Rallis India Q3FY10 Result

Topline suffers a small decline of 4% during the quarter on a YoY basis.

A strong 6.7% jump in operating margins boosts operating profits by 43% YoY

Buoyant other income and lower taxes combine with strong operating performance to lead to a strong bottomline growth of 55% YoY during the quarter

Bottomline for the nine month period grows 29% YoY on the back of a 3% growth in topline

The company caters to both the domestic as well as the export markets. During the quarter, the domestic business recorded handsome gains in the marketplace with farmers showing emphatic preference to some of the latest product offerings from the company. The exports business however was rather sluggish and this led to the company’s topline suffering a marginal fall during the quarter. Outlook on the domestic side appears positive as planting so far for the Rabi season has shown improvement over last year in most crops as per the company. The new project at Dahej has gained momentum during the quarter and is on track to commence production by July 2010 as per the schedule.


Some significant improvements in operating efficiencies and a benign raw material price environment has helped the company put up a strong operating performance. Raw material costs as a percentage of sales have come down by nearly 7% and this has been the sole reason behind the company’s strong operational performance. Going forward though, we expect margins to come down a bit on account of raw material price inflation and the company’s limited ability to pass on the same to its customers.


Improving upon the 43% growth in operating profits, the company’s bottomline has registered an even stronger growth of 55% YoY. This has been made possible on account of growth in other income as well as lower depreciation and tax rates. Company’s asset light model makes it strong geared towards its operating performance and hence, any significant jump in its operating performance directly filters down to its bottomline.
 
At the current price of Rs 1,061, the stock trades a multiple of 12x its expected FY12 earnings per share. The company seems to have done little wrong in the current quarter to erode our faith in its abilities. On the contrary, it has only managed to exceed our expectations on the bottomline front.