Rallis India feels the heat of the southern drought
The Rallis India Ltd stock lost more than 4% on Tuesday after the company reported a weaker-than- expected performance for the March quarter. Consolidated revenues fell 2% from a year ago. Profitability softened and net profit dropped 10%.
Tracking the failure of the north-east monsoon (which occurs in October-December) in the southern regions and weak demand sentiment, analysts were expecting agriculture inputs providers to report weak performance. But the expectations were inclined towards low single-digit growth, not a drop in revenues.
The performance is even weaker compared to the year-ago quarter, when revenues rose 8.7%. According to V. Shankar, managing director and chief executive of Rallis lndia, the seeds business did well in the year-ago quarter. Comparatively, the performance of the unit in January-March this year was impacted by low crop acreages in paddy, seasonally a big business segment not only for the company but also for the industry.
Paddy acreages for rabi or the winter crop season were down 12% from a year ago, shows data released by the government in February. Sowing in Andhra Pradesh, Tamil Nadu and Karnataka, which are major markets for farm inputs, saw notable reduction. This impacted sales.
On the positive side, the company qualified for new contract manufacturing orders, deliveries of which are expected to start in the coming months. But the weak overall performance overpowered the good news.
The latest quarterly results reinforce the impact of monsoon vagaries on Rallis India. Despite the expansion of product portfolio and geographical reach (exports), the company’s performance remains exposed to market vagaries. Timely onset of monsoon (July to September) helped it expand revenues 12.7% in April-December, compared to a revenue drop in the year-ago period. But as the north-east rains fell short, the growth momentum lost steam in January-March this year.
Of course 2016-17 has seen the culmination of several events—extreme weather conditions in south, crop shifts, demonetisation and drop in agricultural produce prices—which may not be repeated. Also the Union and state governments are stepping up support for agriculture, which should aid farm investments.
But low reservoir levels and El Niño concerns mean that worries about rains and water availability remain. “(It would be) worrying if it doesn’t rain enough,” says Shankar. Timely and spatially distributed rainy seasons remain vital.
Another variable investors need to keep tabs on is agriculture produce prices. Bumper production has impacted prices of some agricultural produce. If the situation does not improve, it can weigh on farmer sentiments, investment decisions and spell trouble for agricultural inputs.