Reaping A Rich Harvest Rallis India Limited
Backed by a strong research and development centre and various initiatives aimed to assist farmers in increasing their agricultural produce, Rallis India Limited is well-poised to maintain its strong market presence
Rallis India Limited, a Tata Group enterprise, is a subsidiary of Tata Chemicals. It is engaged in the business of manufacturing and marketing of agricultural inputs. While the company’s manufacturing facilities are located in India, its products are available in both domestic as well as foreign markets. The agricultural inputs segment of the company consists of pesticides, plant growth nutrients (PGN) and seeds.
Rallis India’s non-pesticides portfolio includes agricultural services which consist of organic manure product GeoGreen, Samrudh Krishi (SK) initiative, MoPu (More Pulses) initiative and agricultural implements. The company’s products for crop protection include Contaf, Contaf Plus, Master, Tata Metri, Tata Panida, Tata Mida, Asataf, etc. Rallis India also offers various categories of products such as hybrid maize, hybrid paddy, hybrid pearl millet, mustard and wheat.
Industry Overview
During the year, crop production and yield in key growing regions globally has been adversely impacted by unfavourable weather conditions. According to the Grain Market Report by the International Grains Council, global grain production is estimated to have dropped by 17 million tonnes (MT) in FY 2018-19 to a comparative three-year low of 2,125 MT. This decline can be attributed to a higher maize output that had been outweighed by declines for other crops.
As per the 2nd advance estimates released by the Department of Agriculture, Cooperation and Farmers Welfare, the total food grain production in India is estimated to be 281.37 MT in FY 2018-19, despite deficit rains which is higher than the 277.49 MT (as per 2nd advance estimate) harvested by India in FY 2017-18 crop year and the average of previous five years’ production of food grains by 15.63 MT.
Agricultural exports from India were around USD 38.54 billion in FY19 and USD 17.05 billion in FY20 (till September 2019). In the wake of unseasonal rainfalls in India damaging many crops, Government of Maharashtra reported that the total area of crop damage was more than 33 per cent in the month of October-November 2019, which is about 94.53 lakh hectares, thereby affecting 103.52 lakh farmers. Crop protection chemicals are essential for increasing agricultural productivity. The global crop protection industry, which reached a value of around USD 57.7 billion by 2017, is expected to reach USD 77.3 billion by 2023, thus witnessing 5.3 per cent CAGR during 2018-2023.
India is the fifth-largest exporter of pesticides with most of the exports being off-patent products. Export of pesticides is likely to grow at a CAGR of 8.6 per cent and reach USD 4.2 billion by FY 2024-25. In recent times, the Indian crop protection chemical industry was severely affected by unseasonal rains and climatic changes. Other challenges include price fluctuation of raw materials and regulatory issues relating to label claim, co-marketing and restrictions as well as banning of products in the Indian states of Maharashtra, Punjab and Haryana that has impacted the overall demand.
Agriculture-Based Solutions
Rallis India continues to keep its focus on providing food security and drive farm productivity in order to help in empowering and increasing the income of farmers. With this view, the company has diversified from manufacturing to expanding its offerings to agronomic advice and knowledge of best practices to aid farmers in improving their incomes. It offers several solutions in its agricultural services portfolio which include initiatives such as GeoGreen and MoPu (More Pulses).
As part of GeoGreen, the company facilitates its organic manure product to farmers along with proper knowledge of usage for enhancing soil health. The MoPu initiative is aimed to provide training in and practice of scientific processes to enable farmers enhance pulse production. Apart from agricultural solutions, the company’s seed business is one of the fastest growing segments with significant chances for expansion.
Financials
Looking at the quarterly trends on a consolidated basis, for the third quarter of FY20 the company reported net sales of Rs. 533.60 crore, an increase of 27.85 per cent as compared to net sales of Rs. 417.35 crore for the same quarter of FY19. The PBDT doubled for the third quarter of the current fiscal year to Rs. 64.25 crore as against Rs. 31.70 crore for the third quarter of the previous fiscal year. The company gained a net profit of Rs. 38.05 crore in the third quarter of FY20, which is an impressive growth of 176.53 per cent as compared to Rs. 13.76 crore gained in the third quarter of FY19.
The company’s business performance for Q3FY20 was supported by positive farmer sentiment, new product launches and refreshed trade policies. Amidst global headwinds, its international business delivered a positive performance as well as its international sales grew by 24 per cent whereas the domestic business registered a growth of 35 per cent. During the recently ended quarter December 2019, Rallis India introduced two new formulations Sarthak {9(3) registration} and Impeder {comarketing}.
On the annual front, net sales for FY19 were Rs. 1,983.96 crore, which is an increase by 9.70 per cent when compared to Rs.1,808.46 crore for FY18. The growth in net sales can be attributed to strong growth momentum in the international business where the company received new product registrations and also enhanced business with existing clients while adding new ones. For FY19, the PBDT decreased by 2.56 per cent to Rs. 266.34 crore from Rs. 273.34 crore of FY18. The net profit for FY19 reduced to Rs. 154.78 crore from Rs. 167.02 crore gained in the previous financial year.
The company’s profitability was affected due to being under pressure during the year on account of an increase in imported raw material cost as a result of closure of many units in China because of environmental issues. The debt to equity ratio of Rallis India was at 0.06 as for FY19 as compared to 0.02 as for FY18. The company has a very low debt to equity ratio, which indicates strong ability to repay it s debt obligations.
Outlook
Owing to low consumption, India provides for huge growth opportunities in the agrochemical sector. Need for better crop protection is also responsible for the boost of the agrochemical segment. Rallis India aims to maintain a huge product portfolio along with extensive geographical reach and better internal processes and supply chains in order to leverage the growing opportunity landscape. It also focuses on providing holistic agro-solutions which are aimed at improving farm productivity and yield effectively instead of only selling products.
Awareness on a sustainable seed system for ensuring high-quality hybrid seeds is essential for growth. Thus, the company works towards knowledge-based farming through leveraging its Rallis Samrudh Krishi platform. Contract manufacturing is a boost for growth since China is shutting down capacities in order to curb pollution and shifting its manufacturing base to Japan which has led to opening up of opportunities for Indian players for cost-competitive production. Meanwhile, it is expected that agrochemicals valued at USD 2.9 billion will go off-patent from 2017-2020.
The company’s Metribuzin Phase II expansion of 500 MTPA is expected to be commercialised by the end of FY20 which will hike its international revenues along with increase in number of molecules in the CRAMS business, thus resulting in long-term growth opportunity. For the future, the company’s management hopes to introduce two new molecules every year, focusing more on Rabi crop portfolio and diversifying its revenue system. Its improvised distribution policy for the domestic markets is also aimed towards achieving higher growth for the company.
Bengaluru-based Rallis Innovation and Chemistry Hub (RICH), its primary research and development centre, leverages the company’s research and development capability to develop and create innovative solutions that can assist various departments to work more efficiently towards common objectives. With such a well-equipped centre, Rallis India has been able to maintain its strong market position along with connecting well with the farmers. Since the long-term growth of Rallis India looks favourable, we recommend a BUY.