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Son of the Soil

Rallis India’s strength comes from its decade-long presence in the country. Find out if you should invest in it…

Agricultural inputs company Rallis India is present in a number of areas: pesticides, seeds, fertilisers, household products and seed treatment chemicals, among others. That is not the company’s strength. Neither the fact that it is just another Tata group company. Rallis’ strength comes from its decades long presence in the country – dating even before Independence presence and the relationships it has forged since. Today, Rallis has access to more than five lakh farmers, 2,300 distributors and an enviable lot of 40,000 dealers reaching over 80 per cent of India’s total arable land. Now that’s something.

The company reported 16 per cent growth (y-o-y) in its topline in the most recent quarter (Jun 2012). But what happens to the kharif crop after the weak monsoon this year remains to be seen. Inspite of late showers, monsoons were deficient by around 40 per cent in north and north-west India and by around 60 per cent in states like Gujarat. The kharif crop sowing which begins near the second week of June was delayed because of poor rains. Farmers with lower incomes this year could cut back on consumption of agrichemicals. Lower farm income have already started making their impact. Margins in the latest quarter have come under pressure declining by around 2.6 per cent (y-o-y) to 12 per cent.

Though the near-term outlook depends largely on the kharif crop, Rallis has a strong holding in the agricultural sector of India. Margin concerns are real and could continue to come under pressure on the immediate term. Wait for more clarity before taking a call.