RALLIS INDIA LIMITED January 16, 2010

3Q FY 2010 results
Rallis India Ltd. (Rallis) 3Q FY 2010 net sales were below our estimates, while profitability was
BUY significantly above our estimates. The company reported stellar profitability due to better
product mix and improvement in quality of operations. The volume growth in domestic net sales
was more than offset due to poor demand from the international business.
Current Price: Rs. 1,082
1year Target: Rs. 1,271
Return: +17%
Financial Results
Rs Mn
Particulars 3Q FY 10 3Q FY 09 VAR (%)
Stock Details
Net Sales 2,028.7 2,076.3 (2.3)
CMP (Rs.) 1082 Other operating income 38.9 65.7 (40.8)
Bloomberg code RALI.IN Total income 2,067.6 2,142.0 (3.5)
Market cap (Rs. mn) 14,028 Raw materials consumed 1,149.2 1,229.0 (6.5)
52 week H/L 1,086/320
Purchase of traded goods 80.8 92.4 (12.6)
Employees cost 161.5 157.2 2.7
Depreciation 36.9 38.6 (4.4)
Shareholding Pattern (%)
Other expenses 290.9 313.5 (7.2)
Promoter group 45.20
Operating income 390.9 260.9 49.8
FIIs 1.58
EBITDA 427.8 299.5 42.8
Indian institutions 28.47
Other income /(expense) 27.4 4.2 552.4
Public 24.75
Interest income /(expense), net (9.7) 6.2 (256.5)
Earnings before taxes (PBT) 353.8 244.1 44.9
Stock Chart Provision for Income Tax 113.2 88.4 28.1

250%
PAT (Excl EO) 295.4 170.5 73.3

200%

150% Outlook and valuations

Rallis reported better-than-expected profitability during 3Q FY 2010 on account of
100%
improvement on product mix and better quality of operations. Looking ahead, after a below-
50%
normal kharif crop season, the rabi crop acreage has witnessed improvements. This could
result in a robust agrichemicals demand during the rabi season from March 2010. Significant
0% improvement in Other income during 3Q FY 2010 indicates strong cash position of the
company. The company continues to focus on cost reduction and better working capital
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-50% management. Considering these factors, we have revised our FY 2010 and FY 2011
Rallis Sensex profitability estimates slightly upwards. Furthermore, over the long-to-medium term, we expect
Rallis' revenue growth to be driven by its International business and domestic volume growth.
Margins are expected to improve given that Rallis continues to optimize its cost structure
Performance coupled with declining input costs. Rallis also has significant excess land bank. As a part of
ongoing restructuring programme, the company may sell some of its non-core assets which
Return (%) 1 Month 6 Months 1Year may pose an upside risk upside to our target price estimate.

Absolute 16 48 210 At the current market price of Rs. 1,082, the stock is currently trading at 11.1x FY 11E EPS of
Rs. 97.84. We maintain our positive outlook on the stock and maintain a BUY. Considering the
Relative 12 31 119
strong revenue and profitability expectations over FY 2009 - FY 2011, we assign a Price
earnings multiple of 13.0x and derive a target price of Rs 1,271.

Analyst
Bhavesh Chauhan
bhaveshchauhan@smcindiaonline.com

1

Spurt in Other income during 3Q FY 2010
reflects strong balance sheet position
Financial highlights
Net sales declined 2.3% y-o-y in 3Q FY 10 mainly due to low demand from the
?
international business. Nevertheless, we understand that Rallis' domestic performance
performed better on the back of better rainfall during post-kharif season. Sales volumes
as well as pricing continued to slide y-o-y internationally during 3Q FY 2010.
EBITDA margins improved 666 bps y-o-y mainly due to better product mix and
?
improvement in quality of operations.
The company reported significant growth in Other income reflecting robust growth in cash
?
and equivalents.
PAT (excluding extra-ordinary items) increased 73.3% y-o-y.
?
Key updates
After a below-normal kharif crop season, the rabi crop acreage has witnessed
?
improvements. This could result in a robust agri-chemicals demand during the rabi
season from March 2010.
The company expects Dahej plant to be operational from July 2010 compared to its
?
previous expectation of June 2010. The company continues to target Rs. 5,000 mn of net
sales from this plant over the next three years.
The company did not take any new debt during the quarter. The majority of equipments for
?
Dahej plant have been ordered.
The company had launched new fungicide ERGON during 2Q FY 2010. The response
?
from the farmers for ERGON has been above company's expectations.
2
 Appendix: Financial Statements

Profit and Loss Cash Flow

Year to Mar (Rs. mn) FY 08 FY 09 FY 10E FY 11E Year to Mar (Rs. mn) FY 08 FY 09 FY 10E FY 11E

Net Sales 6,745.9 8,366.9 8,617.0 10,240.5 Net Profit / (Loss) Before Tax 1,461.7 712.9 1,448.6 1,812.1

growth (%) 24.0 5.2 15.4 Depreciation 150.6 169.7 162.6 288.4

Raw materials consumed 3,384.0 4,508.5 4,646.7 5,370.7 Other Adjustments (817.9) 97.3 0.0 0.0

Purchase of traded goods 724.0 597.8 634.3 896.0 Operating Profit before WC Changes 844.6 1,386.9 1,611.2 2,100.5

Working Capital Adjustments (617.2) 326.8 162.6 288.4

Employees cost 603.1 668.7 645.9 675.9
Cash Generated from Operations (178.6) 1,792.0 2,015.9 2,027.7
Depreciation 150.6 169.7 162.6 288.4
Less Taxes paid (259.4) 352.2 (463.0) (543.6)
Other expenses 1,429.6 1,454.4 1,346.0 1,382.5
Cash Flow from Operating Activities (437.9) 1,380.6 1,552.9 1,484.1
Operating income 665.5 1,196.9 1,487.4 1,799.3
Net Fixed Asset Purchase (269.3) (655.8) (1,700.0) (800.0)
EBITDA 816.1 1,366.6 1,650.0 2,087.7
Proceeds from sale of fixed assets 902.0 11.6 0.0 0.0
Other income /(expense) 27.4 29.1 54.7 57.2
Purchase of Investments (1,227.4) (1,973.3) 0.0 0.0
Interest income /(expense), net 38.6 30.7 (5.8) (5.6)
Proceeds from sale of Invesments 1,001.3 1,167.2 0.0 0.0
Earnings before taxes (PBT) 1,463.9 1,072.4 1,448.6 1,812.1
Others 16.4 26.5 0.0 0.0
Provision for Income Tax 210.9 352.2 463.0 543.6
Cash Flow from Investing Activities 422.8 (1,423.9) (818.0) (800.0)
PAT (Excl EO) 366.2 758.6 1,006.5 1,268.5 Borrowings, net 90.3 374.0 904.1 507.4

Dividend and taxes thereon paid (189.4) (301.6) (271.1) (253.7)

Repayment of preference shares 0.0 0.0 (782.0) 0.0

Others (40.6) (32.3) 0.0 0.0

Cash Flow from Financing Activities (139.7) 40.1 (149.0) 253.7

Net Change in Cash (154.8) (3.1) 585.9 937.8

Balance Sheet Summary Financials

Year to Mar (Rs. mn) FY 08 FY 09 FY 10E FY 11E Year to Mar FY 08 FY 09 FY 10E FY 11E

Inventories 1,454.5 1,472.7 1,519.2 1,802.8 ROE (%) 40.7 20.4 24.4 27.5

Debtors 1,011.6 1,143.6 1,177.4 1,402.8 Fixed asset turnover ratio (x) 5.03 4.85 2.74 2.84

Cash and cash equivalents 75.3 71.5 657.4 1,595.2 Valuation

Other current assets 801.6 784.8 787.6 790.5 Shares outstanding (mn) 11.98 11.98 11.98 11.98

Total current assets 3,343.1 3,472.7 4,141.7 5,591.2 Price ( Rs.) 352.5 391.8 1,082.0 1,082.0

Fixed Assets: Equity Market Cap (Rs mn) 4,224.6 4,695.0 12,967.3 12,967.3

Gross Block 2,960.4 3,376.6 5,367.3 6,167.3 EV (Rs) 4,592.0 4,843.0 13,081.7 13,089.6

Less: Acuumulated depreciation 1,614.1 1,790.7 1,953.3 2,241.7 EV/ Sales (x) 0.7 0.6 1.5 1.3

Net Block 1,346.3 1,585.9 3,414.0 3,925.6 EV/ EBITDA (x) 5.6 3.5 7.9 6.3

Capital Work in Progress 132.5 290.7 0.0 0.0 P/E (x) 3.6 7.3 14.7 11.1

Investments 555.1 1,361.6 1,361.6 1,361.6 Book value per share (Rs) 256.6 290.9 285.3 370.0

Deferred tax asset 132.3 101.6 101.6 101.6 Growth (%)

Miscellaneous expenditure 7.3 71.3 71.3 71.3 Net Sales 4.9 24.0 5.20 15.40

Total Assets 5,516.5 6,883.7 9,090.0 11,051.2 Operating income 1.0 79.8 24.3 21.0

Current Liabilities 1,409.5 1,951.1 2,438.9 2,877.9 EBITDA (15.8) 67.5 20.7 26.5

Provisions 592.7 640.3 640.3 640.3 PAT 115.6 (43.1) 32.7 26.0

Total Current liabilities 2,002.2 2,591.4 3,079.2 3,518.2 Profitability (%)

Secured and unsecured loans 438.9 805.5 1,709.6 2,217.0 Operating margin 9.9 14.3 17.3 17.6

Share Capital 999.8 999.8 217.8 217.8 EBITDA margin 12.1 16.3 19.1 20.4

Reserve & Surplus 2,075.5 2,486.9 3,201.4 4,216.1 PAT margin 5.4 9.1 11.7 12.4

Total Shareholder funds 3,075.4 3,486.8 3,419.2 4,434.0 Stability

Total Liabilities and Shareholder funds 5,516.5 6,883.7 8,208.0 10,169.2 Debt / Equity Ratio (x) 0.14 0.23 0.50 0.50

3
Investment Research Team
Institutional Client Group
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