Rallis India is the largest agrochemical company in India with a market share of more than 15% in crop protection business. The company has an enviable marketing and distribution network with 4,000 dealers and 30,000 retailers across the country. Rallis India has gone through a major restructuring exercise in last three years.
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The agrochemical industry went through a bad phase last year especially due to poor monsoons. Further, over-production and imports, low consumption of pesticides and unremunerative prices of produce to farmers contributed to lack of demand. The year also saw a consolidation of Indian arms of multinationals — Rhone Poulenc and Agrevo combining to form Aventis Crop science, BASF with Cyanamid Agro and Monsanto with its group companies. This helped MNCs to offer a more diverse product portfolio. This impact of the overall scenario was evident in Rallis India's financials with the company recording a loss to the tune of Rs 307 m in FY01. Operating margins also recorded a drastic drop.
The restructuring exercise undertaken by the company however, seems to be paying off. First the company stopped marketing of fertilisers except that for Tata chemicals. It also sold its pharmaceutical business to Moscow based Sherya Corp. for Rs 490 m this year. Rallis had earlier merged five of its wholly owned subsidiaries with itself to ensure operational synergies and cost savings. It recently sold its surplus land in Andheri, Mumbai to TCS for Rs 1,332 m. The company plans to use the proceeds to trim down debt and for future expansion plans. Interest costs was already down 54% in 1QFY02. The company also reduced its excess workforce.
Thus, focus on high margin products and a sharp reduction in cost structure resulted in considerable improvement in operating margins of the company. Operating margins improved considerably in 1QFY02. Sales however, recorded a drop of 12% due to discontinuance of non-trading income. Excluding extraordinary Income, the company managed to keep itself out of red.
In the short term, normal monsoons across the country is expected to revive agrochemicals demand for the company. However, in the long run the challenge before the company is to compete with multinationals which are expected to gear up product launches once patent laws are in place. Though the company is making investments in R&D, it would be interesting to see how the company fights international competition. However, the biggest strength of the company is it's well-entrenched distribution network which is hard to replicate.
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