While there is scope for growth, both on the count of the customer’s ability to pay and penetration levels, lower credit availability from financiers looking to cut their NPAs could be a dampener in the near-term. At current levels, the stock has priced in some of the positives. Investors can look at picking it up at lower levels.

RALLIS INDIA:

Within agricultural inputs, agrichemicals is equally promising on account of increasing awareness and low per hectare consumption of about 600 grams (the lowest in the world). The Tata group company, Rallis India with a market share of 13 per cent and a large product portfolio, is the second largest agrochemical company in the country. Rallis operates in the crop protection space, with a small portion of its revenues coming from seeds, nutrients and leather chemicals.

The company has been consistently working towards process improvisation with focus on sustaining lower operational costs, which has resulted in a visible improvement in its profitability in the last few years. Its unique sales strategy, through vast distribution network covering about 80 percent of India’s districts and technical collaborations with global majors, aimed at increasing market share and revenue growth, has also borne fruits 

The company has long-term alliances with leading global agrochemical companies such as DuPont, Syngenta, Makhteshim Chemical Works, Bayer and Borax International, helping it bring new molecules and developing new products for the Indian markets. 

Simultaneously, the company has also been eying the exports market to de-risk its business. During FY08, the company obtained joint registration for one of its key products in the US market. While exports currently account for about 20 per cent of sales, Rallis expects its share to double to about 40 per cent over the next 2-3 years. Looking at the medium term prospects, the company is setting up multi-product agrochemical plants in Dahej (Gujarat) and Jammu, which are expected to commence production in 2010. The company recently commissioned a unit to manufacture 100 tonnes of PEKK, which will be supplied to Cytec Engineered Materials of the US and is expected to generate revenues of about Rs 400 crore over the next 3-4 years 

STATE BANK OF INDIA:

With the rural economy largely neglected in the past, and the social obligation on PSBs to create deep inroads in these areas, has meant greater presence of PSBs. Here, State Bank of India (SBI) has one of the highest concentrations (around 70 per cent of its branches) in the rural and semi-urban regions (RSU) among all the banks. Rural lending and deposits as a percentage of total advances and deposits is broadly 30 per cent. With rural India gradually getting its share of attention, SBI should emerge as a key beneficiary. 

Agriculture gross NPAs have historically been more than SBI’s average. However, with farm loan waiver, gross NPAs would reduce. Greater technology usage, higher low-cost deposits from RSU areas (around 50 per cent as compared to SBI’s average CASA of 40 per cent) and government agreeing to pay interest on the farm loan waiver loan are also positives. Going forward, SBI intends to increase its branch strength in RSU areas from around 7,000 (13 per cent of industry) to around 10,000 by 2010. Plans are afoot to start an additional 126 rural credit processing centres to speed up rural financing in the key business hubs. 

Likewise, the strength of its sales and recovery team is seen doubling to 6,000 by FY09. Clearly, the rural impetus is gaining momentum, and SBI’s initiatives should help increase credit as well mobilise savings in the RSU areas. The amalgamation of the efforts to shore up the branch network as well as manpower, would improve the business prospects as additional customers can be roped. Meanwhile, the bank continues to do well urban centres as well, recording healthy growth in its business and financials.