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Rallis India |
Rallis acquires seed company Metahelix Life Sciences |
BUY
CMP: Rs1,283 Target Price: Rs1,800
n Rallis India strengthens its marginal presence in seeds business through the acquisition of Metahelix with an investment of Rs 995 mn
n Rallis to leverage its strong distribution network, brands and farmer relations to benefit from the diversified product portfolio and R&D capabilities of Metahelix
n Acquisition at valuations of 2x FY12 estimated net revenues of Metahelix (Rs 1 bn) is attractive and earnings accretive
n Though any change in Rallis earnings for FY11-12 is unlikely, we view this acquisition as positive and value accretive for Rallis in the long term
Rallis India invests Rs 995 mn for 53.5% stake in Metahelix
Rallis India acquired majority stake of 53.5% in Metahelix Life Sciences with an
investment of Rs 995 mn funded through internal accruals. Metahelix (a Bangalore
based company) has presence in seed research and has successfully commercialized
many seed products in the last three years. This acquisition will help Rallis and its
holding company Tata Chemicals to capture the entire value chain of agri input
products. Rallis has been screening opportunities in the seeds segment to leverage its
strong farmer relations and dealers’ distribution network.
Various synergies to drive future profitability
We believe that this acquisition will drive the profitability of Rallis in the long term and
capture many synergy benefits. Rallis is expected to use its strong brand and farmers’
relations through Rallis Kisan Kutumbha and Tata Kisan Sanchar to sell seeds
developed by Metahelix. Metahelix has strong product portfolio with 13 products
(already in market) and 17 products in pipeline across 14 crops. Metahelix’s strong
presence in rice, millet and vegetables through hybrid seeds complements Rallis’
existing stronghold in agrochemicals in the same crops. Further Rallis will also benefit
from its presence in seeds treatment business which can be deployed captively for
seeds treatment of Metahelix.
Valuations not expensive
On estimated revenues of Rs 1 bn from Metahelix in FY12 and debt free status of the
company (as per management), valuations work out at EV / sales of 2x. According to
us, the valuations are not expensive since listed seed companies are trading at EV /
sales of 1.6 - 3.7x. The acquisition is unlikely to dilute Rallis’ earnings for FY11-12 and
we expect the company to benefit in the long run from the strong growth opportunities in
the seeds business. The management has guided for revenue potential from Metahelix
of Rs 10 bn (cumulative) over the next five years indicating 40% CAGR. Rallis has plans
to invest additional Rs 250 mn to increase its stake upto 59% and further make
Metahelix – a 100% subsidiary in the next five years. We reiterate BUY with price target
of Rs 1800 for Rallis India.
Metahelix - company & business
Metahelix is an agricultural biotechnology company focusing on developing traits and
technologies for crop protection & improved productivity. The company develops high
performance hybrid seeds in rice, maize, cotton and millets for Indian markets with
transgenic traits for insect, viral and fungal protection. Hybrid seeds and traits are
commercialized by its wholly owned subsidiary for seeds distribution business - Dhaanya
Seeds (~Rs 800 mn in turnover in 2009).
Metahelix owns proprietary Bt trait
Metahelix is the 1st India company to hold a proprietary Bt trait, cry1C approved in cotton –
this technology is a rival technology to Monsanto’s Bt Trait
Services offered
Service Description
Plant
transformation
Metahelix offers plant transformation services in various crop species including
rice, maize, cotton, pearl millet, sorghum, sunflower, tomato, okra, hot pepper
Regulatory
Sciences
- Import and Export of Biological materials
- Molecular analysis of transgenic plants
- Gene Efficacy
- Event Specific PCRs for transgenic events
Molecular
Markers
The company offers customized molecular marker services to seed companies in
order to augment their crop breeding programmes
Metahelix’s presence in key crops
Metahelix’s core crops include field crops like - Rice, Maize, Cotton and Millets and they
also have strong programs in crop breeding and trait development among the vegetable
crops like tomato, hot-pepper and okra.
Various plant locations
The crop breeding programmes are located at Bangalore (Rice, Maize & Vegetable crops),
Hyderabad (Rice and Cotton) and Ahmedabad (Millets) including 21 product testing
locations across India.
Current investors in Metahelix
Current investors include – Nadathur Holdings & Investments Private Limited and Kotak
Private Equity. Details of the same are not available.
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