Home/ Markets / Stock Markets/  Prabhudas Lilladher says to BUY this Rakesh Jhunjhunwala stock despite 18% fall in profit in Q1

With a market capitalization of Rs. 4,188.86 crore, Rallis India Ltd. is a small-cap company that operates in the agrochemical industry. Globally recognised as a leading solution supplier for agri-inputs is Rallis, a division of Tata Chemicals. It produces and distributes a variety of agri-needs, such as seeds, pesticides, fungicides, insecticides, and nutrients for plant growth for crop-related needs. The firm has a robust distribution system that serves a sizable number of farmers in India, serving 80 per cent of districts, and exports to more than 58 nations.

In comparison to the company's net profit of 82.42 crore during the same quarter of the previous financial year, Rallis India recorded a fall of 18.13% in net profit at 67.47 crore for the June quarter. For Q1FY23, the company's operating revenue increased by 16.51% to 862.78 crore from 740.51 crore in the same quarter last year. The brokerage company Prabhudas Lilladher is bullish and has set a target price of 230 for the Rakesh Jhunjhunwala portfolio stock Rallis India in light of the robust revenue growth.

The brokerage has said “Rallis India (RALI) 1QFY23 results were lower than our/cons expectations primarily led by miss on the margins front. Despite revenue growth being higher than our/consensus estimates however lower operational performance in the seeds segment dented the overall performance. Challenges in terms of higher provision of stocks coupled with lower liquidation and crop shifts in the seeds segment resulted into an overall miss into estimates."

Commenting on the Q1 performance of Rallis, Prabhudas Lilladher has highlighted “Key highlights are: (a) domestic revenue grew 17% YoY led by both price and volume growth of 11%/6% YoY respectively ; while crop care segment was up 27% YoY (+17%/+10% price and volume growth respectively); (b) export revenues were up 51% YoY (+25%/26% in terms of price and volumes); (c) seeds revenue remained flat YoY;Rs130mn provisions included in 1QFY23; (d) pressure on margins continues leading to EBITDA decline of 7% YoY; (e) launched 1 new herbicide each in cotton and paddy; with 3 new paddy hybrids and 1 tomato hybrid in seeds segment during 1QFY23 and (f) CRAMS gaining traction; PEKK to revive by end of FY23."

“Going forward, management remained hopeful of good monsoons however remained cautious on high channel inventory amid a falling RM cost scenario. While on the exports business with enhanced capacities coupled with favorable base and robust demand is likely to support growth in the near term. We largely keep our estimates unchanged for FY23/24E. We expect RALI to clock revenue/PAT CAGR of 14%/22% over FY22-FY24E, led by domestic market share gain and export ramp-up. Maintain BUY rating on the stock with unchanged TP of Rs230 based on 18xFY24 EPS." claimed the brokerage.

“RALI has guided for Rs2.5bn of capex in FY23E. Formulation plant at Dahej fully commissioned and commercial production has started with better utilisation levels from 2HFY23 onwards. One new herbicide MPP at Dahej is progressing as per plan and is expected to be commissioned by November’22," said the research analysts of the brokerage firm.

“RALI intends to achieve 40% revenues contribution from exports by FY25e from 33% currently. Growth in exports likely to be driven by (a) new product launches; (b) enhanced capacities in existing products; (c) increasing business from existing and newer customers; (d) higher registrations in the formulation business (currently contributing 20% of the overall exports revenues) in geographies like Brazil. In 1QFY23, RALI received registrations for its Acephate brand in 27 states of Brazil. While, they have also commercialized two branded products in Myanmar and Uganda," said the brokerage.

Rakesh Jhunjhunwala holds 1,38,85,570 shares, or a 7.14 per cent stake in the company, according to Rallis India's shareholding pattern for the quarter ending June 2022. His wife Rekha Jhunjhunwala holds 51,82,750 shares or 2.67 per cent of the company's total paid-up capital. As a result, the Jhunjhunwala couple owns a 9.81 per cent stake in Rallis India, as per the data available on BSE.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

Vipul Das
Vipul Das is a Digital Business Content Producer at Livemint. He previously worked for Goodreturns.in (OneIndia News) and has over 5 years of expertise in the finance and business sector. Stocks, mutual funds, personal finance, tax, and banking are among his specialties, and he is a professional in industry research and business reporting. He received his bachelor's degree from Dr. CV Raman University and also have completed Diploma in Journalism and Mass Communication (DJMC).
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Updated: 22 Jul 2022, 07:50 PM IST
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