20 Jan , 2022 By : Kanchan Joshi
Rallis India's December quarter (Q3) performance was marred by higher raw material cost. Consolidated net profit declined 19.1% year-on-year, disappointing investors. The stock fell over 6% on the National Stock Exchange on Thursday.
Besides input cost inflation, an erratic monsoon also weighed on the company's Q3 performance. Excessive rains were reported in the December quarter, with the impact more pronounced in southern India. As a result, domestic crop care business grew a modest 9.4%. Restrictions on sale of paddy and maize hybrids in some states was among other challenges. Exports, however, grew 19% year-on-year during the quarter, providing some support.
Higher exports and pricing led impetus helped the company post a 10.1% year-on-year growth in consolidated revenue even as volumes were subdued.
The company's management said that supply chain challenges continued into Q3 and availability was a challenge for certain intermediates. It also faced steep inflation. The company remains focussed on minimising disruptions to production as much as possible, while some calibrated price corrections have helped it partially neutralise raw material cost inflation. The company’s cost of raw material consumed rose by more than a third during the quarter.
While cost-led challenges are expected to continue, some respite is likely. Prices of certain chemical have started moderating with improving supplies.
In another positive, the company’s formulation plant at Dahej, CZ - Phase 1, started commercial production in December. It has also indicated that Q4FY22 looks good as far as international business is concerned. It is progressing well in its plans to expand contract research and manufacturing business (CRAMS) and some agreements are expected in near term which are encouraging signs.
The Ankleshwar pesticide de-bottlenecking project for two key active ingredients is also complete and has been commissioned. The company will complete most of the major expansion projects by the first half of FY23.
Analysts said that the management commentary indicates a comparatively stable March quarter. Also a good rabi season should accrue positives. However, volume growth and margins hold the key to improving investor confidence. Growth in seed business will also be monitored by investors. The stock is trading at more than 25 times FY22 earning estimates of analysts.
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