Target: ₹200

CMP: 189.35

Rallis India (RALI) Q4FY23 results were below our and consensus expectations primarily led by: domestic crop protection (CP) revenue remaining flat y-o-y; export revenues up 7 per cent y-o-y; seed revenues down 3 per cent y-o-y to ₹25 crore; gross margins contracting 800 bps y-o-y to 26.7 per cent, led by provisions of inventory (₹40 crore) and impairment of intangible assets (₹24 crore) in seeds business; lower gross profit coupled with higher opex (up 300 bps y-o-y) pertaining to increased A&P spends before kharif season and provisioning of ₹4.6 crore for notice served by MBPT during the year resulting in widening of EBITDA loss at ₹65.3 crore v/s loss of ₹2.8 crore in 4QFY22. EBITDA/PAT loss stood at ₹1.9 crore/₹5.4 crore as against loss of ₹2.8 crore/₹14.2 crore in the base quarter.

Domestic CP segment remained flat y-o-y, primarily driven by erratic monsoon resulting in lower pest infestation. This in-turn had led to higher piling up of inventories particularly in insecticides grades. Going forward, the management remained cautious on the upcoming kharif season led by: forecast of El-nino event in the second half of the monsoon season (mid-August to September); considerably higher channel inventory likely to result in lower volume growth; and declining raw material prices which would result into margin pressures.

Exports business were up 7 per cent y-o-y in Q4FY23 and 25 per cent y-o-y in FY23, primarily led by higher volumes due to enhanced capacities and price led growth. Going forward, the management alluded that inventory situation in the global market continues to be stretched and can result into moderate growth.

We trim our EPS estimates by 16 per cent/15 per cent for FY24/25 citing slower revenue growth and margin pressure. We maintain ‘Hold’ rating on the stock with revised TP of ₹200 from ₹240 earlier based on 18xFY25 EPS.

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