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Friday, May 23, 2014

MONSANTO INDIA LTD : ACCUMULATE AT EVERY DIPS !!!

Scrip Code: 524084 MONSANTO
CMP:  Rs. 1807.95; Buy at current levels.

Short Term Target: Rs. 1900.00; Medium to Long Term Target: Rs. 1988.00; STOP LOSS – Rs. 1662.85; Market Cap: Rs. 3,121.01 Cr; 52 Week High/Low: Rs. 2115.40 / Rs. 581.10.00.

Total Shares: 1,72,62,748 shares; Promoters : 1,24,54,044 shares –72.14 %; Total Public holding : 48,08,704 shares –27.86 %; Book Value: Rs. 236.01; Face Value: Rs. 10.00; EPS: Rs. 75.58; Dividend: 220.00 %; P/E: 23.87 times; Ind. P/E: 11.49; EV/EBITDA: 19.68.
Total Debt: ZERO Cr; Enterprise Value: Rs. 3,108.37 Cr.

MONSANTO INDIA LTD: Monsanto India Limited was founded in 1949 and is based in Mumbai, India. Monsanto India Limited operates as a subsidiary of USA based Monsanto Co. The company was previously known as Monsanto Chemicals of India Limited and later changed its name to Monsanto India Ltd in year 2000. The company came out with an IPO on February 1989 offering 3,40,500 equity shares of Rs. 10 each for Rs. 18 per share. The object of offer for sale was to reduce the equity holding in the company to 40 % or less. Monsanto India Limited engages in the production and sale of chemicals and hybrid seeds. The company operates through 100 year old brand which offers hybrid maize seeds under the Dekalb brand name acquired from Cargill in 1998; and glyphosate herbicide under the Roundup brand name. The company is also a manufacturer of Agricultural Chemicals. The Company’s segments include Seeds and Traits and Crop Protection. The Seeds and Traits segment consists of the Monsanto’s global seeds and traits business, and genetic technology platforms, including breeding, biotechnology and genomics. Monsanto India’s Dekalb is a hybrid maize seed. Dekalb has a diverse portfolio, which includes Dekalb 900M Gold, DKC 9081, Dekalb Pinnacle, Dekalb Super 900M, Dekalb Supreme, Dekalb I-lishell, Dekalb Double, Dekalb Prabal and DKC 9072. Roundup (a glyphosate-based product) is an herbicide, and the flagship brand of its Crop Protection Chemicals business. It has pioneered the chemical weed control concept in the country and is the market leader in the Rice herbicides which are marketed under the brand name MACHETE. It also markets LASSO a board spectrum herbicide and AVEDEX a herbicide used to protect wheat corp. In India, the Monsanto group operates through 3 entities i.e. (1) the listed entity Monsanto India Ltd (MIL) which is primarily involved in Maize seeds and Herbicides; (2) 50:50 JV between Mahyco and Monsanto Holdings Pvt. Ltd known as Mahyco Monsanto Biotech (MMB) which is sub-licensed to distribute Bio-Techonological cotton technology in India; and (3) Monsanto Holding. MIL’s team comprises of over 375 employees, a majority of whom are from rural backgrounds. In India the company is spread across Mumbai, Chandigarh, Eluru, Hubli, Kolkata, Coimbatore, Siliguri, Silvassa. The company’s R&D, Quality and Manufacturing Sites are: - Corn Seed Research Breeding stations at Udaipur, Bangalore and Jalandhar; A Biotechnology Research Centre at Bangalore; A Seed Processing Facility at Hyderabad; A Quality Assurance Laboratory at Hyderabad; A Chemistry Plant in Silvassa. MONSANTO INDIA Ltd is locally compared with Advanta Ltd, Camson Bio-Technologies ltd, Dhanuka Agritech Ltd, Kaveri Seeds Co Ltd, Sabero Organics Gujarat Ltd, Excel Industries Ltd, Punjab Chemicals and Crop Protection ltd, Rallis India Ltd, Insecticides India Ltd, Bayer CropScience India ltd, UPL Ltd, Bharat Rasayan Ltd, Meghmani Organics ltd and Globally compared with Monsanto Co of USA, Du Pont (E.I.) De Nemours (DD) of Delaware, FMC Corporation of Pennsylvania, Sumitomo Chemical Co Ltd of Japan, Syngenta AG of Switzerland, Vilmorin & Cie of Paris, Bayer Aktiengesellschaft of Germany, KWS SAAT AG of Germany, Sakata Seed Corporation of Japan, Yukiguni Maitake Co Ltd of Japan, Akikawa Foods & Farms Co Ltd of Japan, Hob Co Ltd of Japan, Hokuto Corporation of Japan, Kaneko Seeds Co ltd of Japan.

Investment Rationale:
Monsanto India is India’s largest selling hybrid maize seed brand company with 25 % market share. It operates through 100 year old brand called Dekalb acquired from Cargill in 1998. Over the last 2 years it has aggressively launched 7 to 8 hybrids seeds and is leading to regain of market share from players like Pioneer and DuPont which has market share of around 20 to 23 % each. Monsanto India currently derives 40 % of its revenues from products launched in last 2 years. This has not only helped Monsanto to gained market share in FY14, but also helped to reduce the age profile of its portfolio from 10 years in 2009 to 8 years in 2013. Monsanto has a very strong Rabi portfolio as compared to Kharif. The management plans to aggressively roll out newer hybrid products for Kharif, which was under the development since last 3 to 4 years and now driving margins. Over the last few years, operational efficiencies and consolidation measures has helped to reduced seed write off to less 7 % of revenues from average of 20 % for the last 3 years and reduction of sales returns by 15 % which in turn are driving growth. It is expected that the top-line to grow at 25 % CAGR and PAT at 30 % CAGR over FY14-16E. It is believed that the investment done in FY09-FY12 will start paying off for Monsanto India in terms of new product launches and market share gain. There is a huge potential and Scalability opportunity it has to offer over the long term from GM Food and RR Flex. Weeds are plants which can cause yield losses up to almost 60 % of the crop potential. Labour shortage, rising wages due to NREGA implementation and rising urbanization trends have accelerating demand for herbicides. Herbicides market in India is a very highly underpenetrated with its share in agro-chemicals standing at just 20 % as against global standards of 48 %. Glyphosate is a leading safest herbicide and accounts for 30 % of global herbicide sales and 70 % of Indian herbicide sales. Monsanto has around 60 % market share in the global US$ 540 Cr glyphosate industry and around 25 % market share in the Indian Rs. 800 Cr glyphosate industry selling products under the 'Roundup' brand. Monsanto enjoys a premium positioning in the market place with its glyphosate selling price at Rs. 340 per litre and competitors around Rs. 310-320 per litre. In FY14 cost for glyphosate has gone by 30 to 35 % leading to price increases of around 15 to 20 % to protect margins and drive growth.  In India, all companies can start the field trials for Genetically Modified food crops, once its approved by all bodies, thereby providing significant opportunities of newer growth avenues. Monsanto, Syngenta, Pioneer, Dow has been working on field trials across various crops prior to monotorium imposed by government and hence are much ahead of other competitors. MIL has been working on Roundup Ready® and Yieldgard® in- the-seed technologies to offer maize farmer's choice of superior insect protection, with convenient, flexible and effective weed management, to optimize maize yields. Currently Monsanto GM corn is currently at BRL2 stage and management has guided that it will take at-least 3 -4 years for commercial launch to happen. The initial research and trials suggest that Monsanto GM corn can increase yields by 20-40 %. This will lead to substantial re rating for the stock post its commercial launch. Monsanto's current technology of BT is likely to be replaced by RR Flex (BG 2 RR). RR flex has gone through RCGM and is awaiting final approval from GEAC. RR-Flex has trait of herbicide tolerance thereby negating chances of damage to crop due to usage of herbicide and also reducing labour cost. Monsanto India has 7 R&D Seed Breeding Stations, Corn Seed Drying & Processing Plant in Hyderabad, State-of-the-art QA Seed Testing Laboratory and AgroChem facility at Silvassa. It also has more than 300 acreages of farmer land available for breeding and around 40, 000 acres for seed production. It engages 21,000+ growers for seeds production.

Outlook and Valuation:

Monsanto India Limited is a subsidiary of Monsanto Company, USA and is the only publicly listed Monsanto entity outside USA. With a presence of more than six decades in India, Monsanto India is committed to help the Indian farmer produce more while conserving sustainably and be successful. Monsanto focuses on Maize under the brand name Dekalb, India’s largest selling hybrid maize seed brand and agricultural productivity products and India’s largest selling glyphosate herbicide. The company tries to boost crop productivity through its advance research in maize cultivation, access to a wide library of global maize germplasm, breeding technology and techniques, new high yielding hybrids seed, best in class manufacturing facilities extensive agronomic activities and on farm technology development. Monsanto India restructured its business in order to focus on seeds business in 2008. Post consolidation, the company had branded seed products, paddy hybrids and herbicides covering wide range of market segments. This consolidation also resulted in promoters share increasing in listed Monsanto India from 40 % to 72 %. Today, Monsanto had made Dekalb corn seeds and Roundup herbicide as its core business in India, in addition to the biotech traits business. Monsanto India is a now a market leader with 25 % market share with its 100 year old branded product Dekalb® which is also the India’s largest selling hybrid maize seed brand and the market share of other players like Pioneer has 22 % and DuPont having 23 %, Kaveri has market share of 14 % and Nuziveedu at 10 %. Monsanto currently has 17 to 18 hybrids and sells across in 18 major states of India. Around 90 % of the Corn is produced in 6 to 7 States namely TN, AP, Maharashtra, Gujarat, MP, UP, Rajasthan, Bihar for Rabi. Monsanto India started launching its own product line from FY08 onwards under the DeKalb brand. The revenues from herbicide business of Monsanto India now stand at 35 % which is expected to be 65 % for FY14. It is expected that the company’s topline can grow at 25 % CAGR and PAT at 30 % CAGR over FY14-16E. And the investments done in FY09-FY12 will start paying off for Monsanto India in terms of new product launches and market share gain. The company also a huge potential and scalability opportunity & it has many more to offer over the long term from GM food and RR Flex. At the current market price of Rs. 1807.95, the stock is currently trading at 17.28x FY15E and 13.45x FY16E EPS respectively. The company can post Earnings per share (EPS) of Rs. 104.60 in FY15E and Rs. 134.40 in FY16E. One can buy MONSANTO INDIA LIMITED with a target price of Rs. 1988.00 for Medium to Long term investment and for the SHORT TERM PLAYERS it should be Rs. 1900.00

KEY FINANCIALSFY13FY14FY15EFY16E
SALES ( Crs)442.40581.90741.10910.80
NET PROFIT (₹ Cr)67.30137.90180.60231.90
EPS ()39.0079.90104.60134.40
PE (x)41.0020.0015.3011.90
P/BV (x)6.805.504.303.30
EV/EBITDA (x)37.1016.8012.409.10
ROE (%)17.0030.4031.7031.70
ROCE (%)19.1033.8035.3035.30

I would buy MONSANTO INDIA LTD for Medium to Long term for target of Rs. 1988.00 and for the shorter term the target would be Rs. 1900.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 1662.85 on every purchase(Why Strict stop loss of 8 % ?) - Click Here

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

VIEW THE POWER POINT PRESENTATION ON

16 comments :

  1. This post is really useful to all the traders and investors on Indian stock market. I appreciate the effort kept by the author for publishing this post Check nifty

    ReplyDelete
  2. Thank you so very much for this highly informative post! Check option

    ReplyDelete
  3. Wow i so did not get a word of all that!

    ReplyDelete
  4. Nice post :) Thanks for your efforts to educate us Bhavikk :) Hey, I was flipping the news channels and watched zee business once. They said, investing on Fibre Optics related companies like sterilite something is beneficial... What's your opinion?

    Regards,
    Sindhu
    Tantu
    The Arts & Me

    ReplyDelete
  5. Hi Sindhu,
    Thanks for your visit...
    You would recollect that there were Thousands of kilometers of the optic fiber network spread all over the world, which was laid during the dot com boom in 2000, and as the technology progressed to wireless technology, these network started being obsolute - and Sterlite is not only company who benefites from optical fibers there many more good companies available at cheap price,
    Anyways, now as far the news you heard on a channel gives me a view that you are talking about Sterlite Technologies - Priced at Rs. 41 ; with total debt of Rs. 2,770 Cr on the net worth of Rs. 1,160 Cr ; Sterlite Tech's Net Profit Margin is just 1 %
    (Even ur banks gives u 4 % on idle money laid in ur savings account, then y would I buy a compnay who earns just 1 %)

    This means what ever the company sells it manages to get only 1 % from it - now with a debt of Rs.2,770 Cr you will need so many years to repay your interest and to fund for the future of your business, now here I would like to cite that no matter on which device (mobile, tablet, TV, Iptv etc) you watch ur fav tv programme , the main point here is the contents and So would like to suggest ZEE Entertainment which currently is priced 273, buying Zee would mean having bouquet of regional channels + News Channels + Music & Copyrights of more than 2000 movies + Amusement Parks + Essel Properties and many more + Zee Entertainment has lowest debt of Just Rs. 1.70 Cr with Net Profit margin of 19.56 % (u will find these numbers on www.moneycontrol.com/ZEE ).
    So First look at the business if it earns substantially good then think to invest -
    Do feel free to revvert back you can also mail me to montyuu@yahoo.com , I would be happy to revert you back positivly
    Have a fantastic Day Ahead
    Regards
    Bhavikk shah

    ReplyDelete
  6. I am a bit thick when it comes to companies and all .. maybe you can tell me go and get shares of this ti get a profit .. Now that would be so beneficial :)


    Bikram

    ReplyDelete
  7. Great analysis. The new Govt. will focus on agriculture for sure & this share looks promising.
    I guess the Market will be up on Monday as Modiji's Govt takes oath. need to watch out for the dips.
    We all know how tough it is timing the Market :)

    ReplyDelete
  8. I was very encouraged to find this site. I wanted to thank you for this special read.
    I definitely savored every little bit of it and I have bookmarked you to check out new stuff you post.

    Food Delivery in Train at Jhansi Station

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  9. Thanks for sharing it.
    This is the perfect post for anyone who wants to know about this topic ,
    Also very nice info shared by you.I have known very important things over here.
    commodity Tips

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  10. buy Ratnamani metals and tube; 3 months target is 600+

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  11. Thanks for the wonderful post. The most important advice I got out of this was to give your readers total honesty. This is what I’m trying to achieve on my own blog, specially when it comes to gluten-free product reviews.
    Share Tips

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  12. Nice post, I bookmark your blog because I found very good information on your blog, Thanks for sharing http://goo.gl/GQZHes

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  13. Start investing in Poddar Pigments @60 level, 2 targets is 150+
    Reason to invest
    Return on invested capital is greater than 25
    Earnings yield greater than 15
    Promoter holding increased in last one year
    Promoter holding is greater than 60
    Book value is greater than Current price
    Price to Earning is less than 10
    EPS is greater than 10
    Dividend yield is 2
    Market Capitalization is less than Sales latest quarter

    ReplyDelete
  14. Thanks Bhavikk :) Your words will be remembered always :) I may not think of investing anything until I gain full confidence in understanding these matters... Your blog and your replies to my doubts help me gain that knowledge... Thanks again for being kind for me :)

    ReplyDelete
  15. That's interesting! Can you please share more about it? Thank you.


    Gold Rate in Mumbai

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