Metahelix, new products help Rallis India avoid sales slump

Rallis India Ltd’s 11.2% growth in September quarter sales is much better than analysts’ expectations of 3-7% growth. The worry was that delayed rains would affect agrochemicals consumption. But the revival of the monsoon by August-end and better performance at its seeds subsidiary, Metahelix Life Sciences Ltd, helped the company report benign growth in sales.

A focus on new products and initiatives also helped Rallis India. After discontinuing the toxic products, the company launched 10 other products last fiscal year. Apart from herbicides and insecticides, it introduced growth nutrient products, which gained traction in the second quarter. “Our new products in the plant growth promoter segment did well and our key brands recorded good growth,” managing director and chief executive V. Shankar said in a statement.

The company’s “Grow more pulses” project is also progressing well. The initiative reached 25,000 farmers and 60,000 acres in the current season. According to The Hindu Business Linenewspaper, the company aims to cover 100,000 farmers and 150,000 acres by the end of this fiscal year. Greater engagement with farmers will help the company market its products better and secure supplies for i-Shakti Dals, a venture with Tata Chemicals Ltd.

Good growth in sales, however, did not lead to commensurate growth in profit. Net profit for the period grew just 5.2%. Employee expenses fell 5.6% and raw material costs increased by just 0.8%. The problem lay in margins. Operating profit as a percentage of sales contracted to 18.5% from 22% in the second quarter of last fiscal year. Higher use of costly inventories affected operating margins.

Also, the thrust on sales is leading to some slippages on the receivables front. Trade receivables more than doubled from Rs.103.5 crore at the end of March to Rs.237.3 crore in the second quarter. But considering the seasonal nature of the business—where the company records most sales in the crop season and receives payments later in the year—analysts are not reading too much into the rise in the receivable level.

Compared with the first two quarters, the management is expecting the company to do better in the second half of the fiscal year. With the outlook for winter crops improving, the company is expected to sell more agrochemical products in the coming months.