Rallis India is a good buy at Rs 225 for medium term gains

Rallis India is a good buy at Rs 225 for medium term gains

By Rajiv Kapoor | 15 October, 2016
India’s crop protection industry is estimated to be the second largest in Asia, with a size of Rs 26,000 crore and with about 50% of the production in the export zone.

India’s crop protection industry is estimated to be the second largest in Asia, with a size of Rs 26,000 crore and with about 50% of the production in the export zone. The per hectare usage of agro chemicals is about only 0.06 kg in India, while it is 5 kg in the UK and 12 kg and 13 kg in Japan and China, respectively. This makes India amongst the lowest per capita consumer of crop protection products in the world. The low purchasing power of farmers and the lack of awareness are some reasons for the low consumption of these products and looking at the unrealised potential, the government has provided for higher allocation in the last budget for agriculture. Some of the thrust areas identified as growth drivers are soil health, pulses and crop insurance and irrigation. 2015 was a challenging year for the Indian agriculture industry, with erratic weather conditions and uneven rains across the country. Poor monsoon and back to back drought conditions impacted the crop output. Additionally, a downtrend in water reservoirs had impacted the availability of water for irrigation, intensifying severe concerns.

Indian agriculture is on a growth path this year, with an increase in investment and private funding. So the sector is expected to grow with better momentum in the next few years, owing to an increase in investment in agricultural infrastructure, such as irrigation facilities, warehousing and cold storage. Factors such as reduced transaction costs, better port management and fiscal incentives should also contribute to this upward trend. Furthermore, the increased use of genetically modified crops is also expected to improve the yield. India’s latest monsoon data shows good rainfall in 2016, ending the severe water shortage that is threatening power supply and would encourage farmers who have been devastated by two consecutive droughts. Weather scientists across the globe say that the El Nino conditions that led to two consecutive droughts in India have weakened this year and La Nina conditions have set in.

Rallis India Ltd is one of the country’s leading agrochemical companies, with a century old tradition of servicing rural markets and a comprehensive portfolio of crop care solutions for Indian farmers. Tata Group’s agri input firm Rallis India is in the farm essentials vertical comprising seeds, plant growth agri services and nutrients. It is also a subsidiary of group major Tata Chemicals Ltd. The company is known for its deep understanding of Indian agriculture, sustained relationships with farmers, quality agrochemicals, branding and marketing expertise and its strong product portfolio. The company is increasingly marking its presence as a holistic agri solution by helping farmers with its technical expertise, range of agri products from seeds to nutrition to protection and agronomy knowledge. This will drive agricultural productivity, adding value and changing the lives of farmers. The June 2016 quarterly results of Rallis were spectacular with a four-fold jump in consolidated net profit of Rs 174.20 crore, with total income increasing to Rs 469 crore during the same period. The stock currently quoting on the Indian bourses at Rs 225 is an excellent buy for short to medium term, with a price target of Rs 265.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.

 

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