Stock To Buy: Tata Group Stock That Can See Whopping Returns

Broking firm Prabhudas Lilladher has recommended buying the stock of Rallis India for solid returns. The brokerage firm sees an upside potential on the stock to levels of Rs 256. The company is one of the top players in the agrochemicals space.

Rallis India: Quarterly results better than expected

Rallis India 2QFY23 results were ahead of our/cons expectations primarily led by superior revenue growth across business segments. Gross margins contraction of 190bps YoY was largely led by high cost inventory coupled with inability to fully pass on the inflated cost. Exports business grew by 67% YoY in 2QFY23 led by both volume & value. Volume improvement was led by higher demand for Acephate, Pendimethalin, and Kresoxim methyl. D

According to Prabudas Lilladher, the Key highlights were: (a) domestic revenue grew 18% YoY largely led by better realizations; while overall crop care segment was up 31% YoY; (b) export revenues were up 67% YoY led by both prices and volumes; (c) seeds revenue were up 12% YoY;Rs120mn/Rs250mn provisions included in 2QFY23/1HFY23 respectively; (d)gross margins continues to be under pressure down 190bps YoY;while lower opex restricted EBITDA margins expansion by 30bps YoY to 12.4%; (e) launched 2/3 new products under 9(3) and 9(4) respectively in 1HFY23 and (f) CRAMS gaining traction; PEKK to revive by end of FY23.

Rallis India: Buy the stock with a price target of Rs 250

According to Prabhudas Lilladher, going forward, the management remained hopeful on the upcoming rabi season backed by better agronomic situation in the domestic markets. "However, they remained cautious on the realizations going forward amid a falling RM cost scenario. While on the exports business with enhanced capacities coupled with favorable base and robust demand is likely to support growth in the near term. We trim our EPS estimates by 7%/2% for FY23/24E citing margin pressure. We expect RALI to clock revenue/PAT CAGR of 15%/18% over FY22-FY25E, led by domestic market share gain and export ramp-up. Maintain BUY rating on the stock with unchanged price target of Rs 250 on the stock based on 18xFY25 EPS," the brokerage has said,

Better product and price mix drives revenue growth

Consolidated revenues at the company stood at Rs 9.5 billion up 31% YoY (PLe Rs 8.02 billion) primarily driven by growth in Price/volumes. Domestic/exports revenues were up 18%/67% YoY respectively. "While the overall crop care segment was up by 31% YoY. Seeds revenues were up 12% YoY to Rs 286 million. Despite taking price hikes in the range of 4-5% across portfolio in crop protection business, higher provision of seeds (Rs120mn in 2QFY23; 1HFY23 of Rs250mn) coupled with lower liquidation and crop shifts has resulted into a gross margins contraction of 190bps YoY to 34.3%. Crop care EBITDA margin declined by 30bps YoY to 15.1%, while seeds segment reported margin loss at Rs210mn as against Rs200mn in the same period last year. Other income dipped by 72% YoY to Rs21mn led by a) lower export incentives and b) lower yield on liquid investments. Adjusted PAT came at Rs 710 mn (PLe Rs514mn) up 26% YoY," the brokerage has said.

Key stock data for Rallis India

52-week high/low on the stock	182/299
Promoter holdings	50.09
Foreign holdings	6.01%
Promoter pledge	0%