RALLIS INDIA LIMITED

Restructuring and Revival Plan

Raghvendra Bajpai
EPGDIB
Roll No. 25A
Contents
 Introduction
 The Indian pesticide industry
 The Rallis India story
 Turbulent times
 Rallis goes downhill
 Initial Restructuring and Revival of Rallis
 The Turnaround Plan
 The Impact
 Maintaining the momentum
Introduction
 Rallis India is one of India's leading agrochemical
companies, with a comprehensive portfolio of crop
protection chemicals, seed varieties and specialty plant
nutrients.
 Rallis India's business has been through steep highs and
lows in the last 10-15 years.
 To combat the downward trend and turn itself around, the
company explored different avenues to sustain itself, such
as a focus on the core business of agrochemicals, balance
sheet restructuring, divestment of non-core businesses,
sale of non-performing assets and working capital
management. The strategies were successful; the company
has been making profits and exhibiting steady growth.
The Indian pesticide industry
 The Indian pesticides and agrochemical sector had
estimated revenues of Rs. 40 billion during 2003-04. The
same year, the sector also exported a considerable amount
of production, amounting to about Rs.17.46 billion,
representing 0.8 per cent of India's total exports.
 Historically, Indian players in the pesticides and
agrochemicals market have focused on marketing generic
and off-patent products
 On the other hand, MNCs have dominated the market for
patented products. They have the advantage of a
developed research and development (R&D) pipeline and
superior financial resources.
The Rallis India Story
 The Rallis India's main areas of business are product
development, manufacture and marketing of crop
protection and crop nutrient agrochemicals - solid and
liquid pesticides, fertilizers, leather chemicals, etc.
 In the domestic market, Rallis India holds a fairly strong
position. The company has several advantages, among
which are branding capabilities and distribution reach
throughout the Indian market.
 It also has an extensive distribution channel that is
supported by initiatives such as the jeep campaign, farmer
meetings. Plus, as a Tata company, it holds credibility in
the Indian market.
The Rallis India Story
 Rallis's strengths in comparison with other Indian
companies, 2004
The Rallis India Story
 Rallis's strengths in comparison with multinational
companies, 2004
Turbulent times
 After WTO came into existence, in the chemicals sector,
products have been imported in a big way and have out-
priced Indian products to such an extent that if Indian
manufacturers are not able to compete with them on price
and quality.
 This has been a major threat to the Indian industry, and
therefore to the employment situation.
 Another more direct threat lies in the entry of MNC
players into the Indian market. Structural changes in
government regulations and taxes have also had a major
impact on the industry. Small players in the domestic
market have proved to be equally competitive in the
marketplace.
Rallis goes downhill
 With stiff competition in the marketplace and growth
rates slowing dramatically, Rallis began to feel the pressure
on its bottom line. It incurred a loss of Rs. 255.8 million on
sales of Rs.10, 889 million for 2000-01.
 CEO formed teams in all the divisions, including
pesticides, fertilizers and seeds, with the help of Tata
Strategic Management Group (TSMG), to make field
survey reports.
 This initiative helped in identifying and evaluating the
business environment, strategic issues and the company's
strengths and areas for improvement, opportunities and
growth prospects.
Initial Restructuring and Revival of
Rallis
Improving efficiencies
 Rallis's restructuring exercise was aimed at reducing debts
and emphasizing long-term economic value addition and
return on capital investments. The company also went
through a phase of mergers, disinvestments, closure of
non-performing units and financial restructuring.
 The pharmacy division was sold for Rs. 420 million to
Shreya Impex, part of the Moscow-based Shreya Corp.
Exiting the pharma business brought down debts from Rs.
4,256 million to Rs. 3,401 million and working capital
requirement from Rs. 3,353 million to Rs. 2,786 million.
 It had already exited from its cement and paints businesses
and cut staff at the managerial level, and suspended
operations of two subsidiaries.
Initial Restructuring and Revival of
Rallis
 With restructuring and related initiatives, Rallis posted a
net profit of Rs. 203.6 million for Q1 2001. At the time, it
had the largest distribution network in India with 4,000
dealers and 30,000 retailers.
 The restructuring exercise made full use of information
technology to facilitate communication both within and
without the company, as well as through the launch of the
company website.
 SAP implementation and improving the management
information system were other major initiatives started at
this time.
Initial Restructuring and Revival of
Rallis
 In spite of the restructuring exercise started in 2000, Rallis
showed a shocking loss of Rs. 773 million on a turnover of
Rs. 8,851 million in the year 2002-03.
Reason’s for poor performance
 Production was in excess of demand. The company was
saddled with unsold stock, large outstanding from the
market and high working capital requirements.
 Higher interest costs and continuing expenses were
detrimental to the profit and loss account. Not enough
attention was paid to receivables. Credibility with banks
was very low. Because of the poor cash flow, treasury was
under immense pressure ,resource allocation was erratic
Initial Restructuring and Revival of
Rallis
 Though the company had around 4,000 dealers, co-
ordination was poor and there was no proper policy for
handling of expired stock. Expired stock levels were
relatively high and dealers returned stock whenever they
wished. The strategy for selecting distributors was not very
clear.
 Plant capacity utilization was low, quality of the product
was not uniform, inventory level was high and
maintenance was poor.
 The procurement team did not have enough bargaining
power.
 Internal audit system was weak. In the absence of internal
audits no corrective measures were taken. There was delay
in consolidating the accounts.
The Turnaround Plan
 The wheel shows Rallis turnaround strategies
The Turnaround Plan
 The Restructuring package incorporated a three-step
process for affecting a turnaround:
 Large scale cost reduction measures
 Increasing focus on the pesticide business
 Restoring the company's cash-flow
Concentration on core business of agrochemicals
 A new element in the marketing plan was to use innovative
packaging for the agrochemicals to make it a key
differentiator from the competition.
 Another marketing thrust was to start a series of farmer-
centric activities to interact with customers directly. Earlier
this had been left to retailers and distributors who were
the main contact points for customers.
The Turnaround Plan
The Problem Identification
 The financial health of Rallis had been poor due to several
reasons:
 High interest outflow: There was a huge amount of
liabilities and the effective rate of interest was 17-18 per
cent. In 2002-03, Rallis India had an interest burden
of Rs. 415 million.
 High inventory: Rs.1, 324.1 million.
 High level of receivables: The company had 4,000 dealers
but no systematic collecting system; receivables were
worth Rs. 2,433 million on a turnover of Rs. 8,851 million.
The Turnaround Plan
Financial Restructuring
 The company's high interest convertible debentures were
converted into preference shares.
 It was able to raise a long-term loan for Rs. 750 million
which was utilized to reduce outstanding expensive loans,
resulting in a steep reduction in the interest cost which in
turn reduced the cash outflow, a significant reduction of
debtors and lower borrowings (Rs.1,200 million).
 The issue of preference shares worth Rs. 880 million
resulted in a better debt: equity ratio.
 Divestment of non-core businesses:: Rallis India sold the
gelatin business to Sterling Biotech for Rs. 470 million in
an all-cash deal. Farm related activities were sold to Tata
Chemicals.
The Turnaround Plan
Financial Restructuring
 Sale of non-performing assets :: Rallis House, a prestigious
business house in South Mumbai, was sold for Rs. 560
million. The Rallis plant in Punjab and the regional office
at Kolkata were sold. The receipts of the sales were used to
reduce the company's liabilities.
 Better working capital management: In the year 2002-03
Rallis carried inventory worth Rs. 1,320 million; by the next
year this was brought down to Rs. 1,040 million. Similarly,
sundry debtors were reduced from Rs. 2,430 million to Rs.
1,720 million. These steps helped reduce the pressure on
working capital, the requirement for which was brought
down from Rs. 2,114 million to Rs. 1,768 million
The Turnaround Plan
Financial Restructuring
 Strategic alliances to strengthen the product
portfolio::Rallis needed a broader, more balanced portfolio
of product offerings and it also needed to improve plant
capacity utilization. For this, it entered into marketing
pacts with international companies like Syngenta, Bayer
and DuPont that strengthened its product portfolio
 Limiting the number of factories: Rallis had too many
formulation factories spread across India, resulting in a
low capacity utilization figure. Rallis decided to close
down some of the facilities.
The Turnaround Plan
Financial Restructuring
 Cost reduction in every possible process:
 Rationalization of manufacturing units and improving
capacity utilization
 Interest cost rationalization
 Fixed and variable cost reduction targets
 Working capital rationalization
 Rationalization of distribution system
The Impact
 For the financial year 2003-04, Rallis India reported a net
profit of Rs. 255.5 million on net sales of Rs. 4,892 million
(see Fig 7 and 8). Its debt-equity ratio was down to 2.3
from 8.6 the previous year.
 The next year Rallis board recommended a dividend of 10
percent, after a gap of three years, when the company
posted a net profit of Rs. 341.6 million on revenue of Rs.
5,937.8 million in 2004-05.
 Rallis India earned 20 per cent of its revenue from exports
and announced a growth of 41 per cent percent in pesticide
sales in Q3 2005
 Its borrowings decreased by 44.4 per cent to Rs. 1, 385.3
million. Forex earnings grew by 21.79 per cent and debt-
equity ratio fell below the unity mark to 1.0.
The Impact
 Trend in Rallis India's profit after tax figures
The Impact
 Trend in Rallis India's profit before tax figures
Maintaining the momentum
 After Turnaround was initiated in 2003, Rallis had
prepared a business plan projecting revenues of Rs. 5,500
million, gross contribution of Rs. 1,960 million and
expenses of Rs 1,620 million in 2004-05
 The next year, in 2005-06 revenues reached a figure of Rs.
6,300 million. Cost reduction was one of the major pillars
of the turnaround strategy. So loans were reduced by Rs.
230 million and interest cost by Rs. 60.8 million in 2005-
2006.
 The trend in borrowings has declined considerably too less
than Rs. 150 million per annum.
Maintaining the momentum
 Rallis has achieved good results through seamless
functioning of finance, marketing, sales, manufacturing
and administration departments.
 The commitment shown by the management towards the
turnaround strategy was just as strong a factor as were the
other initiatives- cost reduction, sale of non-performing
assets, performance management, alliances, marketing
strategy, enhancement of customer interactions,
rationalization of distribution system.
 Rallis has turned around on every front, i.e., with a 360-
degree perspective.
 Every part of its business has attempted to improve, which
in turn has increased its growth momentum
Thank You