Rallis misses Street expectations in Q3 on high input costs, one-offs

Initiatives by the firm may show results over the next 6-12 months

Rallis India’s December quarter performance came much below Street expectations, and as a result the stock lost more than 5 per cent on the bourses on Friday.
 
The results were declared after market hours on Thursday. To mitigate the raw material cost increases, the company had taken price hikes, which, coupled with a strong Kharif season and steady exports, was expected to boost revenue growth.
 
However, the company’s consolidated revenues at Rs 417 crore grew 6.9 per cent year-on-year, which was lower than the consensus estimates of Rs 432.8 crore as indicated by Bloomberg. Analysts had estimated double-digit growth.

 

The larger disappointment, though, was on the operating front. In addition to the higher cost of imported chemicals from China, the quarter also witnessed some one-offs.
 
While it had to make adjustments for debtor provisions (about Rs 2.5 crore that may get reversed), there were more provisions that pushed up other expenses.
 
Analysts say the one-offs could be close to Rs 12 crore. However, adjusted for the same, operating performance was still below expectations.
 
The operating profit at Rs 28 crore (about 26 per cent lower year-on-year) came significantly lower than analysts’ expectations of Rs 43.8 crore. The profit at Rs 13.76 crore declined 45 per cent year-on-year.

 
While challenges on the margins front are expected to stay, given the supply issues and pricing of raw materials, the Rallis India is nevertheless gearing up to counter the same without compromising on growth.
 
The firm is looking at increasing its focus on specialty product launches to boost domestic growth.
 
Further, it is adding distributors and increasing their variable incentives linked to revenue targets.
 
Rallis has earmarked investments of Rs 100 crore to enhance capacity for formulations and is looking at additional capacities to drive exports too.
 
The company plans to increase higher margin exports to smaller South-East Asian countries.

 
Other restructuring initiatives include the merger of Metahelix Life Sciences (its wholly-owned seeds subsidiary) that develops, produces and sells hybrid seeds including paddy, millet, maize and Bt cotton.
 
The company may also explore organic options for growing its seeds business.
 
While the Q3 performance disappointed, the management commentary was positive, according to Prashant Biyani of Prabhudas Lilladher.
 
Though the benefits of investments will take time to accrue benefits, other initiatives may show results over the next 6-12 months, according to the analysts.