4QFY2013 Result Update | Agrichemical

April 26, 2013

Rallis India
Performance Highlights
Y/E March (` cr) Net sales Other income Gross profit Operating profit Adj. Net profit 4QFY2013 279 7 103 22 11 3QFY2013 % chg (qoq) 340 2 133 44 22 (18.0) 0.0 (22.9) (50.0) (48.9) 4QFY2012 % chg (yoy) 208 11 83 11 6 34.0 (31.8) 23.4 92.1 104.0

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Agrichemical 2,422 158 0.7 169/110 99,960 1 19,287 5,871 RALL.BO RALI@IN

`125 -

Source: Company, Angel Research

For 4QFY2013, Rallis India (RAIL)s consolidated net sales grew by 34.0% yoy to `279cr. The OPM for the quarter came out to 7.9%, ie an expansion from 5.5% in 4QFY2012. The yoy expansion in the OPM resulted in a 104.0% yoy rise in the companys adjusted net profit to `11cr. Going forward, we expect RAIL to register a CAGR of 15.0% and 20.5% in net sales and profit respectively, over FY2013-15. We remain Neutral on the stock. Robust growth: RAILs revenue for the quarter grew by 34.0% yoy to `279cr. On the operating front, the gross margin came in at 36.8%, down 318bp yoy. However, on account of the lower rise in the staff and other expenditure, the OPM expanded to 7.9% in 4QFY2013 vs 5.5% in 4QFY2012. This resulted in a growth in the adjusted net profit by 104.0% yoy to `11cr. Outlook and valuation: The Management is confident about the long-term prospects of the agrochemicals industry. We expect RAIL to register a CAGR of 15.0% and 20.5% in net sales and profit respectively, over FY2013-15. At the current levels, the stock is trading at a fair valuation of 14.1x FY2015E EPS. Hence, we maintain our Neutral recommendation on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 50.1 14.0 10.6 25.3

Abs. (%) Sensex Rallis India

3m (4.1) (9.5)

1yr 12.6 8.1

3yr 8.7 30.1

Key financials (Consolidated)

Y/E March (` cr) Net Sales % chg Adj.Net Profit % chg EBITDA % FDEPS (`) P/E (x) P/BV (x) RoE (%) RoACE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2012 1,275 17.4 109 (12.6) 14.8 5.6 22.2 4.4 20.7 23.2 2.1 14.2

FY2013 1,441 13.0 119 8.6 13.6 6.1 20.4 3.9 20.2 22.4 1.8 13.2

FY2014E 1,657 15.0 149 25.5 14.1 7.7 16.3 3.4 22.2 24.4 1.6 11.1

FY2015E 1,906 15.0 172 15.7 14.1 8.9 14.1 2.9 21.9 24.5 1.3 9.4

Sarabjit Kour Nangra

+91-22-39357800 ext. 6806 sarabjit@angelbroking.com

Please refer to important disclosures at the end of this report

Rallis India | 4QFY2013 Result Update

Exhibit 1: 4QFY2013 performance (Consolidated)

Y/E March (` cr) Net sales Other income Total income Gross profit Gross margin (%) EBDITA EBDITA margin (%) Financial cost Depreciation PBT Provision for taxation PAT Before Exc. And MI Minority Exceptional Reported PAT Adjusted PAT EPS (`)
Source: Company, Angel Research

4QFY2013 279 7 286 103 36.8 22 7.9 3 8 18 8 10 (1) 0 11 11 0.6

3QFY2013 340 2 341 133 39.2 44 12.9 5 8 33 12 21 (1) 0 22 22 1.1

% chg (qoq) (18.0) (16.2) (22.9) (50.0) (44.2) 5.1 (44.4) (35.0) (49.9)

4QFY2012 208 11 219 83 40.0 11 5.5 (2) 9 15 6 9 (1) 4

% chg (yoy) 34.0 (31.8) 30.8 23.4 92.1 (269.7) (3.3) 22.0 37.4 12.5

FY2013 1,440 30 1,470 562 39.0 197 13.7 23 32 172 53 119 0 0

FY2012 1,249 33 1,282 510 40.8 170 13.6 25 29 149 49 101 2 (12) 99 111 5.7

% chg 15.3 (8.6) 14.7 10.3 15.8

10.0 15.4 9.8 18.0

(48.9) (48.9)

10 6 0.3

14.0 104.0

119 119 6.1

20.0 7.4

Sales grow 34.0% yoy

RAILs revenue for the quarter grew by 34.0% yoy to `279cr. For FY2013, the company posted sales of `1,440cr, a growth of 15.3% yoy. During the year, the the Dahej plant, which accounted for the major capex incurred by the company in recent times, operated at full capacity and contributed well to the companys overall growth.

Exhibit 2: Total revenue performance

480 400 320 338 481 40 30 340 279 208 20 10 0 (10) (20) 4QFY2012 1QFY2013 2QFY2013 3QFY2013 % YoY 4QFY2013 Total Revenue
Source: Company, Angel Research

(` cr)

240 160 80 0

OPM expands on a yoy basis

RAILs gross margin came in at 36.8%, down 318bp yoy. However, on account of the lower rise in the staff and other expenditure, the OPM expanded to 7.9% in 4QFY2013 vs 5.5% in 4QFY2012.
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Rallis India | 4QFY2013 Result Update

Exhibit 3: Margin trend

50 40 40 30
(%)

44 36 39 37

20 19 10 0 5 4QFY2012 10 1QFY2013 2QFY2013 13 8 3QFY2013 EBITDA (%) 4QFY2013

Gross margin (%)

Source: Company, Angel Research

leading to a robust earnings growth

A robust growth in the operating profit aided the Adj. net profit to end the period at `11.3cr, a yoy growth of 104.0%. It grew in spite of higher taxation during the period, which was at 42.9% of PBT vs 38.2% of PBT as in the corresponding period of last year.

Exhibit 4: Adjusted PAT trend

75 62 60 45 120 100 80 60 40 20 24 22 11 6 0 (20) (40) (60) (80) 4QFY2012 1QFY2013 2QFY2013 3QFY2013 Adj PAT % YoY 4QFY2013

(` cr)
30 15 0
Source: Company, Angel Research

April 26, 2013

Rallis India | 4QFY2013 Result Update

Investment arguments
Company set to seize rising opportunities in the domestic pesticides market: India's overall pesticide consumption is one of the lowest in the world, and we believe RAIL is well placed to seize this opportunity on the back of its wide distribution network, strong brands, and a robust new-product pipeline. According to industry estimates, the unorganized market accounts for another 50% of the industry. Nonetheless, we believe RAIL is in a position to wrest market share as well as charge a premium for its products. Exports to register steady growth: Closing down of capacities in China before the 2008 Olympics and MNCs diversifying their base to India had resulted in the companys exports spiking by 80% to `295cr in FY2009. The scenario, however, changed post the Olympics and many closed capacities in China came on stream and prices of commodities corrected, due to which exports declined by 35% in FY2010; however since then the exports improved. We estimate RAIL to post a 25% CAGR in its exports over FY2013-15. Contract manufacturing to be the next growth driver: RAIL plans to focus on contract manufacturing for exports and selectively target and supply to top players. To facilitate the same, the company has set up a new plant at Dahej. Overall, RAIL targets to achieve cumulative revenue of `1,000cr over the next five years from this segment alone.

Outlook and valuation

The Management is confident of the prospects for key crops such as cotton and paddy due to generally normal monsoons, which should aid continued healthy growth in the agrochemicals industry. RAIL expects to outperform the industry, given its product pipeline. Overall, we expect RAIL to register a CAGR of 15.0% and 20.5% in net sales and profit respectively, over FY2013-15. At the current levels, the stock is trading at a fair valuation of 14.1x FY2015E EPS. Hence, we maintain our Neutral view on the stock.

Exhibit 5: Key assumptions

Particulars (%) Domestic growth Export growth Total revenue growth EBITDA margin Capex (` cr)
Source: Company, Angel Research

FY2014E 13.0 25.0 15.0 14.1 100

FY2015E 13.0 25.0 15.0 14.1 100

Exhibit 6: Peer valuation

Company Rallis United Phosphorus Reco Neutral Buy Mcap CMP (` cr) 2,422 6,307 (`) 125 TP Upside (`) (%) 66.9 P/E (x) FY13E 16.3 6.8 FY14E 14.1 6.0 EV/Sales (x) FY13E 1.6 0.7 FY14E 1.3 0.6 EV/EBITDA (x) FY13E 11.1 4.3 FY14E 9.4 3.6 RoE (%) FY13E 22.2 18.0 21.9 17.4 CAGR (%) PAT 15.0 20.5 12.0 14.2 FY14E Sales

139 232

Source: Company, Angel Research, Bloomberg

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Rallis India | 4QFY2013 Result Update

Exhibit 7: One-year forward P/E band

250.0 200.0

Share price (` )

150.0 100.0 50.0 0.0

Dec-08

Dec-09

Dec-10

Dec-11

Dec-12
30x

Apr-08

Apr-09

Apr-10

Apr-11

Apr-12

Aug-08

Aug-09

Aug-10

Aug-11

Price
Source: C-line, Angel Research

10x

15x

20x

25x

Company Background
RAIL is one of the oldest and second largest pesticide agrichemical companies in the country with a market share of around 13% and belongs to the Tata Group. The company also has a credible presence in the international market. Pesticides account for 97% of the company's total revenues, while plant nutrients, seeds and leather chemicals constitute the balance. Historically contribution from the domestic business has stood at 77% levels while exports accounted for the balance.

April 26, 2013

Aug-12

Apr-13

Rallis India | 4QFY2013 Result Update

Profit & loss (Consolidated)

Y/E March (` cr) Gross sales Less: Excise duty Net Sales Other operating income Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation & Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) Minority Interest PAT (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg 101 102 38.7 11.6 5.2 5.2 38.7 FY2010 FY2011 FY2012 FY2013 937 58 879 3 882 4.5 730 470 177 67 15 149 54.5 16.9 18 134 67.7 15.2 6 25 17 153 42.4 0 152 51 33.6 1,167 81 1,086 1,086 23.1 892 592 209 73 18 195 31.0 17.9 17 177 32.5 16.3 7 14 8 184 20.4 0 184 58 31.6 0 125 125 23.2 11.5 6.4 6.4 23.2 1,354 79 1,275 1,275 17.4 1,086 695 283 90 18 189 (3.1) 14.8 29 160 (9.7) 12.6 18 7 5 149 (18.7) (10) 149 49 32.6 2 99 109 (12.6) 8.6 5.6 5.6 (12.6) 1,550 109 1,441 1,441 13.0 1,244 879 251 94 20 197 4.2 13.6 32 165 3.1 11.5 23 30 17 172 15.2 172 53 31.1 (0) 119 119 8.6 8.2 6.1 6.1 8.6 FY2014E 1,782 125 1,657 1,657 15.0 1,424 1,011 282 109 23 233 18.6 14.1 39 194 17.3 11.7 11 33 15 216 25.3 216 67 31.0 (0.2) 149 149 25.5 9.0 7.7 7.7 25.5 FY2015E 2,032 126 1,906 1,906 15.0 1,638 1,162 324 125 26 268 15.0 14.1 45 223 15.0 11.7 11 38 15 250 15.7 250 77 31.0 (0.2) 172 172 15.7 9.0 8.9 8.9 15.7

April 26, 2013

Rallis India | 4QFY2013 Result Update

Balance sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves & Surplus Shareholders Funds Minority Interest Total Loans Other Long Term Liabilities Long Term provisions Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Long Term Loans and Adv. Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 326 12 89 226 304 22 427 140 309 156 153 112 397 174 223 159 125 26 104 380 15 30 336 373 7 644 551 189 362 60 155 23 91 432 11 45 375 387 45 736 608 221 387 35 168 20 92 489 26 28 436 452 38 739 708 260 448 35 168 20 116 563 16 59 488 503 60 847 808 306 502 35 168 20 133 692 63 68 561 578 114 972 (5) 427 13 411 424 8 19 485 505 2 115 0 19 3 644 19 534 553 1 151 0 18 13 736 19 601 621 5 54 6 30 23 739 19 703 722 5 54 6 30 23 847 19 828 847 5 54 6 30 23 972 FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E

April 26, 2013

Rallis India | 4QFY2013 Result Update

Cash flow statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation (Inc)/Dec in Working Capital Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Inc./ (Dec.) in loans and adv. Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances (58) (74) (44) 76 (42) 4 8 12 (20) 107 (36) (200) (129) 3 12 15 (52) 35 (47) (79) (91) (3) 15 11 (29) (84) (47) 24 (107) 15 11 26 (100) (47) 6 (41) (10) 26 16 (100) (47) 1 (47) 47 16 63 FY2010 FY2011 FY2012 FY2013 152 18 73 (67) 104 (54) (4) 184 17 (31) (49) 152 (135) 115 149 29 (28) (38) 140 (55) 3 172 32 21 (53) 150 (32) 3 FY2014E 216 39 (57) (67) 132 (100) FY2015E 250 45 (24) (77) 194 (100) -

April 26, 2013

Rallis India | 4QFY2013 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) (0.3) (0.8) 20.8 (0.1) (0.3) 24.7 (0.1) (0.4) 9.1 (0.2) (0.7) 7.2 0.0 0.1 17.9 (0.0) (0.1) 20.6 2.7 60 39 141 19 3.1 65 43 139 1 2.7 70 55 128 4 2.5 64 51 123 6 2.5 55 45 122 6 2.5 120 9 31.5 68.2 26.2 33.1 34.1 26.9 23.2 30.3 20.7 22.4 27.0 20.2 24.4 35.2 22.2 24.5 34.4 21.9 15.2 66.4 2.9 29.1 4.1 29.1 16.3 68.4 2.3 25.1 19.0 25.1 12.6 67.4 1.8 15.5 8.9 15.5 11.5 68.9 2.0 15.8 15.4 15.8 11.7 69.0 2.1 16.8 13.8 16.8 11.7 69.0 2.1 16.9 13.8 16.9 5.2 5.2 6.0 1.2 21.8 6.4 6.4 7.4 1.1 26.0 5.6 5.6 9.3 1.5 28.4 6.1 6.1 7.7 2.4 31.9 7.7 7.7 9.7 2.4 37.1 8.9 8.9 11.2 2.4 43.6 23.9 20.7 5.7 1.0 2.8 16.8 5.9 19.4 16.9 4.8 0.9 2.4 13.5 4.1 22.2 13.5 4.4 1.2 2.1 14.2 3.7 20.4 16.1 3.9 2.0 1.8 13.2 3.5 16.3 12.9 3.4 2.0 1.6 11.1 3.0 14.1 11.1 2.9 2.0 1.3 9.4 2.6 FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E

April 26, 2013

Rallis India | 4QFY2013 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Rallis India No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

April 26, 2013

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