Rallis India’s earnings growth prospects see multiple triggers

The rising raw material costs had remained a cause of concern, impacting margins and earning visibility. During the September quarter, the seeds business declined by 65% year on year. Some support was provided by the crop care segment, and rising exports that lead to marginal revenue growth. Amidst weak sales growth, the company was not able to pass on raw material costs impacting operating performance leading to a decline in Q2 profits.

The good Rabi season sowing, however, is leading to an improved outlook for the agri-input manufacturers, including Rallis India thereafter. The impact of raw material prices will still remain watched for, however, analysts expect performance to rebound, though gradually.

The longer-term growth and earnings outlook however remains intact for Rallis. Analysts expect ongoing expansions and continued new product launches to provide a boost to the company’s performance. The company is also gaining market share in export markets. Analysts at Prabhudas Lilladher Research estimate 14% export revenue CAGR (compound annual growth) over FY21-FY24 compared to 11% over FY11-FY21. They say that times have remained testing, however, the worst may be behind.

In the seed business too, the company is working towards reducing dependence on Kharif crops and is developing products to diversify and develop more rabi season products too.

Analysts at Anand Rathi Research too said that “Considering its capex plans, focus on product launches, gaining export market-share, rising Free cash flows, expanding return ratios and strong balance sheet, Rallis India’s long-term performance leaves us upbeat”. They expect the company’s revenue and profit to clock 12% and 22% CAGRs (compound annual growth rate) respectively over FY22-24.

The gradual recovery in both domestic and exports segments coupled with enhanced capacity would lead to sustainable growth in the medium term, feel analysts.