Monsoon special: Stock that may fetch 20% gains on corn crop

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Moneycontrol BureauMonsanto India is likely to see a strong rebound in FY17 growth riding on expectations of monsoon and corn cultivation. Motilal Oswal is optimistic that the company is likely to make good business this season led by normal monsoon and a crop shift to corn from cotton because of higher selling prices.The past two consecutive years have been marked by low corn acreages. The brokerage firm believes that with normal monsoon expected in FY17 and the increase in prices of corn seen recently, conditions are apt for a crop shift in favour of corn, which should benefit Monsanto strongly given its market leadership in corn. Motilal Oswal maintains a buy rating on the stock with a target price of Rs 2900 (20 percent upside)It has upgraded Monsanto’s revenue estimates by 7 and 6 percent for FY17 and FY18 respectively, translating into net profit upgrade of 20/23 percent due to 510 basis points margin expansion. It expects revenue CAGR of 26 percent and PAT CAGR of 36 percent over FY16-18.According to Motilal Oswal, margins are likely to improve to 25 percent in FY18 from from 19.9 percent in FY16, given that there  are  multiple  levers  for margin expansion. An increase in the share of new product launches to 60 percent from 50 percent, lower sales return and lower write-offs and better operating leverage are some of its catalysts."Monsanto derives 50 percent of its sales from products launched over the past  three  years which enjoy 20-25 percent higher realisation and 500 bps  higher  margins  over  older  products. Overall, we buil d revenue growth of 29 percent for FY17, led by growth in acreages,  encouraging  current  inventory  levels and  higher  traction  for newly launched products, which  should  result in  market   share   gains in  FY17," Motilal Oswal says in a report.The company posted a net profit of Rs 24.1 crore for the quarter ended March 31, 2016 compared to a loss of Rs 8.3 crore in the corresponding quarter last fiscal.Net sales for the March 2016 quarter increased 26 percent to Rs 87.1 crore against Rs 69.3 crore year-on-year.The stock is down 10 percent in year down but rallied 49 percent in last three month with nearly 31 percent gains in one month.Posted by Nasrin Sultana