Rallis shares rally as Tata Chem picks up additional stake, but prospects bleak

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₹782 crore. Still, Ebitda (earnings before interest, tax, depreciation, and amortization) drop was limited to 2.7%, due to a favourable product mix and cost control measures, marginally improving the Q1 Ebitda margin by 97 basis points to 14%.

Going ahead, “On the margin front, falling input costs are unlikely to boost margins as customers demand reductions in finished product prices amid what is currently a buyer’s market given oversupply out of China. Price declines could well continue to weigh on margins in coming quarters," said analysts at Kotak Institutional Equities in a report on 17 July.

Rallis, meanwhile, has projected a capital expenditure of ₹1,500 crore in FY24 and expects 60% capacity utilization at its multi-purpose plant (MPP) in Dahej.  “Commissioning of capex shall drive backward integration, and MPP and couple of new products along with ramp-up of the CRAMS business shall support revenue growth. Even so, Rallis’ margin profile and return ratios shall continue to suffer," said analysts at Nuvama Research in a report on 17 July.

CRAMS is short for contract research and manufacturing services. As things stand, Rallis shares have dropped nearly 9% in 2023 so far.

Kotak analysts have highlighted ongoing structural issues, including a genericized product portfolio and heavy reliance on China for raw materials.  “While management is making efforts to address both these challenges, any significant positive results may take years to become visible. In this backdrop, valuations are still not attractive enough to warrant a positive stance, in our view," said the Kotak report.