• OUTLOOK ARENA
  • VIEWS ON NEWS
  • AUGUST 30, 2001

Rallis India: A sharp turnaround

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.

(Rs m)1QFY011QFY02% ChangeFY01
Sales 2,216 1,941 -12.4% 10,889
Other Income 33 31 -6.7% 209
Expenditure 2,203 1,852 -15.9% 10,586
Operating Profit (EBDIT) 13 89 584.6% 303
Operating Profit Margin (%)0.6%4.6% 2.8%
Interest 156 72 -53.8%616
Depreciation 41 38 -7.3%156
Profit before Tax (151) 10 NA (261)
Extraordinary Income - 200 --46
Tax - 3 NA0
Profit after Tax/(Loss) (151) 207 NA (307)
Net profit margin (%)-6.8%10.7%-2.8%
No. of Shares (eoy) (m)11.911.911.9
Diluted Earnings per share*-50.869.5-25.8
P/E (at current price) 0.5
(*- annualised)

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.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407