RALLIS INDIA CMP 52 week high 52 week low : 122.25 : 169.95 : 117.

60 BSE : 500355 NSE : RALLIS FV : 1 MARKET INFORMATION Businesses : Crop Protection Contract Manufacturing Seeds KEY BUSINESSES

Recommendation: M. Cap : NSE: BSE: 2,379 Crs RALLIS 500355

HOLD

Crop Protection Business

INDUSTRY Increasing population and demand for food products Rising Minimum Support Prices for agricultural produce Increasing government support to farmers Increasing labour cost for manual crop protection Last agricultural input and uncertain weather conditions Genetically modified seeds reduces need for pesticides Indian market characterized by many generic players Low pricing power due to competition Rising raw material costs Stringent environmental regulations pose a key risk

Attractiveness LOW Contract - Revenue not subject to weather conditions Manufacturing - Non-seasonal nature of revenue Business - Contracts typically awarded for lowering costs, hence, difficult to achieve high margins Attractiveness MEDIUM Seeds - 1st agricultural input. Unaffected by factors affecting Business agriculture e.g. rains, pests, etc - High product yields along with quality -

RALLIS - Strong distribution network in India (2,500 dealers and 37,000 retailers) - Several initiatives to connect with farmers - Rallis Kisan Kutumbh, Samrudh Krishi - Owns 7 out of top 12 brands in industry - Launched 10 new products in FY 12 expected to be a strong revenue driver going forward - Presence restricted to only a few states in India - Profit margins reduced to 17% due to weather conditions & increasing raw material costs - Growth in profitability below growth in revenues for last 5 years MEDIUM - Launch of new Dahej facility to grow business - Known for its manufacturing capabilities - Foreign exchange fluctuation risk

Attractiveness Growth Drivers / Challenges -

MEDIUM - Ability to develop proprietary biotech products - EBITDA margins of 18 to 20% - 1st Indian company to have proprietary seed competing with Mosanto's seed - Launched 10 new products in FY 12 - Pan India sales presence through Dhaanya seeds - Contributes less than 3% of revenues HIGH LOW GROWTH DRIVERS / CHALLENGES, FINANCIALS AND VALUATION GROWTH DRIVERS CHALLENGES CAGR Revenues: 3 year (12.89%); 5 year(13.13%) - Negative Free Cash Flow Comprehensive agri solutions provider along with Tata - CAGR Net Profit: 3 year (4.05%); 5 year (-1.47%) Chemicals, Metahelix and Zero Waste Agro Organics - 97% revenues from high competition Pesticides Strong distribution network, direct connect with farmers business - Presence concentrated in few states only 3 year CAGR Net Sales: 12.89% CAGR Net Profit: 4.05% P / E Ratio: D / E Ratio: Asset Turnover: 20.22 0.2 2.7x (Rs. In Crs) Jun'12 338.3 41.5 24.17 Calculation of Free Cash Flows: Net Profit 116.37 123.92 + Dep. 28.66 17.48 - Capex -201.78 -220.22 - Work Cap -31.21 -46.6 FCF -87.96 -125.42 103.31 18.31 28.56 73.69 223.87 5 year 13.13% -1.47% ROCE: 23.20% ROE: 20.70% (Pre-tax returns) Consolidated Financials: (Rs. Crs) Mar'12 Mar'11 Mar'10 Sales 1274.87 1077.16 886.15 Growth 18.35% 21.56% EBITDA 192.64 209.12 177.44 EBITDAM 15.11% 19.41% 20.02% NP 116.37 123.92 103.31

Financials at a Glance

Sales EBITDA NP Valuation

Dec'12 Sep'12 340 480.6 45.5 100.9 22 61.6

Going forward, Rallis is expected to grow at around 18 to 20% p.a. for next 2 years due to revenues from the Dahej facility, investment into seeds & soil protection business and various initiatives taken by the company. However, due to the increase in debt levels, low capital turnover and dependence of earnings on monsoon and government intervention, we assign a Price to Earnings ratio of not more than 18 times the FY 2014 EPS which is expected to be Rs. 7.20 (EPS 6.05 x 19% growth) giving us a target price of Rs. 129. Accordingly, we recommend a HOLD at CMP and will re-visit the above estimate for the company after Quarter 2 FY 2013-14. Though Rallis India is a better company compared to its peers on valuation parameters, return ratios and management efficiency, I feel the current valuation captures most of the positives. March 10, 2013