%

Rice6.0%

Others

41.0%


Exhibit 36: Seed business crop-wise split in volume for FY14

Wheat31.2%

Rice25.9%

Soyabean10.6%

Ground-nut8.7%

Gram5.8%

Potato5.5%

Corn3.0%

Cotton0.7%

Others8.6%


Rallis is showing strong traction in Seed business over last 2-3 years, we foresee exponential growth over FY15-FY17E with improved margins

Though Rallis has entered the seed business quite late vis-à-vis competition, but the ramp-up it has shown over the last four years is commendable. With virtually insignificant revenues in FY11, it has clogged a turnover of Rs3.1bn in FY15 and further growing to Rs5.3bn@33% CAGR by end of FY17E. This growth is primarily aided by the introduction of new hybrid varieties (rice, maize and vegetables) and leveraging of Rallis’ distribution network. Metahelix now has a farmer base of 3.5m (up 1m in FY15). Rallis Seed portfolio is now counted amongst the top 5 in the Rice, Millet and Corn segment.

Rallis India

June 18, 2015 21

Exhibit 37: Rallis Product Profile in Seed Business

Product Name Suitability

Hybrid BT Cotton Aashirwan Andhra, Telangana, Gujarat

Pravallika Andhra, Telangana, Gujarat

Hybrid maize

RIL 003 Widely addapted, good for water stree conditions

RIL 006 Kharif (115-120 days), rabi (150-155 days)

RIL 009 Widely adapted, High Yield potential

RIL 019 Fit for rainfed conditions

RIL 901 Suitable for spring season, potato region of Haryana, Punjab and UP

RIL 9999 Rabi only for Bihar, AP & telangana, high density plants 38000 plants/acre

Hybrid Paddy RIL 666 Suitable for Poha segment, Gujrat, Odisha,Chattisgarh,Uttarpradesh,Bihar,Andra Pradesh& Tamil Nadu

Hybrid pearl Millet (Bajra)

RIL 099 Maharashtra, Karnataka, Tamilnadu

RIL 299 Kharif season, North and Central India

RIL 999 Spring Season Gujrat, Uttarpradesh And Rajasthan

Mustard RM-2 Wider Adaptability In North And Central India.

Wheat RIL 10 Punjab, Haryana, Rajasthan, UP, MP, Chattisgarh, Maharashtra, Gujarat, Karnataka and Tamilnadu

RIL 3 Wider adaptability (suitable in almost all wheat growing areas)

Source: Company data, PL Research

Rallis’ margins in single digits emphasize the spending on market development and

low scale of operations. Currently, Rallis’s learning curve in the seed business and

better product awareness created amongst farmers over the last four seasons will

help kick-in operating leverage between FY15-FY17E. Margins of other Seed players

are upwards of 20% due to scale of operations & presence in cotton portfolio which

commands better margins than non-cotton portfolio where Rallis is present.

Exhibit 38: Competition Seed business Margin profile Kaveri, Nuziveedu v/s Rallis

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

FY12 FY13 FY14 FY15

Kaveri Nuziveedu Rallis India


Rallis India

June 18, 2015 22

Seed Business is cyclical with Q1 and Q2 accounting for almost 77-80% of revenues

Over the last couple of years, we have seen that inventories tend to rise by Rs600m-

700m for Rallis at the end of the year. This is mainly due to the cyclicality of the seed

business. Normal revenue accrual for this segment is tilted in the first half of the year

with ~77-80% of revenues booked in the sowing season. The second half sees muted

demand but some sales happening in Q3 due to Rabi sowing season.

Exhibit 39: First half accounts for significant revenues of Seed Business

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Q1 Q2 Q3 Q4

FY14 FY15


Sales of seeds typically take place a few weeks before the sowing season. Thus, a

seed producer needs to have good storage facilities so as to meet demand during

the peak season period. Long production periods and the extremely short sales

periods expose companies to liquidity issues if sales do not take place as projected

and may lead to higher inventories.

Rallis India

June 18, 2015 23

Key Financials: Operating leverage to kick in over FY15-FY17E

Seeds, PGN and exports to drive revenues over FY15-FY17E

Rallis is expected to clock 13.2% revenue CAGR over FY15-FY17E, primarily aided by

Seeds (30.7% CAGR), PGN (23.5% CAGR) and Exports (12.2 % CAGR). Domestic

business is expected to show some momentum only by FY17E on back of new

product launches in FY15 & FY16E.

Exhibit 40: Revenue split segment-wise

0

5,000

10,000

15,000

20,000

25,000

FY15 FY16E FY17E

(Rs

m)

Domestic Pesticide Exports PGN Seeds

30.7% CAGR

23.5% CAGR

12.2% CAGR

6.5% CAGR

Source: PL Research

EBITDA growth to be strong, margins expansion getting back to FY10 levels

Rallis has shown margin improvement of 80bps to 15.2% over the last two years in a

tough business environment. We expect further improvement of 80-100bps in

margins to 16.3% which was last seen in FY10, primarily aided by lower raw material

prices, better product mix and operating leverage in seed business over FY15 and

FY17E.

Rallis India

June 18, 2015 24

Exhibit 41: EBITDA margins to expand by 110bps over FY15-FY17E

13.5%

14.0%

14.5%

15.0%

15.5%

16.0%

16.5%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000


(Rs

m)

EBITDA Margin (RHS)


Strong pedigree to result in re-rating for Rallis

Though we feel Rallis could have grown much faster in the last five years (reported a

14% CAGR top-line growth and 9.5% bottom-line growth) due to strong positioning

in Agri-space and equally strong parentage leverage, the next five years are looking

exciting. Diversifying in the Non-Pesticides agro chain through Seeds business and

PGN (which now comprise almost 21% of revenues), will benefit Rallis in the long run

Rallis has strong balance sheet and has demonstrated excellent working capital management

Rallis has a very strong balance sheet with a net debt of Rs1.1bn. Historically, it has

been very conservative and has controlled its working capital cycle quite optimally.

Rallis mostly sells its products to domestic distributors on cash basis and has average

debtor days of around 35-40. In doing so, the company may have lost on some sales

growth and hence, market share, but its working capital cycle is amongst the best in

the industry. For international business, debtor day varies from 60 to 180 days.

However, the company tries to source higher credit period from its key suppliers to

optimize the working capital cycle.

Rallis India

June 18, 2015 25

Key Concerns

Poor or delayed monsoon

Rallis’ business is highly dependent on strong farm incomes which in-turn is

dependent on good, timely and evenly distributed monsoon. Better the monsoon,

higher is the demand for crop protection products on pest incidences. Also, a

delayed monsoon decreases the quantum of consumption of pesticides; it reduces

pesticides spraying from 5 times to say 3 times. Unseasonal & uneven rainfall has

become a recurring phenomenon off-late and is a long-term challenge. Under such

circumstances, liquidation of products gets affected leading to relaxed credit norms

and increased cash discounts. Also, across industry channels, inventory rises which

requires increased working capital and subdued business performance for a quarter

or so.

Subdued monsoon in FY12 affected the company’s margin and it took more than 12

months to recover and get the profitability on track to FY11 levels. However, we

believe that Rallis now is much better positioned with exports accounting ~28% of its

revenues.

Environment regulations and registration hurdles to add cost and time

Environment regulations across the world are getting stringent, predominantly in

China and EU. They continue to add cost and time for making, formulating and

registering new products. Additionally, the EU has banned hundreds of Active

Ingredient’s during the past five years and many countries are inclined to follow suit

to protect trade ties.

Spurious products in crop protection segment now a serious number

There is a significant share of spurious pesticides and spiked bio-pesticides.

According to pesticides industry body, Agrochemicals Policy Group (APG), spurious

and sub-standard pesticides accounted for ~25-30% of the pesticides sold in India.

These products not only failed to kill pests but also inflicted damages on crops. These

products are mainly used in Bihar, West Bengal and Odisha.

Threat from Genetically Modifies (GM) Seeds

Apart from BT Cotton, GM seeds have not seen much progress in the last decade in

India. However, new product launches in GM seed which possess self-immunity

towards natural adversaries has the potential to negatively impact the pedsticides

business.

Rallis India

June 18, 2015 26

Assumption Sheet

Rallis is expected to kick-start its growth journey on the back of robust growth in

Non-Pesticide Portfolio and single digit growth in Pesticide segment.

Exhibit 42: Key Assumption (Rs m)

FY15 FY16E FY17E

Pesticides business 14,364 15,325 16,919

YoY gr. -2.1% 6.7% 10.4%

Domestic 9,314 9,644 10,560

YoY gr. -4.5% 3.5% 9.5%

Exports 5,050 5,681 6,359

YoY gr. 2.8% 12.5% 11.9%

Plant growth Nutrients (Rs m) 755 944 1,151

YoY gr. 37.3% 25.0% 22.0%

Seeds business (Metahelix) 3,099 4,056 5,290

YoY gr. 37.8% 30.9% 30.4%

Total Consolidated Revenues 18,218 20,325 23,361

YoY gr. 4.3% 11.6% 14.9%

Working capital days 55 60 55

Debtor Days 42 44 42

Inventory Days 72 72 69

Creditor Days 59 56 56

Capex 605 650 700

Tax Rate (%) 27.9 28.5 28.5


Rallis India

June 18, 2015 27

Valuation & Recommendation

Revenues for Rallis to grow at 13% CAGR FY15-FY17E, primarily aided by new

product launches, scale-up at Dahej Facility and robust show from Seed Business

Earnings to report 21% CAGR for FY15-FY17E on the back of lower raw material

cost,better product mix and operating leverage from seed business

Rallis has successfully turned around Metahelix and has shown remarkable

performance in exports, clogging Rs5bn revenues consecutively for the last two

years. We expect the seed business, PGN and exports to aid growth over the next

two years, thus, diversifying it from the domestic crop protection business to some

extent. Rallis is expected to deliver 21% earnings CAGR over the next two years with

a PAT expectation of Rs2.3bn in FY17E. The stock is trading at a P/E of 24x FY16 and

19x FY17E earnings and an EV/EBITDA of 11.7x FY17E.

We believe Rallis is a positional structural story and the best diversified play in the

Agro-value chain currently and deserves to trade at premium valuations vis-a-vis

domestic competition. Strong parentage, new product launches, diversification

across Agriculture value chain and a lean balance sheet makes it a compelling “BUY”

for the long term with average returns of 15-20% over the foreseeable future.

Return ratios above 20% and free cash flow generation of Rs4.1bn over the next two

years will support valuations on the down-side.

Exhibit 43: One Year Forward PE Band

Source: Company Data, Bloomberg, PL Research

4.0x

11.0x

18.0x

25.0x

32.0x

0

50

100

150

200

250

300

350

400

Ma

r-0

8Ju

l-0

8O

ct-0

8Ja

n-0

9M

ay-

09

Au

g-0

9N

ov-

09

Ma

r-1

0Ju

n-1

0Se

p-1

0D

ec-

10

Ap

r-1

1Ju

l-1

1O

ct-1

1Ja

n-1

2M

ay-

12

Au

g-1

2N

ov-

12

Ma

r-1

3Ju

n-1

3Se

p-1

3D

ec-

13

Ap

r-1

4Ju

l-1

4O

ct-1

4Fe

b-1

5M

ay-

15

Rallis India

June 18, 2015 28

Rallis has certain non-core assets which can be used for future business opportunities in Agro-space

Land bank

Rallis has a land bank of 85 acres in Hyderabad and 25 acres in Thane, Maharashtra.

Over the last 15 years, Rallis has raised ~Rs5bn by selling non-core assets, primarily

land bank and fund their core business capex. The last deal was done with Peninsula

Land in the year 2008 for ~31 acres of land in Patanchevuru (Hyderabad) for a

consideration of Rs0.9bn (Rs29m/acre).

Strategic stake of 15% in Advinus Therapeutics

Advinus Therapeutics is a research-based Pharma Company founded by global

Pharma executives and promoted by the TATA group. The company is the first of its

kind in India to offer end-to-end development services to the global Pharma, Agro

and Biotech industry. Advinus Therapeutics has crossed Rs1.5bn turnover in FY14

and broke-even at EBITDA level in FY13. In FY15, it has received a second milestone

(R&D) payment of US$3m by Takeda Pharma.

Exhibit 44: Valuation Comparative Table

Mcap

Sales PE Ratio (x) RoE (%) EV/EBITDA (x) FY15-FY17E CAGR (%)

FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E Sales EBITDA PAT

Global Agro Majors (US$ bn)

BAYN GY Equity 117 54.0 56.1 58.7 17.7 15.7 14.2 24.3 24.5 23.9 12.1 11.1 10.4 4.3 7.8 12.0

BAS EU Equity 84 85.5 89.1 92.2 14.9 13.3 12.2 17.4 18.3 18.6 8.2 7.5 7.2 3.8 6.8 10.6

SYNN VX Equity 39 14.3 15.0 15.7 23.5 20.6 18.9 17.1 19.1 20.1 14.9 13.4 12.5 4.7 9.2 12.6

MON US Equity 54 15.9 15.7 16.6 19.5 16.9 14.8 35.3 37.3 38.9 11.4 11.9 10.8 2.4 10.5 11.4

FMC US Equity 7 3.8 4.4 4.6 16.9 13.9 12.1 32.9 36.2 28.5 11.4 9.9 8.9 10.0 13.4 17.5

Domestic Agro chemical players (Rs bn)

UPLL IN Equity 228 119 135 152 15.7 16.0 13.5 20.6 21.3 21.3 9.1 9.2 8.1 12.9 13.3 21.4

BYRCS IN Equity 138 36 44 51 36.0 30.0 25.2 20.3 19.6 20.3 24.5 19.6 16.6 19.1 21.6 21.7

PI IN Equity 89 19 23 28 36.1 29.1 22.5 30.9 29.1 29.5 24.0 19.4 15.5 21.2 24.4 25.9

RALI IN Equity 44 18 20 23 27.6 23.2 19.0 20.5 21.4 22.7 15.3 13.8 11.7 13.2 17.2 20.6

DAGRI IN Equity 30 8 9 11 28.1 24.0 19.8 28.5 27.2 26.8 21.6 18.1 14.9 19.0 20.2 19.2

Seed Player

KSCL IN Equity 55 12 14 16 18.4 15.3 12.6 47.4 39.5 36.0 16.9 14.2 11.9 17.6 19.1 20.5

Source: Company Data, Bloomberg, PL Research

Rallis India

June 18, 2015 29

Company Background

Rallis, a Tata Group Enterprise, has its presence across farm essentials and is

amongst India’s leading crop care companies. The company’s strengths includes a

portfolio of insecticides, fungicides, herbicides and plant nutrients, a network of

1500 dealers and a connect with more than 1.5m Indian farmers through its Rallis

Kisan Kutumba (family of farmers) programme. Rallis’ distribution network spanning

across 40000 retail counters covers almost 80% of India’s districts. With factories

spread over four locations (Akola, Lote, Ankleshwar & Dahej), it has a production

capacity of more than 10,000 MT of technical grade pesticide and about 30,000

Tons/Litres of formulations per annum.

Strong distribution reach

Rallis has an extensive distribution network covering ~80% of India's districts

(with more than 1500 dealers and 40,000 retailers across India), carrying its

products to the farmer's doorstep

The company has 11 Regional Offices, 44 Area Sales Offices, more than 25

Depots and 225 well-defined sales territories across the country

Apart from the sale-points, Rallis has dedicated 225 field staff and more than

1000 crop advisors serving dealers, retailers and farmers, educating and guiding

them

Metahelix (Seed business) has a farmer base of 3.5m

Senior Management Profile

R Gopalkrishnan (Chairman) - Mr. R. Gopalkrishnan is an ex-IITan and Harvard

student with professional experience of almost five decades in FMCG sector and

TATA group companies. His prior experience in FMCG helps Rallis due to its rural

connect.

Mr V Shankar (MD, CEO) - Mr Shankar (CA, CWA, CS and LLB) has an experience of

almost 30 years across various fields related to chemicals and fertilizers. He moved

to the Tata Group in 2004 and is spearheading their Agri-related businesses. He also

serves on the board of Metahelix Life Science.

Mr K R Venkatadri (COO) - Mr K.R. Venkatadri joined Rallis in 2006 and has an

overall industry experience of 18 years. He has been recognised as one of the 25

Most Talented Rural Marketing Professionals of India by the Rural Marketing Forum.

Rallis has grown @13% CAGR in revenues

and 21% CAGR in earnings over the last 10

years

Exhibit 45: Key Shareholders

% Stake

Tata Chemicals 50.1

Rakesh Jhunjhunwala 10.3

Amansa Capital 4.1

Prudential ICICI MF 3.4

HDFC Asset Mgmt 1.6

Source: Bloomberg

Rallis India

June 18, 2015 30

Income Statement (Rs m)

Y/e March 2014 2015 2016E 2017E

Net Revenue 17,466 18,218 20,325 23,361

Raw Material Expenses 10,085 9,946 11,164 12,680

Gross Profit 7,381 8,273 9,161 10,681

Employee Cost 1,105 1,294 1,400 1,499

Other Expenses 3,663 4,208 4,573 5,373

EBITDA 2,612 2,771 3,188 3,808

Depr. & Amortization 407 496 525 553

Net Interest 62 60 (45) 64

Other Income 64 42 110 162

Profit before Tax 2,144 2,215 2,708 3,353

Total Tax 617 618 772 956

Profit after Tax 1,526 1,598 1,936 2,398

Ex-Od items / Min. Int. 8 26 70 113

Adj. PAT 1,518 1,572 1,866 2,284

Avg. Shares O/S (m) 194.5 194.5 194.5 194.5

EPS (Rs.) 7.8 8.1 9.6 11.7

Cash Flow Abstract (Rs m)

Y/e March 2014 2015 2016E 2017E

C/F from Operations 1,756 680 3,017 2,474

C/F from Investing (759) (539) (650) (700)

C/F from Financing (1,191) (166) (1,383) (1,044)

Inc. / Dec. in Cash (194) (25) 984 730

Opening Cash 234 40 15 51

Closing Cash 40 15 999 781

FCFF 997 141 2,367 1,774

FCFE 449 741 1,492 1,422

Key Financial Metrics

Y/e March 2014 2015 2016E 2017E

Growth

Revenue (%) 19.8 4.3 11.6 14.9

EBITDA (%) 24.1 6.1 15.1 19.4

PAT (%) 27.6 3.5 18.7 22.4

EPS (%) 27.6 3.5 18.7 22.4

Profitability

EBITDA Margin (%) 15.0 15.2 15.7 16.3

PAT Margin (%) 8.7 8.6 9.2 9.8

RoCE (%) 29.6 26.5 27.7 30.6

RoE (%) 22.7 20.5 21.4 22.7

Balance Sheet

Net Debt : Equity 0.1 0.1 — (0.1)

Net Wrkng Cap. (days) 39 55 60 55

Valuation

PER (x) 28.7 27.7 23.3 19.1

P / B (x) 6.1 5.3 4.7 4.0

EV / EBITDA (x) 16.8 15.8 13.4 11.0

EV / Sales (x) 2.5 2.4 2.1 1.8

Earnings Quality

Eff. Tax Rate 28.8 27.9 28.5 28.5

Other Inc / PBT 3.0 1.9 4.1 4.8

Eff. Depr. Rate (%) 6.2 7.3 7.1 6.8

FCFE / PAT 29.6 47.2 80.0 62.3

Source: Company Data, PL Research.

Balance Sheet Abstract (Rs m)

Y/e March 2014 2015 2016E 2017E

Shareholder's Funds 7,179 8,143 9,307 10,826

Long Term Borrowings 406 452 314 337

Other Liabilities 470 498 541 575

Total Liabilities 8,055 9,093 10,162 11,737

Net Fixed Assets 4,393 4,260 4,121 4,268

Goodwill 1,860 1,958 1,958 1,958

Investments 251 242 242 242

Net Current Assets 1,537 2,632 3,841 5,269

Cash & Equivalents 93 72 1,169 1,860

Other Current Assets 6,374 7,824 7,978 9,251

Current Liabilities 4,930 5,263 5,306 5,842

Short Term Borrowings 484 837 400 400

Total Assets 8,055 9,093 10,162 11,737

Quarterly Financials (Rs m)

Y/e March Q2FY15 Q3FY15 Q4FY15 Q1FY16E

Net Revenue 6,419 3,895 3,219 5,573

EBITDA 1,219 505 444 727

% of revenue 19.0 13.0 13.8 13.1

Depr. & Amortization 127 126 132 117

Net Interest 18 17 16 (8)

Other Income 8 9 9 28

Profit before Tax 1,075 361 295 618

Total Tax 346 128 83 84

Profit after Tax 734 255 213 454

Adj. PAT 734 255 213 454

Source: Company Data, PL Research.

Rallis India

June 18, 2015 31

Notes

Rallis India

June 18, 2015 32

Prabhudas Lilladher Pvt. Ltd.

3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India

Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209

Rating Distribution of Research Coverage PL’s Recommendation Nomenclature

42.7%39.6%

17.7%

0.0%0%

10%

20%

30%

40%

50%

BUY Accumulate Reduce Sell

% o

f To

tal C

ove

rage

BUY : Over 15% Outperformance to Sensex over 12-months

Accumulate : Outperformance to Sensex over 12-months

Reduce : Underperformance to Sensex over 12-months

Sell : Over 15% underperformance to Sensex over 12-months

Trading Buy : Over 10% absolute upside in 1-month

Trading Sell : Over 10% absolute decline in 1-month

Not Rated (NR) : No specific call on the stock

Under Review (UR) : Rating likely to change shortly

DISCLAIMER/DISCLOSURES

ANALYST CERTIFICATION

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ANALYST CERTIFICATION

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