Xtrade Stock Overview for 4th January 2018

Rallis India is one of country’s leading agrochemical companies and is a 50.1% subsidiary of Tata Chemicals. Commercialization of the new molecules in the CRAMS business, increasing product launches in domestic agrochemical business and seed business growth to drive Rallis India’s revenue & earnings. We forecast 18% earnings CAGR over FY17-19E to Rs 254 crore. The stock is trading at P/E of 20x on FY20E earnings.
The company’s domestic formulation sales & International business (B2B + CRAMS) account for 49% & 25% respectively of its revenues. It’s 100% subsidiary Metahelix Life Sciences (3% domestic seed market share) & other businesses forms 20% & 6% respectively of the revenues. Rallis has a strong distribution network with 2300 dealers and 40,000 retailers, thereby covering 80% of Indian districts.
Rallis India is expected to launch at least two new products every year which is expected to bolster its product pipeline. It is also expanding its distribution network by 30% to 3000 dealers over FY17-19E. We expect its domestic business to register 12% revenue CAGR over FY17-19E to Rs 1,464 crore. Further, we expect their subsidiary company Metahelix’s revenue to grow at 21% CAGR over FY17-19E to Rs 487 crore. The development of new molecules for its global customers is on the verge of pay offs from FY18E. The higher margin CRAMS business (20% EBITDA margin) will provide next leg of growth to the company. We expect the new CRAMS business to register 79% revenue CAGR over FY17-19E to Rs 192 crore.