Rallis India: Buy the stock, says Anand Rathi
Recently, broking firm, Anand Rathi has initiated a buy call on the stock with a price target of Rs 350. The firm believes that capacity expansion and product-expansion will drive growth in the future.
“Considering its capital expenditure plans, focus on product launches, gaining export market-share, rising FCFs, expanding return ratios and strong balance sheet, Rallis India’s long-term performance leaves us upbeat. We expect its revenue/profit to clock 12%/22% CAGRs over FY22-24.We initiate coverage on it with a Buy, at a target price of Rs 350. Key short-term monitorables are the increasing use of illegal cotton seed, rising input costs and softer demand for contract manufacturing,” the brokerage has said.
International business to boost growth growth
Anand Rathi also believes that the international business would shore up growth at the company. “Rallis’ international crop-protection business clocked an 12% CAGR over FY16-21. To support this growth, it is expanding capacities, setting up capacities for critical inputs (backward integration), registering more products and focusing on R&D to develop relevant products for key markets. We expect the growth momentum to continue. We expect international crop care business would register a 15% CAGR over FY22-24,” the brokerage has said.
Seeds business, a key focus area for the company
Its seeds business primarily caters to kharif crops and recorded a 10% CAGR over FY16-21. To fill gaps in its see range, reduce dependence on kharif crops and enhance operations across segments, the company is developing products to diversify into rabi season products.
“We expect its seeds business revenue to clock a 7% CAGR over FY22-24. Over FY14-21, Rallis spent ~Rs6.5bn on capex. It announced Rs8bn capex for the next five years to enhance capacities for formulations, R&D, new active ingredients and backward integration. Of the total capex, it finalised investments of Rs5.25bn. Capex in FY22 would be Rs2.5 billion.The remaining capex would be finalised by Q1 FY23,” the brokerage has said.
Valuation and view on the stock of Rallis India
The stock trades at 27 times TTM EPS and we valued it at 25 times FY24 EPS. At this multiple, the target price works out to Rs 350 a share, Anand Rathi has said.
According to the brokerage the key risk for the stock remains the failure to diversify to a non-kharif range of seeds, greater use of illegal herbicide-tolerant cotton seeds, monsoon dependence, delay in launching products and slowdown in R&D.
The share of Rallis India were last seen trading at Rs 273 on the National Stock Exchange.
The stock has been picked from the brokerage report of Anand Rathi. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.
Original news source Credit: www.goodreturns.in