Rallis India Ltd’s share has gained 2% after the company reported sales growth, following three consecutive quarters of declining growth.
Sales in the March quarter increased 9% on higher exports at the Tata group firm. With the recent gains, the stock is up 30% in two months.
Driving the stock at the maker of agricultural products is the expectation of an earnings turnaround, helped by a good monsoon forecast and a revival in farming activity.
Last fiscal year, poor rains affected demand and sales fell by 10%. A good monsoon should benefit the agrochemical and seeds businesses, but the firm’s earnings may not see the full benefits. First, its overseas business is yet to fully recover. Some of its March quarter exports are deferred contracts from earlier quarters, which materialized now. Brazil, one major export market, continues to reel under sluggish demand.
In India, Rallis is focusing on protection for fruits and vegetables, a business which is seeing good growth.
Overall, expectations are running high for Rallis. Even though it ended 2015-16 on a better note, there is no certainty that earnings will see a linear recovery. The turnaround expectations have driven up the stock valuations—trading at 21 times the current fiscal year’s earnings estimates. Any untoward events such as poor rains or a delay in earnings recovery can shave off the recent gains.
