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 FINANCIALS | FY13 | FY14 | FY15E | FY16E |
|---|---|---|---|---|
| SALES (₹ Crs) | 442.40 | 581.90 | 741.10 | 910.80 |
| NET PROFIT (₹ Cr) | 67.30 | 137.90 | 180.60 | 231.90 |
| EPS (₹) | 39.00 | 79.90 | 104.60 | 134.40 |
| PE (x) | 41.00 | 20.00 | 15.30 | 11.90 |
| P/BV (x) | 6.80 | 5.50 | 4.30 | 3.30 |
| EV/EBITDA (x) | 37.10 | 16.80 | 12.40 | 9.10 |
| ROE (%) | 17.00 | 30.40 | 31.70 | 31.70 |
| ROCE (%) | 19.10 | 33.80 | 35.30 | 35.30 |
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