3QFY2013 Result Update | Agrichemical

January 24, 2013

Rallis India
Performance Highlights
Y/E March (` cr)
Net sales Other income Gross profit Operating profit Adj. Net profit

NEUTRAL
CMP Target Price
% chg (qoq)
(29.3) 0.0 (22.1) (52.2) (64.2)

`135 -

3QFY2013
340 2 133 44 22

2QFY2013
481 9 171 92 62

3QFY2012
318 0 130 48 26

% chg (yoy)
7.0 1,200.0 2.7 (8.7) (15.9)

Investment Period
Stock Info Sector Market Cap (` cr) Net debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

Agrichemical 2,629 158 0.4 169/112 102,884 1 19,924 6,019 RALL.BO RALI@IN

Source: Company, Angel Research

For 3QFY2013, Rallis India (RAIL)s consolidated net sales grew by 7.0% yoy to `340cr. The OPM for the quarter came out to 12.9%, ie a dip from 15.2% in 3QFY2012. The yoy dip in the OPM resulted in a 15.9% yoy decline in the companys adjusted net profit to `22cr. Going forward, we expect RAIL to register a CAGR of 15.0% and 20.3% in net sales and profit over FY2012-14, respectively. We remain Neutral on the stock. OPM dips on yoy basis: RAILs revenue for the quarter grew by 7.0% yoy to
`340cr. On the operating front, the gross margin came in at 39.2%, down

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 50.1 15.1 10.8 24.0

164bp yoy. Consequently, there was a dip in the OPM, which declined to 12.9% in 3QFY2013 vs 15.2% in 3QFY2012. This resulted in a de-growth in the adjusted net profit by 15.9% yoy to `22cr. Outlook and valuation: The Management is confident about the long-term prospects of the agrochemicals industry. We expect RAIL to register a CAGR of 15.0% and 20.3% in net sales and profit over FY2012-14, respectively. At the current levels, the stock is trading at a fair valuation of 16.6x FY2014E EPS. Hence, we maintain our Neutral recommendation on the stock.

Abs. (%) Sensex Rallis India

3m 6.5 (4.1)

1yr 17.2 9.9

3yr 18.2 86.9

Key financials (Consolidated)

Y/E March (` cr) Net Sales % chg Adj.Net Profit % chg EBITDA % FDEPS (`) P/E (x) P/BV (x) RoE (%) RoACE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2011
1,086 23.1 125 23.2 17.9 6.4 21.0 5.2 26.9 33.1 2.4 13.5

FY2012
1,275 17.4 109 (12.6) 14.8 5.6 24.1 4.8 20.7 23.2 2.1 14.2

FY2013E
1,466 15.0 137 25.1 14.8 7.0 19.2 4.1 22.9 23.2 1.8 12.2

FY2014E
1,686 15.0 158 15.7 14.8 8.1 16.6 3.5 22.7 23.6 1.5 10.4

Sarabjit Kour Nangra

+91-22-39357800 ext. 6806 sarabjit@angelbroking.com

Please refer to important disclosures at the end of this report

Rallis India | 3QFY2013 Result Update

Exhibit 1: 3QFY2013 performance (Consolidated)

Y/E March (` cr) Net sales Other income Total income Gross profit Gross margin (%) EBDITA EBDITA margin (%) Financial cost Depreciation PBT Provision for taxation PAT Before Exc. And MI Minority Exceptional Reported PAT Adjusted PAT EPS (`)
Source: Company, Angel Research 3QFY2013 340 2 341 133 39.2 44 12.9 5 8 33 12 21 (1) 0 22 22 1.1 2QFY2013 481 9 490 171 35.5 92 19.1 5 8 88 27 60 (1) 0 62 62 3.2 (64.2) (64.2) (13.8) 4.0 (62.6) (55.8) (65.6) (52.2) (30.3) (22.1) % chg (qoq) (29.3) 3QFY2012 318 0 318 130 40.8 48 15.2 4 7 37 11 26 (1) 19 8 26 0.4 177.5 (15.9) 12.4 10.8 (11.0) 6.1 (18.6) (8.7) % chg (yoy) 7.0 1200.0 7.4 2.7 9MFY2013 1,161 19 1,181 458 39.4 173 14.9 15 23 154 46 108 1 0 108 108 1.1 9MFY2012 1,041 7.7 1,049 427 41.0 175 16.8 12 20 150 43 107 2 16 89 106 4.6 21.3 1.9 15.8 2.4 6.2 0.9 (0.9) % chg 11.5 151.3 12.6 7.2

Sales grow 7.0% yoy

RAILs revenue for the quarter grew by 7.0% yoy to `340cr.The growth in the sales was muted as both domestic and exports sales were under pressure. Metahelix, the companys subsidiary, reported sales of `90cr during 9MFY2013, registering a growth of 50% yoy.

Exhibit 2: Total revenue performance

480 400 320 318 206 338 481 25 20 340 15 10 5 240 160 80 0 3QFY2012 4QFY2012 1QFY2013 2QFY2013
% YoY

(` cr)

0 (5) (10) (15) (20) 3QFY2013

Total Revenue

Source: Company, Angel Research

OPM dips
On the operating front, the gross margin came in at 39.2%, down 164bp yoy. Consequently, there was a dip in the OPM, which declined to 12.9% in 3QFY2013 vs 15.2% in 3QFY2012.

January 24, 2013

Rallis India | 3QFY2013 Result Update

Exhibit 3: Margin trend

50 40 40 30 39 44 36 39

(%)
20 19 10 0 3QFY2012 4QFY2012 1QFY2013 2QFY2013 EBITDA (%) 3QFY2013 15 1 10 13

Gross margin (%)

Source: Company, Angel Research

leading to a low earnings growth

A low growth in the operating profit kept the net profit growth under check. This resulted in a de-growth in the adjusted net profit by 15.9% yoy to `22cr.

Exhibit 4: Adjusted PAT trend

75 62 60 45 80 60 40

(` cr)

20 26 24 22 0 (20)

30 15 0

6 3QFY2012 4QFY2012 1QFY2013

Adj PAT

(40) (60) 2QFY2013

% YoY

3QFY2013

Source: Company, Angel Research

January 24, 2013

Rallis India | 3QFY2013 Result Update

Investment arguments
Set to seize rising opportunities in the domestic pesticides market: India's overall pesticide consumption is one of the lowest in the world, and we believe RAIL is well placed to seize this opportunity on the back of its wide distribution network, strong brands and robust new product pipeline. According to industry estimates, the unorganized market accounts for another 50% of the industry. Nonetheless, we believe RAIL is in a position to wrest market share as well as charge a premium for its products. Exports to register steady growth: Closing down of capacities in China before the 2008 Olympics and MNCs diversifying their base to India had resulted in the companys exports spiking by 80% to `295cr in FY2009. The scenario, however, changed post the Olympics and many closed capacities have come on stream and prices of commodities have corrected, due to which exports declined by 35% in FY2010; however since then the exports improved. For FY2012, exports grew by ~52%. Against this backdrop, we estimate RAIL to post a 25% CAGR in its exports over FY2012-14. Contract manufacturing to be the next growth driver: RAIL plans to focus on contract manufacturing for exports and selectively target and supply to top players. To facilitate the same, the company is setting up a new plant at Dahej. Overall, RAIL targets to achieve cumulative revenue of `1,000cr over the next five years from this segment alone.

Outlook and valuation

The management is confident of the prospects for key crops such as cotton and paddy due to generally normal monsoons, which should aid continued healthy growth in the agrochemicals industry. RAIL expects to outperform the industry, given its product pipeline. Overall, we expect RAIL to register a CAGR of 15.0% and 20.3% in net sales and profit over FY2012-14, respectively. At the current levels, the stock is trading at a fair valuation of 16.6x FY2014E EPS. Hence, we remain our Neutral view on the stock.

Exhibit 5: Key assumptions

Particulars (%) Domestic growth Export growth Total revenue growth EBITDA margin Capex (` cr)
Source: Company, Angel Research

FY2013E 13.0 25.0 15.0 14.8 75

FY2014E 13.0 25.0 15.0 14.8 100

Exhibit 6: Peer valuation

Company Rallis Reco Neutral Mcap CMP (` cr) 2,629 6,034 United Phosphorus Buy (`) 135 TP (`) Upside (%) 27.8 P/E (x) FY13E 19.2 8.8 16.6 7.8 EV/Sales (x) 1.8 0.9 1.5 0.7 EV/EBITDA (x) 12.2 5.2 10.4 4.4 RoE (%) 22.9 15.6 22.7 15.5 CAGR (%) PAT 15.0 20.3 10.0 18.4 FY14E FY13E FY14E FY13E FY14E FY13E FY14E Sales

133 170

Source: Company, Angel Research, Bloomberg

January 24, 2013

Rallis India | 3QFY2013 Result Update

Exhibit 7: One-year forward P/E band

250.0 200.0

Share price (`)

150.0 100.0 50.0 0.0

Oct-07

Oct-08

Oct-09

Oct-10

Oct-11

Price
Source: C-line, Angel Research

10x

15x

20x

25x

30x

Background
RAIL is one of the oldest and second largest pesticide agrichemical companies in the country with a market share of around 13% and belongs to the Tata Group. The company also has a credible presence in the international market. Pesticides account for 97% of the company's total revenues, while plant nutrients, seeds and leather chemicals constitute the balance. Historically contribution from the domestic business has stood at 77% levels while exports accounted for the balance.

January 24, 2013

Oct-12

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Apr-09

Apr-10

Apr-11

Apr-12

Apr-07

Apr-08

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Rallis India | 3QFY2013 Result Update

Profit & loss (Consolidated)

Y/E March (` cr) Gross sales Less: Excise duty Net Sales Other operating income Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation & Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) Minority Interest PAT (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg 72 73 48.3 8.7 3.8 3.8 48.3 101 102 38.7 11.6 5.2 5.2 38.7 FY09 911 73 838 7 844 24.1 742 475 186 69 11 96 87.8 11.5 23 80 115.5 9.5 9 36 34 107 52.2 (1) 107 35 32.8 FY10 937 58 879 3 882 4.5 730 470 177 67 15 149 54.5 16.9 18 134 67.7 15.2 6 25 17 153 42.4 0 152 51 33.6 FY11 1,167 81 1,086 1,086 23.1 892 592 209 73 18 195 31.0 17.9 17 177 32.5 16.3 7 14 8 184 20.4 0 184 58 31.6 0 125 125 23.2 11.5 6.4 6.4 23.2 FY12 1,354 79 1,275 1,275 17.4 1,086 695 283 90 18 189 (3.1) 14.8 29 160 (9.7) 12.6 18 7 5 149 (18.7) (10) 149 49 32.6 2 99 109 (12.6) 8.6 5.6 5.6 (12.6) 135 135 24.0 9.2 7.0 7.0 24.0 157 157 15.8 9.3 8.1 8.1 15.8 1,466 15.0 1,249 799 326 104 21 217 15.0 14.8 38 179 12.1 12.2 14 30 16 196 31.4 196 61 31.0 1,686 15.0 1,437 919 374 119 24 250 15.0 14.8 44 206 14.8 12.2 14 35 15 227 15.8 227 70 31.0 FY13E 1,575 109 1,466 FY14E 1,811 125 1,686

January 24, 2013

Rallis India | 3QFY2013 Result Update

Balance sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves & Surplus Shareholders Funds Minority Interest Total Loans Other Long Term Liabilities Long Term provisions Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Long Term Loans and Advances Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets
352 8 77 266 261 91 7 422 326 12 89 226 304 22 427 136 140 338 179 159 29 309 156 153 112 397 174 223 159 125 26 104 380 15 30 336 373 7 644 551 189 362 60 155 23 91 432 11 45 375 387 45 736 651 225 426 35 155 23 103 529 45 52 432 445 84 825 751 267 484 35 155 23 118 631 75 60 496 511 120 935 12 88 250 350 82 (10) 422 13 411 424 8 (5) 427 19 485 505 2 115 0 19 3 644 19 534 553 1 151 0 18 13 736 19 623 642 1 151 0 18 13 825 19 734 753 1 151 0 18 13 935

FY09

FY10

FY11

FY12

FY13E

FY14E

January 24, 2013

Rallis India | 3QFY2013 Result Update

Cash flow statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation (Inc)/Dec in Working Capital Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Inc./ (Dec.) in loans and adv. Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances
(138) 37 (30) 32 39 (0) 8 8 (58) (74) (44) 76 (42) 4 8 12 (20) 107 (36) (200) (129) 3 12 15 (52) 35 (47) (79) (91) (3) 15 11 (75) (47) (17) (64) 34 11 45 (100) (47) (2) (49) 30 45 75 FY09 107 23 46 (31) 99 (57) (81) FY10 152 18 73 (67) 104 (54) (4) FY11 184 17 (31) (49) 152 (135) 115 FY12 149 29 (28) (38) 140 (55) 3 FY13E 198 36 (17) (61) 173 (75) FY14E 229 42 (21) (71) 179 (100) -

January 24, 2013

Rallis India | 3QFY2013 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.)
(0.1) (0.1) 9.1 (0.3) (0.8) 20.8 (0.1) (0.3) 24.7 (0.1) (0.4) 9.1 (0.2) (0.7) 13.4 0.1 0.2 15.3 2.7 63 46 114 46 2.7 60 39 141 19 3.1 65 43 139 1 2.7 70 55 128 4 2.4 64 51 121 9 2.4 55 45 121 9 20.5 27.6 22.3 31.5 68.2 26.2 33.1 34.1 26.9 23.2 30.3 20.7 23.2 29.6 22.9 23.6 34.2 22.7 9.5 67.2 2.6 16.5 3.2 16.5 15.2 66.4 2.9 29.1 4.1 29.1 16.3 68.4 2.3 25.1 19.0 25.1 12.6 67.4 1.8 15.5 8.9 15.5 12.3 69.0 2.0 17.0 6.2 17.0 12.3 69.0 1.9 16.3 6.2 16.3 3.8 3.8 4.8 1.1 14.5 5.2 5.2 6.0 1.2 21.8 6.4 6.4 7.4 1.1 26.0 5.6 5.6 9.3 1.5 28.4 7.0 7.0 8.9 2.4 33.0 8.1 8.1 10.3 2.4 38.7 35.6 28.2 9.3 0.8 3.1 26.9 6.1 25.9 22.5 6.2 0.9 2.8 16.8 5.9 21.0 18.4 5.2 0.8 2.4 13.5 4.1 24.1 14.6 4.8 1.1 2.1 14.2 3.7 19.2 15.2 4.1 1.8 1.8 12.2 3.2 16.6 13.1 3.5 1.8 1.5 10.4 2.8

FY09

FY10

FY11

FY12

FY13E

FY14E

January 24, 2013

Rallis India | 3QFY2013 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Rallis India No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

January 24, 2013

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