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Bayer CropScience (BCS) reported disappointing set of numbers for 2QFY2011.
Total sales grew 28% yoy to `651cr, while EBITDA margin declined to 16% yoy as
against our estimate of 17%. Reported PAT came in at `64cr (`60cr), up 7% yoy
as against our estimate of `74cr. Going ahead, we expect the company to be on
strong growth trajectory on the back of high agro-commodity prices. Post the
recent run up, the stock is currently trading at fair valuations. Hence, we maintain
our Neutral stance on the stock.
Lower EBITDA margin restricts profit growth: Although BCS’s 2QFY2011 sales
growth of 30% was ahead of our estimate, EBITDA margin came in below our
estimate. Higher other expenses led to the 170bp contraction in EBITDA margin to
15.7% (17.4%).
Outlook and Valuation: Given that monsoons have been normal, we expect
industry to continue to register healthy growth in FY2011. As a result, with BCS
being a major player in the domestic market, we expect it to grow at a higher
pace than industry. We maintain our estimates and expect the company to
register a CAGR of 15% and 23% in net sales and profit over FY2010-12,
respectively. Post out-performing the Sensex by 125% over the last one year, at
current levels, the stock is trading at fair valuations. Hence, we remain Neutral on
the stock.
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