Rallis India (RAIL) reported disappointing numbers for 4QFY2011, although top-line growth was marginally below our expectation. EBITDA margin came in at 16% on account of high contribution from the company’s low-margin products. PAT for the quarter declined by 20% yoy. We remain Neutral on the stock.
Unusual weather leads to changes in product mix: RAIL’s revenue for the quarter grew by 14.4% to `232.1cr. However, EBITDA margin contracted by 510bp yoy to 16% on account of change in product mix and unseasonal rains in South India. Unseasonal rains led to absence of pest occurrence, in turn negatively affecting demand for the company’s key products. East India witnessed less pest occurrence in key vegetables, which also affected the company’s overall sales. All this led to higher demand for low-margin products, thereby affecting the company’s overall EBITDA margin.
Outlook and valuation: Management expects the industry to continue to register healthy growth of 10–14% in FY2012 on account of the expected normal monsoons in 2011. We expect RAIL to grow at a higher pace than the industry, as it is a major player in the domestic market. However, we have marginally revised our FY2012–13 estimates downwards to factor in lower-than-estimated EBITDA margin in 4QFY2011. We expect RAIL to register a CAGR of 20% and 23% in net sales and profit over FY2011–13, respectively. At current levels, the stock is trading at fair valuations of 14.2x FY2013E EPS. Hence, we remain Neutral on the stock.
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