Company Update

April 5, 2017
Rating matrix
Rating : Buy Rallis India (RALIND) | 255
Target : | 300
Target Period
Potential Upside
:
:
12-18 months
18%
On firm footing; quality play…
 Rallis India (Rallis) is a major agri input player domestically with a
What’s changed?
presence across the agri value chain viz. seeds & agro-chemicals
Target Changed from | 250 to | 300
 In the agro-chemical space, the company has ~7% market share
EPS FY17E Changed from | 8.7 to | 8.8
EPS FY18E Changed from | 9.9 to | 10.1
domestically while in the seeds segment through its subsidiary i.e.
EPS FY19E Changed from | 11.4 to | 12.0
Metahelix, it commands a market share of ~3%
Rating Unchanged  With incremental steps being implemented by various state
governments to augment farm income amid increasing streamlining
Key financials of farm benefits from the central government, we believe agri-input
| Crore FY16 FY17E FY18E FY19E companies will report robust sales growth in FY17-19E
Net Sales 1,611.6 1,665.1 1,845.9 2,006.7  Majority of agro-chemicals domestically find application in cotton
EBITDA 230.1 266.2 313.2 350.6 crop, which witnessed a decline in acreages to the tune of ~12% in
Normalized PAT 143.0 170.3 197.0 233.4 FY17 primarily tracking low profitability in FY15-16 and occurrence of
Normalized EPS (|) 7.4 8.8 10.1 12.0 increasing pests. However, given remunerative cotton crop prices
currently and low pest occurrence in FY17, we expect cotton
Valuation summary acreages to witness strong double digit growth in FY18E, driving
FY16 FY17E FY18E FY19E growth in earnings on both the Metahelix (cotton seeds) as well as
P/E 34.7 29.5 25.2 21.2
domestic agro-chemical front
Target P/E 40.8 20.3 29.6 25.0
 Although private weather agency Skymet has sounded the alarm
EV / EBITDA 21.9 18.1 15.1 13.1
over below normal monsoon for 2017 at 95% of LPA due to
P/BV 5.5 4.4 4.0 3.6
development of El Niño conditions, we believe the impact will be
RoNW (%) 15.9 15.1 16.0 17.0
limited due to its occurrence in the later part of the monsoon season.
RoCE (%) 20.1 19.9 22.8 23.6
Moreover, we derive confidence from the statements of senior IMD
officials in the recent past wherein they have negated El-Nino
Stock data conditions impacting the upcoming monsoon season
Particular Amount  We revise our earnings estimates and also roll over our valuation to
Market Capitalization | 4960 crore
FY19E numbers. We expect sales, on a consolidated basis, to grow
Total Debt (FY17E) | 40 crore
at 9.8% CAGR in FY17-19E with PAT growing at a CAGR of 17.1% in
Cash and Investments (FY17E) | 187 crore
FY17-19E, factoring in 150 bps improvement in EBITDA margins. We
EV | 4812 crore
value Rallis at | 300 i.e. 25x P/E on FY19E EPS of | 12.0
52 week H/L 265 / 165
Equity capital | 19.5 crore Farmer centric Budget 2017-18; focused to double farm income by 2022
Face value 1.0 Union Budget 2017-18 delivered on its expectations with a clear focus on
MF Holding (%) 11.9 achieving its vision to double farm income by 2022. Due emphasis was
FII Holding (%) 6.0 given to both productivity and better farm realisations. Total allocation
towards agriculture & farmer welfare was increased 16% YoY to | 41,855
Price Chart crore in FY18E. Notably, a sizable increase in allocation to the insurance
10,000 300 scheme PMFBY to | 9000 crore (up 64% YoY) and irrigation scheme
9,000 (PMKSY) to | 7377 crore (up 28% YoY) in FY18E was encouraging.
250
8,000 Moreover, the government increased allocation towards subsidy under
7,000 200 farm mechanisation to | 525 crore in FY18E (vs. | 358 crore in FY17E).
6,000 150 Furthermore, agricultural credit in 2017-18 was fixed at record levels of |
5,000 100 10 lakh crore (up 11% YoY). This will boost farm productivity &
4,000 consequent farm income thereby benefiting all agri-input companies,
50
3,000 including Rallis India.
2,000 0
Portfolio stock; healthy balance sheet & return ratios, retain BUY!
May-15 Oct-15 Feb-16 Jun-16 Nov-16 Apr-17
Rallis is a portfolio stock with a presence across the agricultural value
Price (R.H.S) Nifty (L.H.S)
chain and good brand recall. It is a debt-free company with net cash of
~| 150 crore as of FY17E. The company will generate ~| 200 crore as
Research Analyst free cash flow per year in FY17-19E. Rallis also has robust return ratios
Chirag J Shah with average FY16-19E RoCE & RoIC at 22% & 34%, respectively. We
[email protected] value Rallis at | 300 i.e. 25x P/E on FY19E EPS of | 12.0. We have a BUY
Shashank Kanodia, CFA rating on the stock with a target price of | 300. Rallis is indeed a stock
[email protected] worth holding in one’s portfolio with a long term investment horizon.

ICICI Securities Ltd | Retail Equity Research

Financial summary (Consolidated)
Profit and loss statement | Crore Cash flow statement | Crore
(Year-end March) FY16 FY17E FY18E FY19E (Year-end March) FY16 FY17E FY18E FY19E
Net Sales 1611.6 1665.1 1845.9 2006.7 Normalized PAT 143.0 170.3 197.0 233.4
Other Operating Income 17.1 24.2 22.8 24.6 Add: Depreciation 44.6 46.7 48.0 49.8
Total Operating Income 1628.6 1689.3 1868.7 2031.3 (Inc)/dec in Current Assets 30.7 -25.1 -100.4 -66.4
Growth (%) -10.6 3.7 10.6 8.7 Inc/(dec) in CL and Provisions 20.1 12.3 47.9 46.1
Raw Material Expenses 839.2 937.9 1,031.7 1,120.6 Others 13.5 5.9 7.2 0.4
Employee Expenses 132.4 149.6 159.9 173.4 CF from operating activities 252.0 210.1 199.7 263.3
Other Operating Expense 426.8 335.6 363.9 386.7 (Inc)/dec in Investments -3.9 -170.6 -50.0 -135.0
Total Operating Expenditure 1,398.5 1,423.1 1,555.5 1,680.7 (Inc)/dec in Fixed Assets -76.5 87.0 -30.0 -30.0
EBITDA 230.1 266.2 313.2 350.6 Others -65.7 0.0 0.0 0.0
Growth (%) -16.9 15.7 17.7 12.0 CF from investing activities -146.1 -83.6 -80.0 -165.0
Depreciation 44.6 46.7 48.0 49.8 Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0
Interest 13.5 5.9 7.2 0.4 Inc/(dec) in loan funds -33.4 -50.0 -30.0 0.0
Other Income 13.7 10.2 17.9 24.6 Dividend paid & dividend tax -58.5 -70.0 -81.7 -93.4
PBT 185.7 223.7 275.9 325.0 Inc/(dec) in Share Cap 0.0 0.0 0.0 0.0
Exceptional Item 0.0 158.4 0.0 0.0 Others -13.5 -6.8 -7.2 -0.4
Total Tax 39.0 94.8 78.9 91.5 CF from financing activities -105.4 -126.8 -118.9 -93.8
PAT 146.7 287.3 197.0 233.4 Net Cash flow 0.5 -0.3 0.8 4.5
Minority Interest 3.7 0.0 0.0 0.0 Opening Cash 7.2 7.7 7.4 8.2
Reported Net Profit 143.0 287.3 197.0 233.4 Closing Cash 7.7 7.4 8.2 12.7
Normalized Net Profit 143.0 170.3 197.0 233.4 Source: Company, ICICIdirect.com Research
Growth (%) -8.2 19.1 15.7 18.5
Normalized EPS (|) 7.4 8.8 10.1 12.0
Source: Company, ICICIdirect.com Research

Balance sheet | Crore Key ratios

(Year-end March) FY16 FY17E FY18E FY19E (Year-end March) FY16 FY17E FY18E FY19E
Liabilities Per share data (|)
Equity Capital 19.5 19.5 19.5 19.5 EPS 7.4 8.8 10.1 12.0
Reserve and Surplus 879.6 1,096.0 1,211.3 1,351.3 Cash EPS 9.6 17.2 12.6 14.6
Total Shareholders funds 899.0 1,115.4 1,230.7 1,370.7 BV 46.2 57.3 63.3 70.5
Total Debt 89.7 39.7 9.7 9.7 DPS 2.5 3.0 3.5 4.0
Deferred Tax Liability 38.8 38.8 38.8 38.8 Cash Per Share (Incl Invst) 0.4 0.4 0.4 0.7
Minority Interest / Others 8.6 8.6 8.6 8.6 Operating Ratios (%)
Total Liabilities 1,036.1 1,202.5 1,287.8 1,427.8 EBITDA Margin 14.1 15.8 16.8 17.3
PBT / Total Op. income 11.4 13.2 14.8 16.0
Assets PAT Margin 8.8 17.0 10.5 11.5
Gross Block 734.2 784.7 814.7 844.7 Inventory days 91.7 90.0 90.0 90.0
Less: Acc Depreciation 316.8 363.5 411.5 461.3 Debtor days 44.5 50.0 55.0 55.0
Net Block 417.4 421.2 403.2 383.4 Creditor days 85.5 85.0 85.0 85.0
Capital WIP 40.5 20.0 20.0 20.0 Return Ratios (%)
Total Fixed Assets 457.9 441.2 423.2 403.4 RoE 15.9 15.1 16.0 17.0
Liquid Investments 9.4 180.0 230.0 365.0 RoCE 20.1 19.9 22.8 23.6
Other Investments 18.7 18.7 18.7 18.7 RoIC 25.8 29.8 34.4 39.0
Goodwill on Consolidation 259.1 259.1 259.1 259.1 Valuation Ratios (x)
Inventory 404.8 410.6 455.2 494.8 P/E 34.7 29.5 25.2 21.2
Debtors 196.6 228.1 278.1 302.4 EV / EBITDA 21.9 18.1 15.1 13.1
Loans and Advances 144.7 133.2 138.4 140.5 EV / Net Sales 3.1 2.9 2.6 2.3
Other Current Assets 5.6 5.0 5.5 6.0 Market Cap / Sales 3.1 3.0 2.7 2.5
Cash 7.7 7.4 8.2 12.7 Price to Book Value 5.5 4.4 4.0 3.6
Total Current Assets 759.5 784.3 885.5 956.4 Solvency Ratios
Creditors 377.3 387.8 429.9 467.3 Debt/EBITDA 0.4 0.1 0.0 0.0
Provisions 91.2 93.1 98.9 107.5 Debt / Equity 0.1 0.0 0.0 0.0
Current Liabilities & Prov 468.6 480.8 528.7 574.8 Current Ratio 1.6 1.6 1.7 1.6
Net Current Assets 291.0 303.5 356.8 381.6 Quick Ratio 0.7 0.8 0.8 0.8
Others Assets 0.0 0.0 0.0 0.0 Source: Company, ICICIdirect.com Research
Application of Funds 1,036.1 1,202.5 1,287.8 1,427.8
Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 2

RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
[email protected]

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