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Crop care company Rallis India Ltd remains in focus as the monsoon season progresses. The stock is up more than 22% since its March lows.

The company had reported 31% year-on-year revenue growth in the domestic crop care business in June quarter. Export revenue though declined 8% y-o-y despite a high base of last year. Overall revenue grew 11.7% y-o-y to 740.5 crore.

The company said that the past year's spillover sales due to lockdown were approximately 45 crore. Without that in the base, growth for international business would be 38%. The seeds revenue was up 3% year-on-year.

Moving forward, the growth momentum is expected to remain strong with monsoon activity picking up in the country after some delay. Expectations of a normal monsoon will further boost performance of Rallis India going ahead.

The management remains buoyant in the remaining half of the kharif season backed by positive farm sentiments and rebound in monsoon after some dry spells in the last fortnight that impacted sowing activities across states.

Analysts at Antique Stock Broking Ltd believe that positive catalysts i.e., buoyant farm sentiments, better rainfall, and improved crop prices are likely to persist in the near term to drive the show in the sector.

However, all eyes will be on the margin trajectory for the company. The pricing pressure in a key molecule metribuzin continues. Ebitda declined 4.7% year-on-year during the June quarter despite the rise in the revenues.

The company said that margins were impacted by pricing pressure, limiting its ability to fully pass on the steep cost inflation. Employee costs and freight costs also increased. The lower yield on current investments and shortfall in export incentives aggravated the drop in net profit, which was 10.8% lower during Q1.

All eyes will be on volumes and prices gradually firming up for key products. Key triggers for future performance, as per analysts at ICICI Securities Ltd, include lower pricing pressure for key molecules in the international market along with better volume growth visibility. Backward integration of few products can likely translate into an improvement in gross margin.

ICICI Securities maintains a positive rating on the stock on the back of better growth outlook from both domestic and international crop care businesses.

Analysts at Antique Stock Broking Ltd expect the company to clock revenue, net profit CAGR of 14% and 17%, respectively over FY21-FY23 led by domestic market share gain and export ramp-up.

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