4QFY2012 Result Update | Agrichemical

April 24, 2012

Rallis India
Performance Highlights
(` cr) (Consolidated) Revenue EBITDA EBITDA margin (%) Adj PAT
Source: Company, Angel Research

NEUTRAL
CMP Target Price
3QFY2012 318 24 7.5 8 (33.1) % qoq (35.3) (91.2) 4QFY2011 220 23 10.0 19 (70.7) % yoy (13.7) (90.9)

`122 -

4QFY2012 206 2 1.0 6

Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

Agrichemical 2,380 0.5 186/114 64329 1 17,207 5,223 RALL.BO RALI@IN

For 4QFY2012, Rallis India (RAIL) reported a disappointing set of numbers. Lower sales during the quarter impacted the companys overall performance. The companys consolidated net sales dipped by 13.7% yoy to `206cr. OPM for the quarter dipped to ~1%, the lowest in the recent past for the company. This dip in OPM resulted in a 70.7% yoy decline in the companys adjusted net profit to `6cr. Going forward, we expect RAIL to register a CAGR of 15.0% and 18.9% in its net sales and profit over FY2012-14, respectively. We remain Neutral on the stock. Disappointing results: RAILs revenue for the quarter declined by 13.7% yoy to
`206cr. The dip in sales growth came on the back of sluggish domestic growth,

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 51.1 18.5 11.0 19.4

which forms a major part of the companys sales mix. On the operating front, gross margin came in at 39.1%, down 155bp yoy. However, there was a sharp dip in OPM, which declined to 1.0% in 4QFY2012 vs. 10.0% in 4QFY2011. This resulted in a sharp dip of 70.7% yoy in adjusted net profit to `6cr . Outlook and valuation: Management is confident about the long prospects for the agrochemicals industry. We expect RAIL to register a CAGR of 15.0% and 18.9% in its net sales and profit over FY2012-14, respectively. At current levels, the stock is trading at fair valuations of 15.2x FY2014E EPS. Hence, we maintain our Neutral recommendation on the stock.

Abs. (%) Sensex Rallis India

3m 1.2 (0.5)

1yr (12.2)

3yr 51.9

(14.9) 245.0

Key financials (Consolidated)

Y/E March (` cr) Net Sales % chg Adj.Net Profit % chg EBITDA % FDEPS (`) P/E (x) P/BV (x) RoE (%) RoACE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2011 1,071 21.4 126 24.6 16.4 6.5 18.9 4.7 27.2 30.7 2.6 15.6

FY2012 1,245 16.3 111 (12.4) 14.2 5.7 21.5 4.3 20.9 23.2 2.2 15.2

FY2013E 1,432 15.0 137 23.7 14.7 7.0 17.4 3.7 22.8 24.8 1.9 12.6

FY2014E 1,647 15.0 157 14.3 14.7 8.0 15.2 3.1 22.3 24.4 1.6 10.8

Sarabjit Kour Nangra

+91-22-39357800 ext. 6806 sarabjit@angelbroking.com

Please refer to important disclosures at the end of this report

Rallis India | 4QFY2012 Result Update

Exhibit 1: 4QFY2012 performance (Consolidated)

Y/E March (` cr) Net sales Other income Total income Gross profit Gross margin (%) Operating profit Operating margin (%) Financial cost Depreciation PBT Provision for taxation PAT Before Exc. And MI Minority Exceptional Reported PAT Adjusted PAT EPS (`)
Source: Company, Angel Research

4QFY2012 206 24 230 80 39.1 2 1.0 3 9 15 6 9 (1) 4 9 6 0.3

3QFY2012 318 0 318 127 40.0 24 7.5 4 7 13 6 7 (1) 0 6 8 0.4

% chg (qoq) (35.3) (27.6) (36.7) (91.2) (21.6) 20.5 15.2 0.4 26.8

4QFY2011 238 14 252 97 40.7 23.0 9.7 2 5 29 10 19 0 0

% chg (yoy) (13.7) 74.9 (8.8) (17.0) (90.9) 16.9 68.8 (49.1) (44.1) (51.8)

FY2012 1,245 27 1,272 502 40.4 177 14.2 15 29 161 49 112 2 (12)

FY2011 1,066 34.3 1,100 432 40.5 171 16.0 4 17 184 58 126 0 0 126 126 6.5

% chg 16.8 (21.9) 15.6 16.3 3.8

67.8 (12.7) (16.1) (11.2)

36.1 (33.1)

20 19 1.0

(55.9) (70.7)

99 111 5.7

(21.3) (12.1)

Sales under pressure

RAILs revenue for the quarter declined by 13.7% yoy to `206cr. The dip in sales growth came on the back of sluggish domestic growth, which forms a major part of the companys sales mix. The domestic agrochemical industry remained under pressure in 4QFY2012, with the industry witnessing negative volume growth due to erratic rainfall, low crop productivity, poor crop economies and reduced acreages for some crops. Metahelix, the companys subsidiary, contributed `81cr to the companys revenue in FY2012 (`42.4cr in FY2011). In terms of net profit, it contributed `0.6cr for FY2012 (loss of `14.3cr in FY2011).

Exhibit 2: Total revenue performance

480 400 320 292 238 318 206 430 60 50 40 30 20 10 0 (10) (20) 4Q2011 1Q2012 2Q2012 3Q2012 % YoY 4Q2012 Total Revenue
Source: Company, Angel Research

(` cr)

240 160 80 0

April 24, 2012

Rallis India | 4QFY2012 Result Update

OPM under significant pressure

For 4QFY2012, on the operating front, the companys gross margin came in at 39.1%, registering a dip of 155bp yoy. However, the companys OPM dipped sharply by 9% yoy to 1.0% in 4QFY2012 compared to 10.0% in 4QFY2011.

Exhibit 3: Margin trend

50 40 30 38 43 39 40

39

(%)
20 20 10 0 4Q2011 1Q2012 2Q2012 Gross margin
Source: Company, Angel Research

16

13 8 3Q2012 EBITDA 1 4Q2012

leading to a sharp dip in earnings growth

Low growth in operating profit kept net profit growth under check. Thus, net profit growth declined by almost 55.9% yoy. However, adjusted for extraordinary items, net profit declined by 70.7% yoy to `6cr in 4QFY2012.

Exhibit 4: Adjusted PAT trend

75 60 45 59 80 60 40 20 0 23 8 (20) (40) (60) 6 4Q2012 (80) (100) 4Q2011 1Q2012 2Q2012 Adj PAT
Source: Company, Angel Research

(` cr)

30 19 15 0

3Q2012 % YoY

April 24, 2012

Rallis India | 4QFY2012 Result Update

Investment arguments
Set to seize rising opportunities in the domestic pesticides market: India's overall pesticide consumption is one of the lowest in the world, and we believe RAIL is well placed to seize this opportunity on the back of its wide distribution network, strong brands and robust new product pipeline. According to industry estimates, the unorganized market accounts for another 50% of the industry. Nonetheless, we believe RAIL is in a position to wrest market share as well as charge a premium for its products. Exports to register steady growth: Closing down of capacity in China before 2008 Olympics and MNCs diversifying their base to India had resulted in the companys exports spiking by 80% to `295cr in FY2009. The scenario, however, changed post the Olympics and many closed capacities have come on stream and prices of commodities have corrected, due to which exports declined by 35% in FY2010; however since then the exports improved. For FY2012, exports grew by ~52%. Against this backdrop, we estimate RAIL to post a 25% CAGR in its exports over FY2012-14. Contract manufacturing to be the next growth driver: RAIL plans to focus on contract manufacturing for exports and selectively target and supply to top players. To facilitate the same, the company is setting up a new plant at Dahej. Overall, RAIL targets to achieve cumulative revenue of `1,000cr over the next five years from this segment alone.

Outlook and valuation

Management is confident of the prospects for key crops such as cotton and paddy due to generally normal monsoons, which should aid continued healthy growth in the agrochemicals industry. RAIL expects to outperform the industry, given its product pipeline. Overall, we expect RAIL to register a CAGR of 15.0% and 18.9% in its net sales and profit over FY2012-14, respectively. At current levels, the stock is trading at fair valuations of 15.2x FY2014E EPS. Hence, we remain Neutral on the stock.

Exhibit 5: Key assumptions

Particulars (%) Domestic growth Export growth Total revenue growth EBITDA margin Capex (` cr)
Source: Company, Angel Research

FY2013E 13.0 25.0 15.0 14.7 100

FY2014E 13.0 25.0 15.0 14.7 100

Exhibit 6: Peer valuation

Company Rallis United Phosphorus Reco Mcap (` cr) Neutral 2,380 Buy 5,537 CMP (`) 122 120 TP Upside (`) 182 (%) 51.6 P/E (x) FY13E 17.4 7.5 FY14E 15.2 6.4 EV/Sales (x) FY13E 1.9 0.8 1.6 0.8 EV/EBITDA (x) 12.6 4.1 10.8 4.5 RoE (%) 22.8 16.1 22.3 16.1 CAGR (%) Sales PAT 15.0 18.9 5.7 11.9 FY14E FY13E FY14E FY13E FY14E

Source: Company, Angel Research, Bloomberg

April 24, 2012

Rallis India | 4QFY2012 Result Update

Exhibit 7: One-year forward P/E band

300.0 250.0

Share price (`)

200.0 150.0 100.0 50.0 0.0

Oct-07

Oct-08

Oct-09

Oct-10

Oct-11

Jan-08

Jan-09

Jan-10

Jan-11

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

Jan-12

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Price
Source: C-line, Angel Research

10x

15x

20x

25x

30x

April 24, 2012

Apr-12

Rallis India | 4QFY2012 Result Update

Profit & loss (Consolidated)

Y/E March (` cr) Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) ADJ. PAT % chg FY09 844 24.1 742 479 182 69 11 96 87.8 11.5 23 80 115.5 9.5 9 36 34 107 52.2 1 106 35 33.2 71 72 45.9 FY10 882 4.5 730 470 177 67 15 149 54.5 16.9 18 134 67.7 15.2 6 25 17 153 42.4 0 152 51 33.6 101 102 40.9 FY11 1,071 21.4 891 592 208 73 18 175 17.5 16.4 17 162 21.2 15.2 7 30 16 184 20.8 (0) 185 58 31.4 127 126 24.6 FY12E 1,245 16.3 1,068 743 211 90 18 177 1.7 14.2 29 149 (8.2) 11.9 15 27 17 161 (12.7) 12 148 49 32.9 99 111 (12.4) FY13E 1,432 15.0 1,222 854 243 104 21 210 18.6 14.7 33 178 19.4 12.4 9 30 15 199 23.3 199 62 31.0 137 137 23.7 FY14E 1,647 15.0 1,405 982 279 119 24 242 15.0 14.7 39 203 14.4 12.3 11 35 15 227 14.3 227 70 31.0 157 157 14.3

April 24, 2012

Rallis India | 4QFY2012 Result Update

Balance sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves & Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 136 352 8 77 266 261 91 7 422 140 326 12 89 226 304 22 427 338 179 159 29 309 156 153 112 404 174 229 169 125 26 467 15 117 335 389 77 1 628 498 203 295 129 153 23 432 11 148 272 452 (20) 73 653 598 236 362 129 153 23 544 82 149 313 510 34 78 779 698 275 423 129 153 23 670 134 176 360 586 84 78 890 12 88 250 350 82 (10) 422 13 411 424 8 (5) 427 19 485 505 2 117 3 628 19 535 554 86 13 653 19 626 646 120 13 779 19 737 757 120 13 890 FY09 FY10 FY11 FY12 FY13E FY14E

Cash flow statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation Inc/Dec in Working Capital Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Inc./ (Dec.) in loans and advances Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances (138) 37 (30) 33 40 (0) 8 8 (58) (74) (44) 76 (42) 4 8 12 (37) 109 (36) (294) (220) 3 12 15 (51) (32) (46) (9) (86) (3) 15 11 (100) 34 (46) (11) 70 11 82 (100) (46) (46) 52 82 134 FY09 106 23 46 (31) 98 (57) (81) FY10 152 18 73 (67) 104 (54) (4) FY11 185 17 (53) 58 260 (152) 115 FY12 148 29 94 (43) 134 (53) 3 FY13E 199 33 17 (50) 182 (100) FY14E 227 39 2 (70) 198 (100) -

April 24, 2012

Rallis India | 4QFY2012 Result Update

Key ratios
Y/E March Valuation Ratio (x)
P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.)

FY08 34.3 25.3 8.4 0.9 3.1 26.9 6.1 3.6 3.6 4.8 1.1 14.5 9.5 66.8 2.6 16.4 3.2 16.4 20.5 27.6 21.9 2.7 63 46 114 46 (0.1) (0.1) 9.1

FY09 24.2 20.4 5.6 1.0 2.8 16.8 5.9 5.1 5.1 6.0 1.2 21.8 15.2 66.4 2.9 29.1 4.1 29.1 31.5 68.2 26.2 2.7 60 39 141 19 (0.3) (0.8) 20.8

FY10 18.9 16.6 4.7 0.9 2.6 15.6 4.3 6.5 6.5 7.4 1.1 26.0 15.2 68.6 2.3 23.5 19.0 23.5 30.7 31.2 27.2 3.0 65 43 142 13 (0.1) (0.3) 22.6

FY11E 21.5 13.2 4.3 1.2 2.2 15.2 4.1 5.7 5.7 9.3 1.5 28.5 11.9 67.1 1.8 14.7 9.7 14.7 23.2 28.2 20.9 2.8 70 55 144 5 (0.1) (0.4) 10.2

FY12E 17.4 14.0 3.7 1.9 1.9 12.6 3.4 7.0 7.0 8.7 2.4 33.2 12.4 69.0 2.0 17.1 6.2 17.1 24.8 29.1 22.8 2.6 64 51 144 (10) (0.2) (0.7) 19.2

FY13E 15.2 12.2 3.1 1.9 1.6 10.8 2.9 8.0 8.0 10.0 2.4 38.9 12.3 69.0 2.0 16.8 6.2 16.8 24.4 48.2 22.3 2.5 55 45 142 (11) (0.0) (0.1) 18.8

April 24, 2012

Rallis India | 4QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Rallis India No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

April 24, 2012