HSBC has retained its ‘Reduce’ rating on Rallis India even as it raised the target price to ₹250, noting that while Q1FY26 earnings came ahead of expectations, the valuation appears stretched amid an uncertain demand recovery in the crop protection industry.
The Tata Group agrochemical arm reported a solid quarter, beating Street estimates on both revenue and profitability. The strong performance was driven by volume-led growth and favourable operating leverage, which helped boost margins. However, HSBC cautioned that while the company’s fine-tuning of its business model is commendable, it is unlikely to yield rapid structural shifts.
Rallis has been attempting to optimize its domestic distribution, rebalance its product mix, and increase focus on exports. That said, HSBC believes these initiatives will take time to translate into meaningful and sustainable growth. Additionally, sectoral headwinds such as weak global demand, price competition, and inventory overhangs in key markets like Latin America and India continue to pose risks.
One of the key concerns highlighted was the valuation. The stock is currently trading at three standard deviations above its 10-year average price-to-earnings (PE) multiple, a level that HSBC finds difficult to justify, especially considering the moderate earnings visibility and volatility in input costs.
The brokerage prefers to stay cautious despite the earnings beat, awaiting stronger signals of sustained earnings growth and improvement in global agrochemical demand before revisiting its stance.
