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For 3QFY2011, Bayer CropScience’s (BCS) results were marginally ahead of our
estimates. Total sales grew by 38% yoy to `531cr, while EBITDA margin increased
by 112bp to 11.8% (10.7%). Reported PAT came in at `36cr (`21cr), up 66% yoy
as against our estimate of `34cr. Going ahead, we expect BCS to be on a strong
growth trajectory on the back of high agro-commodity prices. Given that the stock
is currently trading at fair valuations, we remain Neutral on the stock.
Steady operating expenses help EBITDA margin expansion: Against BCS’s top-line
growth of 38%, staff cost and other cost increased by only 12.5% and 19%,
respectively, which led to a 112bp expansion in EBITDA margin to 11.8%;
however, on 9MFY2011 basis, EBITDA margin declined by 171bp to 12.7%.
Outlook and valuation: During the quarter, sales were affected due to late and
slightly above-normal monsoons; however, we believe the same will be booked in
4QFY2011. Thus, we have marginally revised our estimates to factor in the same
and expect the company to register CAGR of 19% and 16% in net sales and profit
over FY2010–12, respectively. At current levels, the stock is trading at fair
valuations of 17x FY2012E EPS. Hence, we remain Neutral on the stock.
Steady operating expenses help EBITDA margin expansion
BCS posted top-line growth of 38% in 3QFY2011. At the same time, Staff cost and
Other Expenses increased by 12.5% and 19%, respectively. This led to a 112bp
expansion in EBITDA margin to 11.8%.
Higher depreciation restricts earnings growth
Depreciation for the quarter grew by 13% yoy and 10% qoq to `9cr, which was
marginally ahead of our expectation of `8cr. Reported earnings for the quarter
grew by 66% yoy to `35.6cr (`21.4cr); however, post adjusting for extraordinary
items, adj. PAT grew by 55% to `36.7cr.
Investment arguments
Leader in Indian markets: BCS is a leader in the Indian agrichemical sector with a
market share of 23%. The company's domestic revenue registered a steady CAGR
of 19% over CY2005–FY2010, which indicates its stronghold in the domestic
business. Moreover, going ahead, we believe there exists a substantial opportunity
for BCS to grow its domestic business, considering the abysmal penetration of
pesticides in India. It may be noted that India consumes an average 0.48kg
of pesticides per hectare (ha) compared to 4.5kg/ha in the U.S. and
10.7kg/ha in Japan.
Exports – Riding the outsourcing bandwagon: BCS's export revenue registered a
15% CAGR during CY2005–FY2010. Around 80% of the company's export
revenue comes from outsourcing by Bayer AG's group companies. We believe this
indicates the company’s strong ability to grow internationally despite its parent
having a global presence. Globally, Bayer AG has a revenue base of €33bn, of
which 17% (€5.6bn) is from crop protection. Hence, if Bayer AG were to outsource
10% of its requirements from its various global subsidiaries, we believe BCS would
immensely benefit from the same.
Outlook and valuation
During the quarter, sales were affected across the industry due to late and slightly
above-normal monsoons; however, we believe the same will be booked in
4QFY2011. As a result, with BCS being a major player in the domestic market, we
expect it to grow at a higher pace than the industry.
We have marginally revised our estimates to factor in higher-than-estimated
depreciation cost and expect the company to register CAGR of 19% and 16% in
net sales and profit over FY2010–12, respectively. At current levels, the stock is
trading at fair valuations of 17x FY2012E EPS. Hence, we maintain our Neutral
recommendation on the stock.
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Visit http://indiaer.blogspot.com/ for complete details �� ��
Bayer CropScience – 3QFY2011 Result Update
Angel Broking maintains a Neutral on Bayer CropScience.
For 3QFY2011, Bayer CropScience’s (BCS) results were marginally ahead of our
estimates. Total sales grew by 38% yoy to `531cr, while EBITDA margin increased
by 112bp to 11.8% (10.7%). Reported PAT came in at `36cr (`21cr), up 66% yoy
as against our estimate of `34cr. Going ahead, we expect BCS to be on a strong
growth trajectory on the back of high agro-commodity prices. Given that the stock
is currently trading at fair valuations, we remain Neutral on the stock.
Steady operating expenses help EBITDA margin expansion: Against BCS’s top-line
growth of 38%, staff cost and other cost increased by only 12.5% and 19%,
respectively, which led to a 112bp expansion in EBITDA margin to 11.8%;
however, on 9MFY2011 basis, EBITDA margin declined by 171bp to 12.7%.
Outlook and valuation: During the quarter, sales were affected due to late and
slightly above-normal monsoons; however, we believe the same will be booked in
4QFY2011. Thus, we have marginally revised our estimates to factor in the same
and expect the company to register CAGR of 19% and 16% in net sales and profit
over FY2010–12, respectively. At current levels, the stock is trading at fair
valuations of 17x FY2012E EPS. Hence, we remain Neutral on the stock.
Sales growth ahead of expectation
BCS reported marginally higher-than-expected 3QFY2011 results, wherein total
revenue grew by 38% as against our estimate of 33%.
Steady operating expenses help EBITDA margin expansion
BCS posted top-line growth of 38% in 3QFY2011. At the same time, Staff cost and
Other Expenses increased by 12.5% and 19%, respectively. This led to a 112bp
expansion in EBITDA margin to 11.8%.
Higher depreciation restricts earnings growth
Depreciation for the quarter grew by 13% yoy and 10% qoq to `9cr, which was
marginally ahead of our expectation of `8cr. Reported earnings for the quarter
grew by 66% yoy to `35.6cr (`21.4cr); however, post adjusting for extraordinary
items, adj. PAT grew by 55% to `36.7cr.
Investment arguments
Leader in Indian markets: BCS is a leader in the Indian agrichemical sector with a
market share of 23%. The company's domestic revenue registered a steady CAGR
of 19% over CY2005–FY2010, which indicates its stronghold in the domestic
business. Moreover, going ahead, we believe there exists a substantial opportunity
for BCS to grow its domestic business, considering the abysmal penetration of
pesticides in India. It may be noted that India consumes an average 0.48kg
of pesticides per hectare (ha) compared to 4.5kg/ha in the U.S. and
10.7kg/ha in Japan.
Exports – Riding the outsourcing bandwagon: BCS's export revenue registered a
15% CAGR during CY2005–FY2010. Around 80% of the company's export
revenue comes from outsourcing by Bayer AG's group companies. We believe this
indicates the company’s strong ability to grow internationally despite its parent
having a global presence. Globally, Bayer AG has a revenue base of €33bn, of
which 17% (€5.6bn) is from crop protection. Hence, if Bayer AG were to outsource
10% of its requirements from its various global subsidiaries, we believe BCS would
immensely benefit from the same.
Outlook and valuation
During the quarter, sales were affected across the industry due to late and slightly
above-normal monsoons; however, we believe the same will be booked in
4QFY2011. As a result, with BCS being a major player in the domestic market, we
expect it to grow at a higher pace than the industry.
We have marginally revised our estimates to factor in higher-than-estimated
depreciation cost and expect the company to register CAGR of 19% and 16% in
net sales and profit over FY2010–12, respectively. At current levels, the stock is
trading at fair valuations of 17x FY2012E EPS. Hence, we maintain our Neutral
recommendation on the stock.
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