Can the worst performing Tata Group stock stage a turnaround in 2022?

NEW DELHI: In an otherwise strong year for the market as well as Tata Group stocks, Rallis India shares fell 2 per cent in 2021 and was the only Tata Group scrip to log negative returns. 16 analysts, who track the stock have a consensus hold rating on Rallis India, with a median target of Rs 304 that still suggests a double-digit upside potential. Two brokerages that have initiated coverage on the stock said the company would see sustainable growth in the medium term but are mixed over target prices.

Anand Rathi initiated coverage on this stock with a target of Rs 350, considering the company’s capex plans, focus on product launches, gaining export market share, rising free cash flows (FCFs), expanding return ratios and a strong balance sheet. Prabhudas Lilladher said it is a testing time for Rallis even as the worst seems to be behind it. This brokerage has an ‘accumulate’ rating on the stock with a target of Rs 270.

The scrip, which is up 8 per cent in the last one month, last traded at Rs 274.95 on BSE, up 0.3 per cent.

Rallis India, 50 per cent owned by Tata Chemicals, is among leading agrochemical companies in India and a preferred partner of global manufacturers (contract manufacturing).

The company has a diversified value chain of seeds, soil conditioners, crop protection (CP) chemicals and plant-growth nutrients (PGN). It enjoys a 6 per cent market share in CP chemicals and PGN, and 3 per cent in seeds.

Crop care alone accounts for just over 80 per cent of the company’s revenue. Domestic revenues account for just over 60 per cent while the rest is derived from exports.

Rallis’ international crop-protection business reported a 12 per cent growth annually over FY16-21.

“To support this growth, it is expanding capacities, setting up capacities for critical inputs (backward integration), registering more products and focusing on R&D to develop relevant products for key markets. We expect the growth momentum to continue. We expect international crop care business would register a 15 per cent CAGR over FY22-24,” Anand Rathi said.

This brokerage expects the seeds business revenue to grow at 7 per cent annually over FY22-24. The business, which primarily caters to kharif crops, reported a 10 per cent growth annually over FY16-21. The company is developing products to diversify into rabi season products.

Overall, the brokerage expects revenues to grow at 12 per cent while profit is expected to grow at 22 per cent annually over FY22-24.

After the recent change in management that resulted in realignment of trade policies and new product introductions, the company has been able to regain lost market share in the domestic market, Prabhudas Lilladher said.

“However, the performance was impacted by subdued growth in the exports segment on the back of pricing and volume pressure in Metribuzin. We believe gradual recovery in both the domestic and exports segment coupled with enhanced capacity would lead to sustainable growth in the medium term. We initiate coverage with an ‘accumulate’ rating and a target of Rs 270,” the brokerage said.

This brokerage expects Rallis to gain market share primarily led by revamping of trade policies, strong innovative product pipeline and better distribution (likely to launch 3-5 new products every year for the next few years).

It also anticipated 12 per cent domestic revenue growth over FY21- FY24 (5 per cent CAGR FY11-FY21). Kotak Securities has a target of Rs 270 on the stock. Antique Stock Broking has a ‘hold’ rating on the stock with a target of Rs 300.