Broker’s Call: Rallis India (Hold)

Target: INR 200

CMP: 189.35.35

Rallis India (RALI) Q4 FY23 results fell short of our expectations and consensus mainly driven by: Domestic Crop Protection (CP) revenue remaining flat year-on-year; export earnings increased by 7 percent year on year; Seed revenue decreased by 3 per cent YoY to Rs 25 crore; Gross margins contracted 800 basis points yoy to 26.7 per cent, led by inventory provisions (Rs. 40 crore) and impairment of intangible assets (Rs. 24 crore) in the seed business; Lower gross profit coupled with higher operating expenses (up to 300 basis points per annum) related to higher A&P spending ahead of the fall season and provision of Rs.4.6 crore for notice from MBPT during the year resulted in a widened EBITDA loss of Rs.65.3 crore. Against a loss of ₹2.8 crore on 4QFY22. EBITDA/PAT loss was Rs.1.9 crore / Rs.5.4 crore as against a loss of Rs.2.8 crore / Rs.14.2 crore in the primary quarter.

The domestic CP sector remained flat year-on-year, mainly driven by erratic monsoons which resulted in lower pest prevalence. This, in turn, has led to an increase in the accumulation of stocks, especially in pesticide grades. From now on, management remained cautious about the upcoming fall season led by: expecting an El Niño event in the second half of the monsoon season (mid-August to September); Significantly higher channel inventory is likely to result in lower volume growth; Lower raw material prices may lead to margin pressures.

Export business was up 7% year-over-year in the fourth quarter of FY23 and 25% year-over-year in FY23, primarily driven by higher volumes due to improved capabilities and price-led growth. Going forward, the management hinted that the inventory situation in the global market remains compact and can lead to moderate growth.

We trimmed our earnings per share estimate of 16% / 15% for fiscal year 24/25 due to slowing revenue growth and margin pressure. We maintain “Hold” rating on the stock with an adjusted TP of $200 from $240 prior based on 18xFY25 EPS.