Favorable Kharif Season And New Agrochemicals Will Expand Market Presence

Key Takeaways

• Favorable kharif season and strategic new product launches may boost domestic revenue and market share in crop care and seed segments.
  
• Digital transformation and operational efficiency efforts could enhance cost competitiveness, potentially improving margins and profitability.
  
• Revenue and margin challenges persist due to high inventories, pricing pressures, and geopolitical risks impacting both domestic and export markets.

Catalysts

Manufactures and markets agri-input in India and internationally.

• The upcoming kharif season is expected to be favorable due to higher reservoir levels and predicted normal monsoon, which could boost Rallis India's domestic revenue, particularly in crop care and seed segments.
  
• New product launches, including the nonselective herbicide LAAFA and promising insecticides, show potential to fill portfolio gaps and increase market share, likely enhancing future revenues and margins.
  
• Expansion in Soil and Plant Health and Herbicide businesses, with strong growth already witnessed, suggests strategic alignment with growth goals, expected to positively impact overall revenue and profitability.
  
• Focus on strengthening cost competitiveness and improving market position through digital transformation and process efficiency can potentially improve net margins by reducing overhead costs and increasing operational agility.
  
• Global geopolitical developments may favor India as a manufacturing hub, potentially boosting export opportunities for Rallis India, helping stabilize and grow export revenues despite current volatility.

Rallis India Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Rallis India's revenue will grow by 10.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.1% today to 8.2% in 3 years time.
• Analysts expect earnings to reach ₹3.2 billion (and earnings per share of ₹14.44) by about September 2028, up from ₹1.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹2.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.9x on those 2028 earnings, down from 41.1x today. This future PE is lower than the current PE for the IN Chemicals industry at 26.8x.
• Analysts expect the number of shares outstanding to decline by 0.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.47%, as per the Simply Wall St company report.

Rallis India Future Earnings Per Share Growth

Risks

• The Indian agrochemical sector faces challenges such as high carryforward inventories, pricing pressures, and weather irregularities, which may impact Rallis India's future revenue and margins.
  
• In Q4 FY25, Rallis India experienced a decline in revenue and profits, with a reported revenue degrowth of 1% and a net loss increase from ₹21 crores to ₹32 crores, affecting earnings.
  
• The Crop Care B2C business saw price pressures despite volume growth, indicating challenges in maintaining revenue growth and margins.
  
• International export growth was limited, with only 1% growth in Indian agrochemical exports and challenges in the CSM business impacting Rallis India's overall earnings.
  
• Ongoing geopolitical developments and potential disruptions in the export market pose a risk to future revenue growth and profitability for Rallis India.

Valuation

• The analysts have a consensus price target of ₹292.643 for Rallis India based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹360.0, and the most bearish reporting a price target of just ₹202.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹38.7 billion, earnings will come to ₹3.2 billion, and it would be trading on a PE ratio of 25.9x, assuming you use a discount rate of 13.5%.
• Given the current share price of ₹363.35, the analyst price target of ₹292.64 is 24.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.