Bayer CropScience - The leader in agrochemicals - IIFL

Bayer CropScience (Bayer), India's leading agrochemicals company, is well-placed to grow at a 15-20% CAGR given attractive growth prospects of the domestic agrochemicals and seeds industries. We believe valuations, adjusted for Bayer's recent land sale, are reasonable considering the company's pedigree, technological edge, and industry-leading position.

- We expect the agrochemicals and seeds industries in India to record healthy double-digit growth over the next few years on the back of low consumption levels and increasing farmer incomes and awareness. Bayer should outpace industry growth given its competitive advantages including technology, resources, distribution reach, and cross-selling ability.

- Despite having phased out certain products based on older chemistries, Bayer's FY08-12 revenue CAGR was 16%. In addition, a mix shift in favour of newer, differentiated products should lead to margin improvement. In 1H FY13, EBITDA margin is up 270 bps YoY to 16.3%, partially boosted by a currency benefit.

- Adjusted for Rs12.5bn in (pre-tax) proceeds from the sale of land in Thane, Bayer's market cap is c.Rs37bn. FY13 net profit adjusted for one-time expenses related to the cessation of operations at the Thane plant could potentially approach Rs2.5bn. Even adjusting for lower interest income in the event of a cash payout, the P/E is likely 15-17x, which we consider very reasonable.

Source : Equity Bulls

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