Rallis India Equity Research

Date of Research – 20 January 2016

Price – Rs. 143.85

About the Company

Rallis India Limited (“Rallis” or the “Company”) is one of India’s leading agrochemicals companies with more than 150 years of experience in servicing rural markets. The Company has a comprehensive portfolio of pesticides, herbicides, fungicides and plant nutrients for Indian farmers.

The Company operates through a network of 1,500 distributors that reach more than 40,000 retail counters. Rallis has the largest agrochemicals capacity in the country (10,000 tonnes per annum of technical grade pesticides and 30,000 tonne litres per annum of formulations). Rallis’s plants are located at Akola, Lote, Turbhe, Ankleshwar and Dahej.

Areas of business

The domestic formulation business caters to the crop protection and yield enhancement needs of the Indian farmers through a wide portfolio of products, including insecticides, fungicides, herbicides, plant-growth nutrients and seeds.

The domestic institutional business caters to the bulk and technical requirements of institutional customers.

The international business handles exports of pesticides to all parts of the world. The export basket includes technical-grade pesticides, branded formulations and contract-manufactured products.

Key Financial Figures

Consolidated(Rs. Cr)
ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017 
Total Income from Operations1,458.181,746.561,821.841,627.87 1,782.98 
Expenses1,243.311,485.281,544.701,397.70  1,519.61 
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit)214.87261.28277.14230.17  263.37 
Depreciation31.5340.6649.5844.59  47.31 
Finance Costs18.4912.6010.1313.55  7.29 
Other income7.446.384.1613.66  12.79 
Exceptional items– (158.39) 
PBT172.29214.40221.59185.69  379.95 
Tax53.4961.7361.7938.96  82.88 
PAT (before Minority Interest and share of Associates)118.80152.67159.80146.73  297.07 
Profit/ (loss) attributable to Minority Interest(0.22)0.802.583.70  – 
Share of profit / (loss) of Associates– – 
Consolidated Profit / (Loss) for the year119.02151.87157.22143.03  297.07 

Profitability Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017 
Operating Profit Margin Ratio14.7414.9615.2114.14  14.77 
Net Profit Margin Ratio8.158.748.779.01  16.66 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016 
Share Capital19.4519.4519.4519.4519.45 
Reserves & Surplus533.57601.29698.55795.07879.58 
Net worth (shareholders funds)553.02620.74718.00814.52899.03 
Minority Interest1.454.6910.4610.083.75 
Long term borrowings85.5810.7426.1226.8126.20 
Current liabilities434.98488.94493.03526.31515.10 
Other long term liabilities and provisions33.3036.4318.0222.4421.77 
Deferred Tax Liabilities13.0828.6433.0135.6638.77 
Total Liabilities1,121.411,190.171,298.641,435.811,504.62 


Application of Funds / Assets(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016 
Fixed Assets423.61422.28439.28426.03457.87 
Noncurrent Investments19.7318.6918.6918.6918.69 
Current assets433.59489.27555.51685.12659.25 
Long term advances and other noncurrent assets91.1591.7797.74110.14109.66 
Deferred Tax Assets0.521.47– 
Goodwill on consolidation (net)153.34167.64185.95195.82259.14 
Total assets1,121.411,190.171,298.641,435.811,504.62 

Efficiency Analysis

ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016 
ROE / RONW17.9319.1721.1519.3016.32 

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017 
Total Income from Operations (Rs. Cr.)1,458.181,746.561,821.841,627.871,782.98 
Growth (%)14.38%19.78 %4.31 %(10.65 %)9.53 % 
PAT (Rs. Cr.)118.80152.67159.80146.73 297.07
Growth (%)17.99%28.51 %4.67 %22.72 % 102.46 % 
Earnings Per Share – Basic (Rs. )6.127.818.087.35 15.30 
Earning Per Share – Diluted (Rs. )6.127.818.087.35 15.30 
Price to Earnings18.8523.7326.6423.12 16.13 

Dividend History

The Company has maintained an average dividend yield of 2.19 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Rallis’s average current ratio over the last 5 financial years has been 1.07 times which indicates that the Company is comfortably placed to pay for its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high long term debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Rallis’s average long term debt to equity ratio over the last 5 financial years has been 0.08 times which indicates that the Company operates with very low level of debt and is placed well to withstand economic slowdowns.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Since the Company operates with very low levels of debt, its average interest coverage ratio over the last 5 financial years has been 30.59 times which indicates that the Company can meet its debt obligations without any difficulty.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Rallis reported a promoter holding of 50.09 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 22.59% (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.