Bayer Cropscience - Blockbuster Performance, Yet Again; Result Update Q3FY15 ::Edelweiss

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Investment Focus - Bayer CropScience: A good harvest :: Business Line

 

The stock of Bayer CropScience may be a good bet for investors looking for a defensive buy. With a portfolio of branded chemical formulations that caters to crop protection, public health and household pest management, the company has notched up consistent sales and profit growth in the last five years despite adverse business cycles.

Steady profit margins, negligible debt and cash coffers that have been recently bolstered by a huge land sale, are other positives that should help support the stock. At the current price of Rs 1,395, the stock trades at 21 times its 2012-13 earnings (excluding one-offs) and about 18 times forward earnings. This is a discount to most MNC peers and at the lower end of its own historical band of 20-32 times.

Despite a deficient Southwest monsoon that curtailed overall agricultural growth to just 1.9 per cent, Bayer CropScience closed 2012-13 with a 19 per cent jump in its overall sales to Rs 2,626 crore and a nearly 90 per cent rise in its net profits (excluding income from land sale). Prospects for the current year should be supported by a better monsoon, rebound in acreage and higher farm incomes arising from 15-30 per cent hikes in the minimum support prices of key crops last year. Bayer CropScience, in any case, has demonstrated a fair degree of resilience to the ups and downs of agricultural cycle.

This seems to be due to three factors. One, drawing on its parent’s research pipeline, the company has regularly come up with new products catering to niche segments in the agrochemical industry that aren’t very susceptible to generic price competition. While cotton insecticides are the mainstay for most agrochemical players, Bayer CropScience has focussed instead on wheat and rice herbicides, demand for which have been boosted by shortage of farm labour, and fungicides for foodgrains and horticultural crops.

Two, the company has been successfully expanding its presence in the promising hybrid seeds business. Bayer now holds a nine per cent share in the domestic hybrid seeds market, dominating crops such as paddy and millets. It has over 18 new hybrid varieties lined up for launch over the next three years. This business offers not just high growth potential, but also high margins, not available in the agrochemical business. A third leg that provides stability and predictability to Bayer’s earnings is its supply of pesticides to the public health programme, aimed at eradicating vector borne diseases. A thrust on marketing Bayer products to household pest management outfits has also lifted sales from this segment.

The only weak spot in Bayer CropScience’s finances are its high material costs (over 60 per cent of sales) which are susceptible to a weak rupee. However, with two-thirds of the import bill covered by exports and the rest hedged through forward contracts, the company seems to be adequately protected against the currency risk. Sale of a large tract of land at Thane for a profit of Rs 1,175 crore this fiscal has bolstered its cash coffers. While Bayer has offered no indication on how this surplus will be deployed or distributed, it translates into over Rs 220 per share, net of taxes.

BAYER CROPSCIENCE:: Diwali Picks - November 2012 ::Anand Rathi Top 7 - Diwali Picks

Company Introduction: Bayer CropScience is a leader in the areas of crop protection, pest control, seeds and plant biotechnology. The ‘Agri Care’ business which primarily includes manufacture, sale and distribution of insecticides, fungicides, weedicides and various other agrochemical products. Bayer Crop. is subsidiary of Bayer (Germany).
Investment Arguments Bayer CropScience is the largest player of pesticides in India with over 25% market share (organized). Bayer is the biggest beneficiary of increasing consumption of pesticides in India, which is we expect to grow at an 8-10% CAGR from the current consumption of a mere 0.6gms/Ha. Robust R&D backed by parent Bayer AG means the company is very well equipped to launch 3-4 new products every year. Strong R&D also helps the company to roll out new products to target pests that have developed resistance against older molecules.
Expected Value: 1402 Sector: Agri.
On the unlocking of value of the Thane plant (Around 1100 Crore) – the company has received the earnest amount of Rs. 260crs on March 2011 and an advance payment of Rs. 260crs on Dec 2011 for the exclusive arrangement. The remaining procedure should be completed at a future date and the receipt of the consideration will be received on or before 30th Nov 2012. High levels of cash coupled with strong balance sheet enables the company to chalk out big expansion (organic or inorganic).
Valuation
With new product is expected to be launched in FY 14-FY 15, we believe company is building strong platform for sustainable growth in future. Bayer Corp (Parent) is focusing on cost rationalization globally which will be reflected in Indian subsidiary too. We strongly believe stock price is much undervalued vis a vis growth potential. Our FY 14 target value of the stock is 1402 based on 9.5 EV/EBIDTA (median of last 7 years).

Investment Focus - Bayer CropScience India: Buy:: Business Line

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Muted performance by agrochemical companies over the past two quarters has whittled down the valuations of stocks in this fancied sector. The stock of Bayer CropScience India, at Rs 761 now, discounts the company's trailing 12-month earnings by about 20 times. This is at a discount to its historic valuation (average 22) and well below its high of 32 times. Yet, prospects for companies such as Bayer CropScience are quite promising over a 2-3 year timeframe, making this a good opportunity to buy the stock.

A sharp increase in foodgrains output, the resulting pressure on prices and uncertainties relating to the monsoon led to poor off-take of agrochemicals in the September and December quarters of 2011. However, these problems appear to be transitory.

Structural drivers such as rising support prices for crops, intensifying pressure on agricultural yields and rising costs of farm labour may see growth of crop protection products bounce back to 10-12 per cent over the medium term.

Multinational players such as Bayer CropScience India appear to be in a particularly sweet spot, with their focus on high-end formulations and access to the parent's vast product pipeline. This helps protect margins from ever-present pricing pressures in generic agrochemicals.

For instance, even as domestic insecticide demand took a hit due to the expanding acreage of Bt cotton, Bayer CropScience has kept its annual sales growing at 20 per cent (to Rs 2,038 crore) and profits at 39 per cent (Rs 131 crore) in the three years to 2010-11. (Profits again vaulted 18 per cent in the first half of this fiscal.)

Bayer seems to have managed this growth through an increasing focus on target crops such as rice, tea, potato and vegetables. It has also made a string of new insecticide, fungicide and weedicide launches, with newer molecules such as Fenoxaprop, Flubendiamide and Tebuconazole.

A unique facet of Bayer's operations is its presence in public health and professional pest control as well. This insulates sales from the agricultural cycle. These factors perhaps explain why the company's operating profit margins have held at 11-12 per cent levels in recent years, despite erratic monsoons and rising costs due to a significant import component.

Like most multinationals, Bayer CropScience has negligible debt, a tight working capital cycle and strong cash reserves (buttressed by recent land sales). It has consistently managed a return on equity of over 20 per cent in recent years. While 60 per cent of the company's inputs are imported, currency risks are partly offset by exports and partly protected through currency hedges. A recent drive by the parent, Bayer AG to boost Asian sales should result in higher capital and R&D investments being routed to the Indian arm.

Bayer CropScience – 3QFY2011 Result Update - Angel Broking

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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.

Bayer CropScience – 2QFY2011 Result Update :: Angel Broking

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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.