Rakesh Jhunjhunwala portfolio stock Rallis India has been in consolidation phase for nearly one year. Rallis India share price has tanked around 30 per cent so far this year. Recently, it touched a new 52-week low of Rs 182.50 per share and today, it was quoting at Rs 194 on NSE intraday. Amid the steep correction, domestic brokerage firm Edelweiss Securities downgraded Rallis shares to ‘REDUCE’ as its bottom line is under persistent pressure. “Going forward, we expect Rallis to underperform its peers.. The company relies heavily on China for key inputs, and we believe its margin would continue to be under pressure,” Edelweiss said in its report. Big bull Rakesh Jhunjhunwala held 1.38 crore Rallis India shares (7.14% stake), while his wife Rekha held 51.8 lakh shares of the company till 31 March 2022.
Slow start to Kharif season, illegal cotton seeds impact Rallis
According to analysts at Edelweiss, the delayed monsoon this year has led to a slow start to the kharif season in most parts of India. The seeds and herbicide segments continue to face the impact of the slow pickup in crop sowing. Besides, issues of illegal cotton seeds has also negatively impacted branded players like Rallis. “Farmers are shifting to crops such as soybean and maize from paddy due to low water availability. While farmers absorbed the price hikes taken during rabi, further price increases during kharif might impact overall volume uptake,” they said.
Margins likely to stay under pressure
In March this year, Rallis raised prices by 4–5% for most products. However, given steep inflation in key raw materials, the company’s operating margins are likely to stay under pressure, according to the analysts. “Herbicide sales are likely to get affected if the monsoon does not pick up well over the next 15–20 days. On top of it, freight costs and logistical challenges have intensified. All in all, we expect the company’s margin profile to remain under the weather over FY23,” they said. Newer product introductions and commencement of the new MPP plant are expected to be the key triggers.
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Rallis well placed to capture emerging opportunities
Edelweiss said in its report that Rallis India is an established agrochemical player in India. The company, with a market share of around 10%, is well placed to capture emerging opportunities in the domestic agrochemical market on the back of a healthy distribution network, branded farm solutions and launch of new products, it said. The newly commissioned Dahej SEZ facility is anticipated to boost export sales, consequently reducing its domestic market dependence. Additionally, the organised hybrid seed market is expected to post 12-15% CAGR in the coming years. “Post acquisitions of Metahelix, Rallis is well equipped to ride this surge armed with the former’s formidable R&D capabilities and robust product pipeline,” the report added.
Stock Rating: Reduce
Target price: Rs 167
Rallis India continues to face pressure on margins, primarily due to its high dependence on China. The domestic crop care business has improved, but the weak showing in exports and seeds continues to dent growth and margins. “Going forward, we expect Rallis to underperform its peers. The company relies heavily on China for key inputs, and we believe its margin would continue to be under pressure,” Edelweiss said in the report. In light of the aforementioned factors, the brokerage downgraded the stock to ‘Reduce’ from ‘Hold’ rating with a revised target price of Rs 167 apiece.
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