RALLIS India: Rallis may maintain growth tempo

A Normal Monsoon & Co’s New Dahej Plant May Serve As Key Triggers For Uptick

RALLIS India has become the second-most expensive agrochemical company following a strong run-up in its share price over the past one year. With a price-to-earnings multiple (P/E) of above 18, it’s next only to Bayer Cropscience. The Rallis scrip has nearly tripled in the past 12 months as against the 47% gain in the benchmark Sensex.
In each of the four quarters of FY10, the company’s results showed robust growth in net profit. Even in the fourth quarter ended March 2010, net profit jumped 121% to Rs 21.8 crore, despite an 11% growth in its net sales.
Apart from an improvement in the operating profit margin, Rallis also benefited from a rise in other income followed by fall in interest and depreciation costs. On a whole-year basis, the company’s net profit from operations crossed the milestone of Rs 100 crore.
The company has proposed to offer one bonus share for every two shares held. It has paid a dividend of Rs 18 per share during FY10, which gives a dividend yield of 1.2%.
Rallis has been successful in implementing most of its growth strategies with a focus on better working capital management, export growth, new product launches and expanding capacities. As a result, its operating margin has expanded by 330 basis points to 18.5% in FY10, from the year-ago level. Moreover, 31% of the company’s revenue came from products introduced in past three years.
The company is setting up an agrochemical plant in the Dahej Special Economic Zone with a capital expenditure of Rs 150 crore. The plant is set to commence operations by June 2010 with annual production capacity of 5,000 tonne that can generate cumulative revenues over Rs 500 crore in its first three years of operations.
An expectation of evenly spread-out, normal monsoon this year and commissioning of the new Dahej plant may serve as key triggers for the company’s growth, going forward. Stability in raw material prices and its ability to introduce new products at regular intervals will improve the company’s performance. Rallis’ growth momentum is expected to continue in the coming year, justifying its rich valuations.