Better mix

The changed profile has left Monsanto with a business that is less import-intensive and volume-driven; with significant scope for improvement in profit margins (currently at 24 per cent).

The strong growth in the seeds business has already made up for recent divestitures; with the company recording profits after tax (leaving out exceptional items) of about Rs 64 crore in 2007-08, on sales of Rs 384 crore, re-establishing the earlier growth trajectory.

High margins and strong operating cash flows in recent years have ensured a zero-debt status for Monsanto India, with the company not taking recourse to any infusion of capital either equity or debt over the past ten years. This provides further justification for a valuation premium for the stock, in the current scenario of tight credit and rising interest costs.

Risks

The key risks to investors in the Monsanto India stock arise from the regulatory and weather-related risks that characterise the seeds business. In this context, the controversial Bt Cotton business, which Monsanto is usually associated with, is not part of the listed entity and is vested in a separate joint venture. Several MNCs in the agrochemical space have sought to delist their Indian arm. Such a move remains a possibility for Monsanto India as well. The Indian arm could also be impacted by any strategic decisions taken by the parent....

Business Line
Monsanto India: Buy
Aarati Krishnan


Investors with a two-three year horizon can buy the stock of Monsanto India, a leading producer and marketer of agricultural inputs.

From being a leading player in the agrochemicals business which is subject to high competition and pricing pressures Monsanto India has increased its presence in the lucrative hybrid seeds business, targeting crops such as corn, cotton and oilseeds.

More India business stories

The market for hybrid seeds offers potential for strong revenue growth and high margins.

Access to the research efforts and brand portfolio of the parent, which is a global leader in seeds and traits, is a strong competitive advantage in a business where investments in R&D and the gestation period to develop new strains, present the key entry barriers. At the current market price of about Rs 1,594, the stock trades at a price-earnings of about 14 times its estimated earnings for FY09.

This appears justified, considering the high domestic growth potential of the seeds business, the premium valuations enjoyed by life-sciences companies globally and Monsanto’s strong balance-sheet. Any decline in stock price to Rs 1,400-1,500 levels linked to broad markets would present an even better opportunity to add the stock to your portfolio.

Given the relatively low trading volumes in the stock, timing your purchases carefully may be necessary to maximise returns.

Restructuring for focus

After managing a consistent year-on-year growth in both sales and profits in the five years to 2004-05, Monsanto India saw its growth rates falter over the next two years, as it dramatically restructured its business. It forged a gradual exit from the more competitive and price-sensitive segments of the herbicide business and re-aligned its portfolio more closely with that of the parent — which is focussed mainly on seeds and traits.

Monsanto divested its Leader herbicide in 2006 and herbicide brands such as Machete, Lasso and Fastmix (Butachlor and Alachlor) in 2008. Profits of Rs 45.8 crore from some of these divestitures in 2007-08 significantly bolstered Monsanto’s net profit; this was distributed to shareholders through a special dividend of Rs 180 per share in 2008.

Cashing in

This restructuring has left Monsanto with hybrid seed brands — Agrow and Dekalb and the Roundup herbicide business, all of which are leading products in the parent’s portfolio.

Over the past year, specific focus has been placed on Dekalb corn hybrids where Monsanto’s seeds target traits such as higher yield, oil content and longer shelf life. Corn is a very lucrative target crop in the Indian market and allows seed marketers to charge a significant price premium. Rising global prices for corn spurred by bio-fuel related demand and increasing use of corn by the food processing and animal feed industries has led to strong export as well as domestic demand for Indian corn.

High prices, combined with a short cycle, make corn an attractive cash crop for the farmer, paving the way for rapid adoption of hybrids (40 per cent of planted area) in the domestic market. Monsanto already claims a 39 per cent share of the corn hybrid market in India and hopes to further increase its share by targeting new regions (Northern states have lower rates of hybridisation than the southern ones) and traits.

In this respect, access to the parent’s product and research library lends a significant edge to Monsanto over other domestic players. Expansion in other target crops such as cotton and soybean also offers growth potential.

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yes. i do agree, it has solid fundamentals. its a real value buy in the current market melt down. but it can touch 120-125 levels also. thats the short term problem. we don`t know whether there is any accounting problems in computing the BV 132. how to believe this management. all the housing sector related companies are going to face the music next 2 years. so this stock may well go down further dude. don`t be so optimistic.

icici securities is not a good brokerage. they have gone wrong more number of times than they got it right. HDIL is under a severe bear grip. i have not seen any stock fall like this one stock fell in the last 10 years of my experience.

its sad to see this good company stock price fall like this. hope the management is good and there are no computing problems and accounting misstatements. then we can assume the BV of 132 as correct which has to support the stock price.

its a shame to see its PE at 2.5 and really surprising. i can`t understand how it can be trading at so low levels. i feel if the results are good it can go upto 300. thats a whopping 100% plus kind of returns. just hold the stock or even buy more in this crashing situation.

swamy.
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ur head Dustocks. it will touch 800. better exit the stock now.

swamy.
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i know. mark to mark losses actual are losses arising out of those forward contract which expire before the last day of the quarter. MTM provision will be made only on those open contracts which are existing/open on the last day of the quarter. thus, provision needs to be made using the closing currency rate on that day.

i feel biocon is headed towards 140-130 levels. its a good price for biocon as it is not delivering. management is very dull. how can any company sustain such high valuations.

they have sold thir enzymes business last year and now concentrating on bio-pharmaceuticals. they are spending this profit left & right in R&D. what is the use. these are all eye wash games. kiran`s ego and over-confidence. 50% of the R&D she is incurring is just waste and out of her own egoism. never trust this management.

even bonus issue was an eye wash. there was no enough reserves and future revenue and profit visibility till 2011 is very bad, but still bonus was given. but it did not help anyways. now at 320 (bonus adjusted rate) it has gone below its 52 week low price. i feel biocon is very week on charts and also fundamentally bad as the management is moving in the wrong path.

if there is no licensing income in q2 they will have to take severe hits on their forex forward contracts and also booked losses by now. its a very bad counter to be in now. may be if the management delivers something spectacular as they are expected to, then the stock would once again start flying. otherwise its better to be called as a forgotten biotech company of India. better to exit.

swamy.
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when companies like GMR are building airports this ncc is building community hostels for state govt`s. lol.

swamy.
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Can i buy more of monsanto at current levels?...

Dear psgs, The pilots who would fly the airplanes in the GMR built airports would have lived in the hostels built by NCC !!! :D:D:D:D regards Sourav...

In view of the market weakness, Larsen cannot hold at current level. It should slip below 1000/- shortly....

Thanks for your views. Probably the weakness in this share may be because of its being in realty sector, which as a whole look bearish....

I`m ready with my SHORTS (duly COVERED of course), so why exit ???...

Dear psgs,what happened to this blue fii darling.... it looked like many fiis given divorce to infy.... even at 1300,investors seeing at doubt with infy in present condition.......

dear, it`s trading at 371 not 317 ok.and there is not any surpris.at present crud is $94.if it touch $85 in this month bpcl will touch 390.or there will any good news from us it will 400+. happy investing...

psgs, Pfizer sales have impacted due to few Consumer health brands sell off to J&J. But they are showing improvement in bottom line. Stocks like pfizer will always give shareholders good rewards. Pfizer like stocks should always be added at declines. Rather its good news..if Pfizer like companies share prices fall, then its opportunity to bring down average price & increasing div yield. I have already started averaging from the last one week those bluechips having high dividend payouts & entered in some low price stocks with good div yield ( 9-10% PA) with consistent div paying record. There will be profit booking at every rise in market.FIIs will keep selling so I don`t feel worst is over for markets. Major index heavy weights like Reliance, ITC, Infosys, TCS are under bear grip. Any upward rally is difficult to sustain.Wait & Watch. ...