Stock Market Result Update on Rallis India for 2QFY2012

Stock Market Result Update on Rallis India for 2QFY2012 with an Neutral recommendation. 

For 2QFY2012, Rallis India (RAIL) reported 18.4% growth in its net sales. However, net profit growth came in almost flat. We expect RAIL to register a CAGR of 20% and 23% in its net sales and profit over FY2011-13, respectively. We remain Neutral on the stock.

Robust growth on the sales front: RAIL’s revenue for the quarter grew by 18.4% yoy to `430cr. Exports growth came in at 25% yoy and domestic sales stood at 12% yoy. However, the company witnessed a significant erosion of 292bp yoy in its gross margin to 39.0%. Further, staff cost grew by 19.9% yoy. Consequently, OPM declined by 250bp yoy to 20.5% and EBITDA grew only by 5.5% yoy. This resulted in flat growth in net profit to `58.7cr. 

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 20% and 23% in its net sales and profit over FY2011-13, respectively. At current levels, the stock is trading at fair valuations of 17.3x FY2013E EPS. Hence, we maintain our Neutral recommendation on the stock.