Mumbai: Tata group’s seeds and agro-chemicals company, Rallis India Ltd, has devised a multi-layered strategy to increase revenue and reinforce margins in seasonally weak quarters.
The plan includes sharper focus on exports, selective acquisitions to increase its presence in the seeds and organic manure business, new investment in “greener” crops and more emphasis on contract manufacturing, said V. Shankar, the company’s managing director and chief executive officer.
Seasonal weakness creeps in the April-June and January-March quarters, while the July-September and October-December quarters are typically good for agri-businesses because of the monsoons. This time, though, the monsoons played truant in some parts of the country in the July-September quarter.
Rallis India, a wholly-owned unit of Tata Chemicals Ltd, reported a consolidated net profit of Rs.61.56 crore, up 6% from a year ago, in the second quarter while consolidated net sales rose 11.2% to Rs.480.62 crore compared with a year ago.
The company’s gross sales at Rs.875 crore in the first half of fiscal 2013 (April-September) were up 14% compared with the same period a year ago.
“We posted good results in Q2 despite the erratic monsoons because of all these steps coupled with improved price realization, focus on key brands, a better product mix, and growth of the speciality nutrition PGN (Plant, Growth, Nutrients) portfolio,” said Shankar in an interview.
PGN comprises bio-stimulants, water soluble fertilizers (WSF), micronutrients and bulk organic manures used in various crops. It is a Rs.1,500 crore market by annual sales, according to industry estimates.
Rallis India’s international business accounts for one-third of its total revenue.
“Exports are a source of foreign exchange and provide a cushion when there is a drought or famine condition, domestically,” said Shankar, adding, “India, however, will remain the major market as there are immense opportunities.”
The company is also targeting “selective acquisitions” to expand its business, according to Shankar.
Agro-chemicals (such as herbicides, fungicides and fertilizers) account for about 85% of the business. The company is now strengthening its organic portfolio too.
In October, Rallis India acquired a 22.8% stake in a Maharashtra-based organic manure and soil conditioner manufacturer,
Zero Waste Agro Organics Pvt. Ltd (ZWAOPL), which is expected to help it build a strong presence in the organic space.
Rallis has “completely stopped” manufacturing “red” products such as Tata Mono, an insecticide, since 2011. All products in the crop protection industry are denoted by four colours—red, yellow, blue and green—which indicate the degree of toxicity, with red being the highest.
“We used to have very powerful brands in this (red) category but since last year, we have completely exited this category. Yet, our annual growth is 14-15% in the last five years,” said Shankar. This, even as the company will continue to use chemicals to combat “certain insects and diseases that threaten crops”.
Similarly, to strengthen its seeds business, the company acquired Metahelix Life Sciences Ltd, a Bangalore-based seeds research company in December 2010 and increased its stake to 75.64%. “We had planned to fully acquire Metahelix within a span of five years and we have been gradually increasing our stake,” said Shankar.
The acquisition is helping Rallis, said Shankar, to compete with likes of Maharashtra Hybrid Seeds Co., Nuziveedu Seeds and Rasi Seeds (P) Ltd.
“The acquisition of Metahelix is a great move as it helps to integrate seeds and chemicals business. Since Rallis is a chemical-driven company, which is dependent upon seeds, the farmers are likely to give preference to Rallis over others,” said Bhagirath Choudhary, national coordinator, International Service for the Acquisition of Agri-biotech Applications (ISAAA) South Asia office.
The Indian seed industry is the eighth largest in the world. The current Indian market size of commercially-marketed seeds is pegged at around Rs.7,000 crore, according to industry estimates.
Another business helping Rallis India maintain a steady revenue stream throughout the year is contract manufacturing, which currently contributes 20% to the company’s revenue.
“We lay a lot of emphasis on mutual relationships and have 8-10 clients we are partnering with for the contract manufacturing business,” Shankar said.
Rallis plans to invest on its contact manufacturing facility in Dahej, Gujarat over three-five years. “The investment in Dahej facility will happen in phases. The second phase is yet to be announced, “ said Shankar. The Dahej plant is a multi-purpose technical manufacturing facility for a number of crop protection products.
In an October report, Emkay Global Financial Services Ltd said Rallis’s strong brand positioning, strong marketing and distribution network and timely identification of alternate cropping opportunities enabled Rallis to fare better than the industry.
“Rallis’s long-term growth remains intact due to company’s strong brand positioning, ramp-up in Dahej operations and strong product pipeline in seeds business,” said the report.
From the beginning of 2012, the stock price of Rallis India has risen 31.7% while India’s benchmark index, the Sensex, gained 19.94%. On Monday, shares of Rallis India ended at Rs. 158.90 on BSE Ltd, up 2.68% from its previous close, while the Sensex rose 0.16% to 18,537.01 points.