Anand Rathi initiates coverage on this Rakesh Jhunjhunwala's portfolio share; sees upside of 30%

Brokerage house Anand Rathi has initiated coverage of a Rakesh Jhunjhunwala stock with a buy rating. This company works in farm essential and is one of India's leading crop care verticals. A subsidiary of Tata chemicals, Rallis India has found Anand Rathi's attention for its capex plans and expanding return ratios and strong balance sheet.  

Rakesh Jhunjhunwala holds 9.8% stake in the company as per the September 2021 quarter corporate filings. The December share holding pattern of agro-essential company is yet to be filed. The ace investor has cut down his position in Rallis India by minor0.1% on June 2021, when the Indian billionaire held 9.9% stake in the company, showed data with Trendlyne, a platform for stock market analysis.  

Rallis India share hit 52-week high value of Rs 362 on the BSE on June 18, 2021 and touched year-low figure of Rs 243.85 per share on March 19 last year.  

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"Considering its capex plans, focus on product launches, gaining export market-share, rising FCFs, expanding return ratios and strong balance sheet, Rallis India’s long-term performance leaves us upbeat," said Anand Rathi while initiating coverage with buy rating.  

At CMP of Rs 267 per share as on December 29, the brokerage sees an upside of about 30% on the current price. "We expect its revenue/profit to clock 12%/22% CAGRs over FY22-24. We initiate coverage on it with a Buy, at a target price of Rs350," it said.  

Going forward, key short-term  monitorables  for Rallis India, as per brokerages, will be increasing use illegal cotton seed,  rising  input costs and softer demand for contract manufacturing.    
As per the brokerage, company's international business and capex are expected to shore up growth. "The stock trades at 27x TTM EPS and we valued it at 25x FY24 EPS.  At this multiple, the TP works out to Rs350 a share," the brokerage report said.

Failure to diversify to a non-kharif range of seeds, greater use of illegal herbicide-tolerant cotton   seeds, monsoon   dependence and delay in launching products will be key risks.  

As on September 2021, promoters hold 50.09% stake, while public holds 49.9% stake in the company.