RALLIS - Rallis India Ltd Share Price

Management provided a cautiously optimistic outlook amid challenging conditions in the agrochemical sector due to abnormal rainfall affecting crop yields. The company faced a revenue decline in Q2 FY '26, recording INR 861 crores, down from INR 928 crores in the previous year, alongside an EBITDA of INR 154 crores, a 7% decrease from the prior period. However, profit after tax rose to INR 102 crores from INR 98 crores in Q2 FY '25.

Looking forward, several key points were highlighted:

1. Export Growth: Export revenue showcased a strong performance, rising by 33% for the quarter and totaling approximately INR 161 crores for Q2. The first half of FY '26 saw export revenue grow 51% year-on-year, totaling INR 312 crores.

2. Product Launches: New product launches, particularly in the Crop Protection segment, including herbicides and fungicides like Deeweed and Dodrio, are expected to bolster growth.

3. Domestic Performance: Despite a 3% decline in the Crop Care segment, management expressed intent to improve product offerings and customer reach to mitigate the impact of adverse weather on domestic sales.

4. Capacity Expansion: The company is focusing on maximizing capacity utilization and expanding its customer base, particularly in international markets, taking advantage of U.S.-China trade tensions that may support Indian exports.

5. Rabi Season Outlook: The management anticipates better planting conditions for the rabi season due to residual moisture from recent rains, with expectations for increased demand in the forthcoming quarter.

6. Focus on Margins: Despite the challenging environment, management's continuous efforts in optimizing product mix and controlling costs aim to stabilize and improve margins, targeting seed business EBITDA margins between 23% and 25% in the long term.

This strategic focus on enhancing product offerings, expanding export opportunities, and leveraging technological advancements positions Rallis India for potential recovery and growth despite current headwinds.

Here are the major questions and their respective answers from the Q&A section of the earnings transcript:

1. Question: "Mr. Gyanendra, given the volatility in monsoon patterns and farmer sentiments, what are the biggest execution challenges you foresee in scaling your crop protection and seed business over the next few quarters?"

   Answer: I acknowledge the volatility in agriculture as a consistent challenge. Our focus is on three key segments: Soil and Plant Health, Crop Protection, and Seed. We are committed to enhancing our new product pipeline and leveraging collaborations, ensuring we remain relevant even as we explore export opportunities. By targeting right villages through digital outreach and manufacturing efficiencies, we believe we can outpace industry growth in the long run.

2. Question: "Mr. Bhaskar, with raw material inflation and pricing pressures in key markets, how is Rallis planning to protect margins going forward?"

   Answer: Our procurement strategy emphasizes timing purchases for optimal cost-efficiency, allowing us to respond quickly to market changes. We maintain stringent control over our processes to balance procurement efficiency with pricing discipline. By tracking raw material pricing and our sales forecasts closely, we can make informed decisions that help us sustain our margins amidst inflationary pressures.

3. Question: "Can you elaborate on the CSM revenue dip due to customer phasing? Do you expect normal volumes to resume from Q3 or Q4?"

   Answer: Our CSM revenue is indeed impacted by customer timing and phasing. However, key products like Metribuzin have shown strong demand. I believe as our new registrations and expanded customer base come into effect, we will see a return to normal volume levels. Our competitive approach and focus on new markets will further support a recovery in CSM revenues.

4. Question: "How are the new products 'Deeweed' and 'Dodrio' performing early on?"

   Answer: Both 'Deeweed' and 'Dodrio' have seen promising early responses. Our new hybrids in cotton, rice, and maize have performed well in the test launches, indicating healthy market traction. Continued scalability and production improvements are key factors in maximizing the potential of these products moving forward.

5. Question: "What impact are recent regulatory changes in the bio-stimulants market having on Rallis?"

   Answer: While regulatory changes create immediate challenges, they are also favorable in the long run by filtering out non-compliant players. Our quarter was affected by uncertainties making farmers hesitant to spray, but I believe the market will stabilize as new regulations encourage organized players like Rallis.

6. Question: "Will there be issues with seed availability for the upcoming Kharif season?"

   Answer: We anticipate fewer challenges for crops like mustard and bajra. While cotton, rice, and maize may have some supply constraints, our proactive measures in seeding and processing capacity should mitigate risks. Overall, we are well-prepared and actively managing planting processes to ensure adequate supply levels.

7. Question: "Can you elaborate on the sales return provisions?"

   Answer: We have implemented a robust methodology for managing returns, building adequate reserves to minimize surprises. Returns from the kharif season have been accounted for comprehensively, ensuring accurate financial reporting and risk management in the portfolio.

8. Question: "What are your expectations for the rabi season based on recent rainfall patterns?"

   Answer: Following excess rainfall, we expect a favorable rabi season, aided by residual moisture. Farmers, generally optimistic, will likely invest in crop protection once the uncertainty around fertilizers stabilizes. Our outlook for strong rabi prospects remains positive.

9. Question: "How does the fertilizer shortage affect the overall agricultural industry?"

   Answer: The fertilizer shortage impacts cash flows in agriculture, redirecting funds that could be used for pesticides and seeds to fertilizer suppliers first. This imbalance could temporarily affect our sales and receivables; however, we believe the strained situation will ease as the season progresses.

10. Question: "What are the major R&D highlights for the first half?"

Answer: Our R&D focus has shifted towards biotechnology-driven methodologies, moving away from vegetable and GM crop research. We are securing registrations for new herbicides and maintaining a budget of INR60-70 crores annually. Progress highlights should emerge toward year-end as we finalize our pipeline.

These summaries encapsulate the core inquiries and detailed insights shared during the Q&A session.