3QFY2012 Result Update | Agrichemical

February 3, 2012

Rallis India
Performance Highlights
(` cr) (Consolidated) Revenue EBITDA EBITDA margin (%) Adj PAT
Source: Company, Angel Research

NEUTRAL
CMP Target Price
3QFY2011 268 48 17.9 59 (23.0) % yoy 18.6 (50.2) 2QFY2012 430 88 20.5 59 (55.8) % qoq (26.1) (72.9)

`136 -

3QFY2012 318 24 7.5 26

Investment Period
Stock Info Sector Market Cap (`cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

Agrichemical 2,637 0.7 186/114 63192.82 1 17,605 5,326 RALL.BO RALI@IN

For 3QFY2012, Rallis India (RAIL) reported 18.6% growth in its net sales. However, net profit growth declined by almost 78% yoy. However, adjusted for the extra-ordinary the net profit declined by 23% yoy. The disappointment mainly came on the OPM front, which declined by almost by 10.4% on yoy. We expect RAIL to register a CAGR of 19.8% and 21.4% in its net sales and profit over FY2011-13, respectively. We remain Neutral on the stock. Robust growth on the sales front: RAILs revenue for the quarter grew by 18.6% yoy to `318cr. Major growth for the company came in through the exports, while domestic business was flat. On the Operating front, the Gross margins came in flat at 40.6%, however there was a sharp dip in the OPMs which declined by 10.4% yoy. This dip was on account of significant rsie in other expenditure, which resulted in sharp dip in the net profit. Outlook and valuation: Management is confident about the prospects for the agrochemicals industry. The company expects to outperform the industry, given its product pipeline. Overall, we expect RAIL to register a CAGR of 19.8% and 21.4% in its net sales and profit over FY2011-13, respectively. At current levels, the stock is trading at fair valuations of 14.2x FY2013E EPS. Hence, we maintain our Neutral recommendation on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 51.0 16.5 8.7 23.8

Abs. (%) Sensex Rallis India

3m 0.7 (17.2)

1yr (4.6) 4.2

3yr 92.4 435.5

Key financials (Consolidated)

Y/E March (` cr) Net sales % chg Net profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2010
901 5.2 99 53.8 19.4 5.1 26.7 6.2 25.5 36.2 2.8 14.3

FY2011
1,093 21.4 126 27.7 18.2 6.5 20.9 5.0 27.2 34.3 2.5 13.7

FY2012E
1,342 22.7 161 27.9 18.4 8.3 16.4 4.0 27.7 30.2 2.0 11.0

FY2013E
1,570 17.0 186 15.3 17.9 9.5 14.2 3.3 25.4 30.3 1.7 9.6

Sarabjit Kour Nangra

+91-22-39357800 ext. 6806 sarabjit@angelbroking.com

Please refer to important disclosures at the end of this report

Rallis India | 3QFY2012 Result Update

Exhibit 1: 3QFY2012 performance (Consolidated)

Y/E March (` cr) Net sales Other income Total income Gross profit Gross margin (%) Operating profit Operating margin (%) Financial cost Depreciation PBT Provision for taxation PAT before Extra-ordinary item Exceptional Minority PAT after extra-ordinary item & MI EPS (`)
Source: Company, Angel Research

3QFY2012 318 8 325 127 40.0 24 7.5 4 7 13 6 7 (19) 26 0.4

2QFY2012 430 10 440 168 39.0 88 20.5 4 7 87 30 57 (1) 59 4.2

% chg (qoq) (26.1) (23.1) (26.0) (24.2) (72.9) (10.0) (0.7) (84.9) (80.7) (87.1)

3QFY2011 268 5 274 109 40.6 47.9 17.9 1 4 48 14 34 0

% chg (yoy) 18.6 37.0 19.0 16.9 (50.2) 235.2 65.4 (72.7) (60.1) (78.0)

9MFY2012 1,039 23.3 1,063 420 40.4 142.1 13.7 10 20 135 43 92 (16) 2

9MFY2011 827 19.9 847 335 40.5 147.2 17.8 0 12

% chg 25.7 17.3 25.5 25.3 (3.5)

67.4

155 (12.8) 48 (10.1) 107 (14.0) 107 4.6 (1.3)

(55.8)

34 1.7

(23.0)

106 4.6

Robust sales growth

RAILs revenue for the quarter grew by 18.6% yoy to `318cr. Major growth for the company came in through the exports, while domestic business was flat. Domestic business was negatively impacted in 3QFY2012 due to erratic nature of North Eastern monsoon. For the quarter, Metahelix Life Sciences Ltd. (Metahelix) reported revenue of `15.3cr.However, it reported loss of `2.6cr and is yet to break-even.

Exhibit 2: Total revenue performance

480 400 320 271 232 297 318 35 430 30 25 20 15 10 5 0 (5) (10) 3Q2011 4Q2011 1Q2012 2Q2012 % YoY 3Q2012 Total Revenue
Source: Company, Angel Research

(` cr)

240 160 80 0

OPM under pressure

For 3QFY2012, RAIL reported EBITDA margin of 7.5% (17.9%), registering a dip of 10.4% yoy. This was mainly on account of higher growth in other expenditure which grew by 89.6% yoy. Along with this the company posted forex losses of Rs8.2cr during the quarter.
February 3, 2012

Rallis India | 3QFY2012 Result Update

Exhibit 3: Margin trend

50 41 40 30 38 43 39 40

(%)
20 19 10 0 3Q2011 4Q2011 Gross margin
Source: Company, Angel Research

16 8 1Q2012

16 8 2Q2012 EBITDA 3Q2012

leading to restricted earnings growth

Low growth in operating profit kept net profit growth under check. The, net profit growth declined by almost 78% yoy. However, adjusted for the extra-ordinary the net profit declined by 23% yoy.

Exhibit 4: Adj. PAT trend

75 60 45 34 30 19 15 0 3Q2011 4Q2011 1Q2012 Adj PAT
Source: Company, Angel Research

160 59 140 120 100 80 23 26 60 40 20 0 2Q2012 % YoY 3Q2012

February 3, 2012

(` cr)

Rallis India | 3QFY2012 Result Update

Investment arguments
Set to seize rising opportunities in the domestic pesticides market: India's overall pesticide consumption is one of the lowest in the world, and we believe RAIL is well placed to seize this opportunity on the back of its wide distribution network, strong brands and robust new product pipeline. According to industry estimates, the unorganized market accounts for another 50% of the industry. Nonetheless, we believe RAIL is in a position to wrest market share as well as charge a premium for its products. Exports to register steady growth: Closing down of capacity in China before the 2008 Olympics and MNCs diversifying their base to India had resulted in the companys exports spiking by 80% to `295cr in FY2009. The scenario, however, changed post the Olympics and many closed capacities have come on stream and prices of commodities have corrected, due to which exports declined by 35% in FY2010; however, exports improved by ~41% in FY2011. Against this backdrop, we estimate RAIL to post a 27% CAGR in exports over FY2011-13. Contract manufacturing to be the next growth driver: RAIL plans to focus on contract manufacturing for exports and selectively target and supply to the top players. To facilitate the same, the company is setting up a new plant at Dahej. Overall, RAIL targets to achieve cumulative revenue of `1,000cr over the next five years from this segment alone.

Outlook and valuation

Management is confident of the prospects for key crops such as cotton and paddy due to generally normal monsoons, which should aid continued healthy growth in the agrochemicals industry. RAIL expects to outperform the industry, given its product pipeline. Overall, we expect RAIL to register a CAGR of 19.8% and 21.4% in its net sales and profit over FY2011-13, respectively. At current levels, the stock is trading at fair valuations of 14.2x FY2013E EPS. Hence, we remain Neutral on the stock.

Exhibit 5: Key assumptions

Particulars (%) Domestic growth Export growth Total revenue growth EBITDA margin Tax rate
Source: Company, Angel Research

FY2012E 15.0 30.0 22.7 16.1 25.0

FY2013E 12.0 25.0 17.0 18.1 25.0

Exhibit 6: Peer valuation

Company Rallis United Phosphorus Reco Mcap (` cr) Neutral 2,644 Buy 6,779 CMP (`) 136 147 TP Upside (`) 182 (%) 23.8 P/E (x) FY12E 16.4 9.9 FY13E 14.2 9.2 EV/Sales (x) FY12E 2.0 0.9 1.7 0.8 EV/EBITDA (x) 11.0 4.7 9.6 4.1 RoE (%) 27.7 17.0 25.4 16.1 CAGR (%) Sales PAT 19.8 21.4 15.9 14.0 FY13E FY12E FY13E FY12E FY13E

Source: Company, Angel Research, Bloomberg

February 3, 2012

Rallis India | 3QFY2012 Result Update

Exhibit 7: One-year forward P/E band

200.0 180.0 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0

Share price (`)

Apr-08

Apr-09

Apr-10

Apr-11

Apr-07

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Oct-07

Oct-08

Oct-09

Oct-10

Oct-11

Jan-08

7x
Source: C-line, Angel Research

9x

Jan-09

11x

Jan-10

13x

15x

February 3, 2012

Jan-11

Jan-12

Rallis India | 3QFY2012 Result Update

Profit & loss (Consolidated)

Y/E March (` cr)
Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) ADJ. PAT % chg Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA 139 190.4 (87) 52 21 15.2 31 31 (592.5) 675 9.4 615 411 134 62 9 59 106 (23.6) (6) 100 35 33.3 64 64 110.2 856 26.9 719 507 134 67 11 137 158 49.5 (8) 150 51 32.3 99 99 53.8 901 5.2 726 506 137 67 15 175 185 16.6 185 58 31.4 127 126 27.7 1,093 21.4 894 634 188 73 199 215 16.5 215 54 25.0 161 161 27.9 1,342 22.7 1,095 785 170 113 27 247 248 15.3 248 62 25.0 186 186 15.3 1,570 17.0 1,289 926 199 132 31 281

FY08
675 9.4 615 411 134 62 9 59 340.6 8.8 20 39 (322.1) 5.8 12 112 81

FY09
856 26.9 719 507 134 67 11 137 131.2 16.0 23 114 191.3 13.3 11 3 3

FY10
901 5.2 726 506 137 67 15 175 28.0 19.4 18 157 37.7 17.4 5 7 4

FY11E
1,093 21.4 894 634 188 73 199 13.9 18.2 17 182 16.0 16.6 3 5 3

FY12E
1,342 22.7 1,095 785 170 113 27 247 23.9 18.4 34 213 17.0 15.9 1 3 2

FY13E
1,570 17.0 1,289 926 199 132 31 281 13.8 17.9 38 243 14.2 15.5 1 6 3

February 3, 2012

Rallis India | 3QFY2012 Result Update

Balance sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves & Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 296 161 135 13 56 338 8 79 250 201 137 13 354 338 179 159 29 136 352 8 77 266 261 91 10 432 309 156 153 112 140 326 12 89 226 304 22 5 433 404 174 229 169 125 26 467 15 117 335 389 77 1 628 504 208 348 129 125 28 627 23 144 461 478 150 780 604 247 370 129 125 28 731 28 168 535 559 172 824 18 88 202 308 47 354 18 88 244 350 82 432 20 405 424 8 433 19 485 505 2 117 3 628 19 622 659 121 780 19 774 807 120 8 824 FY08 FY09 FY10 FY11 FY12E FY13E

February 3, 2012

Rallis India | 3QFY2012 Result Update

Cash flow statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation Inc/Dec in Working Capital Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Inc./ (Dec.) in loans and advances Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances
(43) 11 (19) (8) (16) (14) 22 8 (138) 37 (30) 40 46 (0) 8 8 (58) (74) (44) 79 (40) 4 8 12 (37) 109 (36) (294) (220) 3 12 15 (61) 4 (25) (111) (132) 8 15 23 (100) (1) (34) (91) (127) 5 23 28

FY08
52 20 (94) (26) 46 (20) (24)

FY09
100 23 46 (31) 91 (57) (81)

FY10
150 18 73 (67) 102 (54) (4)

FY11
185 17 (53) 58 260 (152) 115

FY12E
215 34 (64) (47) 202 (60) (2)

FY13E
248 38 (17) (55) 232 (100) -

February 3, 2012

Rallis India | 3QFY2012 Result Update

Key ratios
Y/E March Valuation Ratio (x)
P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) Working capital cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Interest) 0.2 0.8 3.2 (0.1) (0.1) 10.6 (0.3) (0.8) 29.3 (0.1) (0.3) 72.4 (0.1) (0.3) 265.9 (0.2) (0.7) 2.3 74 52 105 44 2.7 63 46 86 45 2.8 60 39 115 19 3.1 65 43 115 29 3.0 68 53 105 45 2.8 64 51 95 48 13.0 11.7 11.8 28.9 39.4 19.6 36.2 79.9 25.5 34.3 35.0 27.2 30.2 38.9 27.7 30.3 38.2 25.4 5.8 84.8 2.4 11.6 8.9 0.2 24.9 13.3 66.7 2.6 22.9 3.2 22.9 17.4 67.7 2.9 33.9 4.1 33.9 16.6 68.6 2.3 25.7 19.0 25.7 15.9 75.0 2.0 23.5 0.5 23.5 15.5 75.0 2.1 24.5 24.5 1.7 1.7 2.8 1.1 12.2 3.6 3.6 4.8 1.1 14.5 5.1 5.1 6.0 1.2 21.8 6.5 6.5 7.4 1.1 27.3 8.3 8.3 10.0 1.5 33.8 9.5 9.5 11.5 1.7 41.4 79.8 48.2 11.1 0.8 3.9 44.4 7.4 38.0 28.0 9.3 0.8 3.0 18.9 6.0 26.7 22.6 6.2 0.9 2.8 14.3 5.8 20.9 18.4 5.0 0.8 2.5 13.7 4.3 16.4 13.5 4.0 1.1 2.0 11.0 3.5 14.2 11.8 3.3 1.3 1.7 9.6 3.3

FY08

FY09

FY10

FY11E

FY12E

FY13E

February 3, 2012

Rallis India | 3QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Rallis India No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

February 3, 2012

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