Accumulate Bayer Cropscience; target of Rs 4720: Prabhudas Lilladher

Prabhudas Lilladher's research report on Bayer Cropscience

We broadly keep our FY24/25E estimates unchanged. BYRCS reported decent set of numbers with revenue growth of 4% YoY (adjusted for effect of customer incentive programs growth was 9% YoY), mainly driven by strong sales in Crop Protection (CP) (despite expected moderation in Round-up (Glyphosate) sales due to lower realizations) and strong volume growth in corn hybrid seeds. We believe strong growth witnessed in corn hybrid seeds was largely led by better corn acreages in the ongoing kharif season (up 1% YoY as on 4th August’23) supported by remunerative corn prices (up 8% YoY to Rs2,295/quintal as on July’23). Pricing pressure in Round-up (Glyphosate) coupled with high cost inventory provisions in CP segment likely to have dent gross margins (down 580bps YoY) to 42.7%. However, lower employee cost coupled with lower opex down 220bps and 430bps YoY has resulted into an EBITDA margin expansion of 70bps YoY to 24.4% (Ple 22.8%). We believe, worst in terms of falling RM cost is largely behind as prices of few RM’s have started to witness uptick.

Outlook

However, near term weather challenges coupled with higher channel inventory in domestic market and pricing pressure in Glyphosate is likely weigh on the stock performance.That said, we maintain ‘Accumulate’ rating on the stock with unchanged TP of Rs4,720 based on 25xFY25 EPS.