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Rallis: Shines in a low cost environment
Apr 23, 2010

Rallis India Ltd has announced its FY10 results. The company has reported a 5% YoY and 41% YoY growth in sales and net profits respectively. Here is our analysis of the results

Performance summary
  • Topline grows by 5% YoY during the quarter
  • Sharp reduction in costs boosts operating profits by 29% during the quarter
  • Bottomline growth comes in at 42% for the quarter as reduction in other cost heads further boost performance
  • Bottomline for the full year grows by 41% YoY on the back of a 5% growth in topline, thus capping off a year of benign cost environment
  • Announces a dividend of Rs 10 per share (yield of 0.7%). Also announces a bonus issue in the ratio of one equity shares for every two shares held in the company


(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Net sales 8,523 8,970 5.2% 8,562 9,005 5.2%
Expenditure 7,169 7,225 0.8% 7,195 7,256 0.8%
Operating profit (EBDITA) 1,354 1,744 28.9% 1,367 1,750 28.0%
EBDITA margin (%) 15.9% 19.4%   16.0% 19.4%  
Other income 29 66 126.1% 29 66 126.1%
Interest expense/(income) 30 23 -24.3% 31 23 -26.1%
Depreciation 170 152 -10.3% 170 152 -10.3%
Profit before tax 1,183 1,635 38.2% 1,195 1,640 37.2%
Extraordinary items (123) (113)   (123) (113)  
Tax 347 512 47.3% 352 512  
Profit after tax/(loss) 713 1,010 41.7% 720 1,015 40.9%
Net profit margin (%) 8.4% 11.3%   8.4% 11.3%  
No. of shares (m) 12.0 13.0   12.0 13.0  
Diluted earnings per share (Rs)*         78.3  
Price to earnings ratio (x)*         18.7  
(* on trailing twelve months earnings)

What has driven performance in FY10?
  • It was a year of tight cost control for the company. And the efforts seemed to have borne great fruits for the company. The fact that most of the raw materials are crude based and were ruling at levels well below their highs also helped matters for the company. As a consequence, a modest topline growth of 5% for the year got converted into a strong operating profit growth of 28%. It should be noted that at 19%, operating margins are ruling at multi-year high levels and is an indicator of the success that the company has managed to achieve by consolidating its operations.

  • While the improvement in operating margins is enthusing, it should be noted that there is a limit to it and one cannot go on improving upon the same continuously. Hence, for the company to grow sustainably, it will have to grow its topline. Even here, the company seems to be comfortably placed. A new, Rs 1.5 bn factory is scheduled to commence production soon and this coupled with a possible pick up in exports, would ensure that there are new avenues for growth for the company in the coming years. The domestic market, thanks to the rising demand for agri products, will continue to keep humming at a robust rate. However, most bets would be off if rain gods decide to play spoilsport.

    Cost break-up...
    (Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
    Raw materials 4,458 4,416 -0.9% 4,474 4,437 -0.8%
    % sales 52.3% 49.2%   52.3% 49.3%  
    Staff cost 664 667 0.5% 669 673 0.6%
    % sales 7.8% 7.4%   7.8% 7.5%  
    Other expenditure 2,047 2,142 4.6% 2,052 2,146 4.6%
    % sales 24.0% 23.9%   24.0% 23.8%  

  • Rationalisation of products and efficient use of capital have also played a stellar role in improving the performance of the company. Thanks to a lower interest costs and benign depreciation charges, the 28% growth in operating profits for the full year has translated into 41% growth in bottomline.

What to expect?
At the current price of Rs 1,461, the stock trades at an earnings multiple of nearly 17 times its expected FY12 earnings per share. Going forward, it will be the topline growth that will drive the fortunes of the company as we believe that expansion in margins may be difficult to come by. Considering the reasonable valuations of the stock and its growth prospects, we continue to remain positive on the stock from a long-term perspective.

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