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Rallis India: Restructuring pays off

Dec 4, 2001

The effect of restructuring exercise carried out in last one year is getting reflected in the performance of Rallis India. The company posted a PBT of 14 m as against a loss of Rs 86 m in the corresponding period last year. Though operating margins remain far below the desired level, they are showing signs of improvement.

(Rs m) 1HFY01 1HFY02 % Change FY01
Sales 5,751 5,167 -10.2% 10,889
Other Income 72 110 51.7% 209
Expenditure 5,533 4,927 -11.0% 10,586
Operating Profit (EBDIT) 219 240 9.9% 303
Operating Profit Margin (%) 3.8% 4.7% 2.8%
Interest 305 260 -14.7% 616
Depreciation 72 76 6.1% 156
Profit before Tax (86) 14 NA (261)
Extraordinary Income (124) 181 - -46
Tax - 35 NA 0
Profit after Tax/(Loss) (210) 161 NA (307)
Net profit margin (%) -3.7% 3.1%   -2.8%
No. of Shares (eoy) (m) 11.9 11.9   11.9
Diluted Earnings per share* -70.6 27.0   -25.8
P/E (at current price) 1.7    
(*- annualised)        

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, which now seems to be paying off. First the company stopped marketing of fertilisers except for group company 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 seems to have used this proceeds to trim down its interest costs. Extra-ordinary income in the financials is on that account.

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 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.

In the short term, the above average monsoon is expected to revive agrochemicals demand for the company. Further, interest savings are also expected to contribute considerably to the bottomline. 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 its well-entrenched distribution network which is hard to replicate. At the current market price of Rs 43, the stock trades at a dismal 1.7x 1HFY02 annualised earnings.

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