Rallis India Limited — Q3 FY25 earnings call

Call held 17 Jan 2025

Management summary

Rallis India reported a challenging Q3 FY25, with revenue declining 13% to ₹522 crores and PAT falling to ₹11 crores, largely due to significant headwinds in the export business. While the domestic agrochemicals segment showed resilience with volume growth, intense market competition and pricing pressure impacted overall performance. The company is focusing on portfolio rationalization, cost optimization, and leveraging digital initiatives to drive future growth amidst a cautious outlook for Q4.

Highlights

  • Q3 FY25 Revenue stood at ₹522 crores, marking a 13% year-on-year degrowth from ₹598 crores in the previous year.

  • Profit After Tax (PAT) for Q3 FY25 was ₹11 crores, a significant decline from ₹24 crores in the same period last year, primarily due to export volume drop.

  • The export business experienced a substantial 38% degrowth in Q3, with volumes dropping by 34% and prices by 4%.

  • Domestic agrochemicals business registered a 3% volume growth in Q3 and 6% volume growth YTD, despite intense market competition.

  • The seed business recorded ₹30 crores in revenue for Q3, slightly down from ₹32 crores last year, but showed 1% revenue growth and 55% profit before tax growth on a YTD basis.

  • Biologicals and specialty solutions in the domestic market grew by 21% in volume in Q3 and 24% YTD, with herbicides growing 41% in volume in Q3.

  • The company maintained a healthy cash and liquid fund balance of over ₹200 crores as of December 31, 2024.

Concerns

  • Weak agrochemicals export demand due to China oversupply, price deflation, and reduced margins.

Key financials

  1. Revenue ₹522 Cr -13%YoY
  2. PAT ₹11 Cr -54.2%YoY
  3. Cash & Liquid Funds ₹200 Cr

What they filed

Q1 FY27: revenue up 6.8%, net profit up 31.6% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue928 522 430 957 861 −7%623 +19%456 +6%1,022 +7%
EBITDA166 44 -20 150 154 −7%58 +32%-1 +95%185 +23%
Net profit98 11 -32 95 102 +4%2 −82%-15 +53%125 +32%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Domestic Crop Care
    3% Volume Growth (Q3)-2% Revenue Growth (Q3)6% Volume Growth (YTD)
  • Export Business
    -38% Revenue Degrowth (Q3)-34% Volume Drop (Q3)-4% Price Drop (Q3)
  • Seed Business
    ₹30 Cr Revenue (Q3)1% Revenue Growth (YTD)55% PBT Growth (YTD)
  • Domestic Biologicals & Specialty Solutions
    21% Volume Growth (Q3)13% Growth (Q3 basis)24% Growth (YTD)
  • Domestic Herbicides
    41% Volume Growth (Q3)
  • International Revenue
    ₹110 Cr Revenue (Q3)

Guidance & targets

Profitability

  • Innovation Turnover Index (ITI) Profitability · ongoing · Medium confidence above 15%
    So, we consider, I mean, I think for me healthy ITI we can always keep above 15%, right. At this point of time, we probably are above 15%.

    — Dr. Gyanendra Shukla

  • EBITDA Margin Profitability · short term · Medium confidence maintain
    Our endeavor would be to improve capacity utilization and take steps to improve market share across verticals. We will try to maintain EBITDA margin in the short term.

    — Dr. Gyanendra Shukla

  • Internal Rate of Return (IRR) Profitability · ongoing · Medium confidence more than Weighted Average Cost of Capital
    As far as crop care is concerned, I think I mentioned earlier that we do not look at asset turns but IRR, and IRR should be certainly more than the Weighted Average Cost of Capital that we look into.

    — Subhra Gourisaria

Overall Business

  • Q4 Business Plans Overall Business · Q4 FY25 · Low confidence optimistically cautious
    We remain optimistically cautious for Q4 overall business plans.

    — Dr. Gyanendra Shukla

Risks & concerns

  • Weak agrochemicals export demand due to China oversupply, price deflation, and reduced margins.

    high

    Export business experienced 38% degrowth in Q3, with volumes down 34% and prices down 4%, and the global market forecast for 2025 is not strong.

    Management acknowledged

  • High inventory levels with customers and in the market leading to pricing pressure.

    medium

    Pendimethalin is facing pressure due to high inventory with customers, and pricing pressure continues in the market with 'everybody sitting on the inventory'.

    Management acknowledged

  • Challenges in seed production for the second consecutive year.

    medium

    Seed production continues to face challenges with volumes under pressure and increased input costs, and seed production area remains a constraint.

    Management acknowledged

  • Soft commodity prices impacting farm income and demand for agrochemicals.

    medium

    Commodity prices like corn, soybean, and wheat remain low, leading to challenging farm income and pressure on agrochemical consumption.

    Management acknowledged

  • Chinese companies directly participating in end markets, potentially impacting Rallis' international business.

    medium

    Management noted that Chinese companies have started participating directly in markets, which could impact Rallis, though opportunities for alternate suppliers exist.

    Analyst acknowledged

Areas of evasion (2)

  • Specific revenue percentage of unprofitable SKUs to be pruned
  • Target market size for new products under development

Q&A highlights

2 direct
Reasons for sharp jump in gross margins despite pricing pressure Partial
See, gross margin, I think one is, of course I spoke about the domestic business has been able to improve margins through the actions taken on pricing front and also ensuring that we keep our inventory levels at the right level. And also, there's a mix factor which plays because the international business did not deliver well.

Analysts questioned the significant margin improvement given reported price declines, indicating a need for clearer reconciliation of factors.

Asked by Viraj Kacharia

Portfolio rationalization and outlook for export business decline Direct
Now, on the export side, you understand our portfolio, right, our portfolio is really not very new. As we have spoken in the past, look, Acephate had challenges. Pendimethalin now is facing challenges... The forecast for 2025 I do not think is very strong as far as international business is concerned. And then this is primarily driven by Americas.

This question sought clarity on the progress of portfolio pruning and the expected timeline for stabilization of the struggling export segment, revealing a cautious outlook for international markets.

Asked by Viraj Kacharia

Domestic Q4 outlook, inventory levels, and competitive pricing aggression Direct
So, I mean, I think from what I understand, pricing pressure continues in the market. And there's no shortage of inventory. I think everybody's sitting on the inventory and leaving in the market. So, I mean, I think price pricing pressure continues and there's enough inventory in the market.

This addressed critical concerns about the demand environment, inventory overhang, and competitive intensity in the domestic market, which are key drivers for Q4 performance.

Asked by Abhijit Akella

2 min read 6 chapters

Detailed narrative

Q3 FY25 Financial Performance Overview

Rallis India reported a revenue of ₹522 crores for Q3 FY25, marking a 13% degrowth compared to ₹598 crores in the previous year. Profit After Tax (PAT) significantly declined to ₹11 crores from ₹24 crores in Q3 FY24, primarily attributed to a volume drop in exports. The company's profitability was broadly impacted by challenges in the export segment, though domestic business registered volume growth.

Export Business Headwinds Persist

The export business continued to face severe headwinds, registering a 38% degrowth in Q3 FY25. This was driven by a 34% drop in volumes and a 4% decline in prices over the previous year. Management cited weak demand for key products, oversupply from China, price deflation, and reduced margins as persistent challenges. The global market forecast for 2025, particularly from the Americas, is not strong, indicating continued pressure.

Domestic Market Resilience & Growth Drivers

Despite intense market competition and a 2% revenue decline due to steep price correction, the domestic crop care business grew volumetrically by 3% in Q3 and 6% YTD. Key focus segments like herbicides, biologicals, and specialty solutions showed strong performance, growing by 41% and 21% in volume respectively in Q3. Water soluble fertilizers scaled up fast with 80% growth in the last nine months, and the innovation turnover index remained in the high teens.

Seed Business & Portfolio Strategy

The seed business recorded ₹30 crores in revenue for Q3, a slight decrease from ₹32 crores last year, mainly due to lower hybrid mustard seed sales. However, on a YTD basis, the segment delivered 1% revenue growth and 55% growth in profit before tax. The company has completed its portfolio rationalization exercise, with the impact expected in subsequent quarters. Efforts are underway to shift focus to a smaller number of SKUs to improve supply chain complexity and profitability.

Operational Efficiency & Innovation

Rallis India is actively optimizing overhead costs, rationalizing its portfolio, and driving cost efficiencies across the value chain. Inventory levels have been brought down, and collections have improved. The company is in the final stages of commercializing new technical Metalaxyl-M and is expanding its CSM business with 10 new customers. The multipurpose plant commissioned last year is not idle and is being utilized for contract manufacturing opportunities.

Outlook and Industry Headwinds

Management remains 'optimistically cautious' for Q4, acknowledging that domestic demand is positive but lower prices across products are impacting revenues. Margins are expected to remain steady through product mix improvement and cost optimization. Key challenges include continued pricing pressure, high market inventory, and soft commodity prices impacting farm income. The company aims to improve capacity utilization and market share across verticals, while maintaining EBITDA margins in the short term.

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