The sharp fall in international revenues dented the September quarter performance of Rallis India.
The segment, which accounted for 24 per cent of the company’s revenues (H1FY20 revenue share at 34 per cent) in the quarter, fell 29 per cent year-on-year (YoY).
The reason for the steep fall was a 30-40 per cent decline in volumes and realisations of herbicide metribuzin on the back of excess global inventory. Also, what hit global revenues was lower contract manufacturing sales because of falling offtake of fungicide metconazole and no export of thermoplastic PEKK, which is used in the aviation sector. Consolidated revenues declined 3 per cent due to the weakness in international sales.
Analysts at Emkay Research say the worst for metribuzin is already played out and there can be a recovery from the current quarter. They add the ramp-up in metribuzin capacity remains the key monitorable metric in the second half of FY21 and acts as the largest incremental swing factor in margin and earnings.
Though the international segment disappointed, the performance of the domestic business (three-fourths of revenues), as well as gross margin, was robust. A 10 per cent growth in volumes helped the company post 8 per cent growth in domestic formulations. The 29 per cent growth in the seeds segment was better than the Street’s expectation and led by the ramp-up in maize and mustard volumes.
Another positive was 201 basis points YoY growth in gross margins because of lower input costs and higher realisations from domestic formulation sales. The gains, however, did not percolate down to the operating profit level given the higher costs related to capacity expansion of metribuzin.
While brokerages have cut their earnings estimates for FY21 because of the weakness in exports, they expect medium-term growth to be strong, led by new product launches in the domestic market, benefits from ongoing expansion, and favourable margin. Kotak Institutional Equities expects the company to double its profits over the FY20-23 period.
After the near 4 per cent correction following its results and the 20 per cent fall from August high, analysts believe the stock is attractively priced and can offer healthy returns over the medium term.