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Rallis India: Continues to impress - Views on News from Equitymaster
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Rallis India: Continues to impress
Oct 15, 2010

Rallis India has announced its September quarter results. The company has reported a 15% growth in topline and a 28% growth in bottomline respectively. Here is our analysis of the results.

Performance summary
  • Topline grows by 15% YoY during the quarter.
  • Small expansion in margins leads to operating profit growth of 19% YoY during the quarter.
  • Bottomline grows by 28% YoY led by operating margin expansion and lower tax outgo.
  • Net profit for the half year goes up by 33% YoY on the back of a 17% YoY growth in topline.


(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Net sales 3,209 3,680 14.7% 4,873 5,708 17.1%
Expenditure 2,463 2,797 13.6% 3,932 4,599 17.0%
Operating profit (EBDITA) 745 883 18.5% 941 1,109 17.9%
EBDITA margin (%) 23.2% 24.0%   19.3% 19.4%  
Other income 11 11   22 27 24.0%
Interest (net) 6 (1) -110.9% 8 (10)  
Depreciation 43 40 -6.8% 78 76 -3.7%
Profit before tax 708 855 20.8% 877 1,071 22.1%
Extraordinary items (21) -   (41) -  
Tax 230 268 16.5% 285 335 17.7%
Profit after tax/(loss) 457 587 28.4% 551 736 33.4%
Net profit margin (%) 14.2% 15.9%   11.3% 12.9%  
No. of shares (m) 12.0 19.5   12.0 19.5  
Diluted earnings per share (Rs)*         61.4  
Price to earnings ratio (x)*         23.5  
(* on trailing twelve months earnings)

What has driven performance in 2QFY11?
  • Rallis carried its good form from recent quarters into 2QFY11 as well and posted a decent topline growth of 15% YoY. It should be noted that the rainfall for the current fiscal has been the best in three years and this obviously had a rub off effect on Rallis’ performance. While the monsoon pattern had been erratic and the same affected spraying in some parts, overall the company did managed to do well. Besides, new product solutions offered to farmers such as Ralligold, Ergon and Taarak received encouraging response and contributed to the topline performance. The international business also performed well what with revival in many global markets.

    Cost break-up…
    (Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
    Raw materials 1,612 1,675 3.9% 2,374 2,713 14.3%
    % sales 50.2% 45.5%   48.7% 47.5%  
    Staff cost 156 184 17.6% 334 368 10.1%
    % sales 4.9% 5.0%   6.9% 6.4%  
    Other expenditure 695 939 35.0% 1,224 1,518 24.0%
    % sales 21.7% 25.5%   25.1% 26.6%  

  • Growth in operating profits has come in slightly greater than growth in topline and stood at 19% YoY. This was on account of the significant fall in raw material costs offset to a great extent by the strong jump in other expenses.

  • Apart from higher margins, a fall in depreciation charge has led to the 21% growth in PBT during the quarter. At 28%, the growth in bottomline is even better and has been driven by absence of any extraordinary losses as well as slightly lower tax rates.

What to expect?
At the current price of Rs 1,427, the stock trades at around 18 times our revised FY12 earnings per share for the company. Although the company’s recent performance has been enthusing, we believe that the rich valuations more or less reflect this fact. Thus, in view of the same, we believe that one should be cautious at these levels. It will not be a bad idea to exit partially or may be even more as the stock price seems to be capturing most of the upside of the next 18 months or so.

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