Bayer Cropscience - Q1FY23 Result Update - Good set of numbers in challenging scenario - Accumulate

Mr. Himanshu Binani - Research Analyst at Prabhudas Lilladher Pvt Ltd.

Quick Pointers:

- Corn seed business witnessed volume growth during the quarter

- Gross margins expanded 400bps YoY to 48.5% led by better product mix coupled with higher realizations

Bayer Crop Science (BYRCS) reported better than expected results during 1QFY23 led by strong performance from Crop protection portfolio and product liquidation. It reported revenue growth of 18% YoY to Rs16.6bn (PLe Rs15.9bn). EBITDA surged by 23%YoY to Rs3.9bn and was higher than our as well as consensus estimate. We believe, better performance in the Crop protection (CP) business was aided by higher realizations in Glyphosate. Healthy revenue growth coupled with price hikes taken in the recent past helped to partially mitigate the cost inflation. Corn seeds business witnessed volume growth during 1Q. While rice hybrids were impacted due to delay in monsoons and unfavorable weather conditions. Other expenses were higher led by cost coming back to pre-Covid levels coupled with continued investment into the strategic initiatives to expand distribution reach. Going forward, company expects challenges to persist in terms of global supply of Roundup (glyphosate) in the near term. However, they tend to mitigate it with diversified portfolio and alternate business model. We remain positive on BYRCS business model, riding comprehensive distribution network, innovative products pipeline and healthy balance sheet. We largely keep our estimates intact for FY23/24E. Maintain 'Accumulate' rating on the stock with unchanged target price of Rs5,650 (earlier Rs5,640) based on 30xFY24E EPS.

1QFY23 - Better growth across business segments: Bayer reported revenue growth of 18% YoY at Rs16.6bn (PLe Rs15.9bn) led by strong performance from crop protection portfolio and better liquidation. Healthy revenue growth coupled with price hikes taken in the recent past helped to partially mitigate cost inflation and aided margins. While, other expenses were higher led by normalization of cost post Covid-19 and continued investment into the strategic initiatives to expand distribution reach. Although, corn acreages during the ongoing kharif season remained down by 5% YoY till 29th July'22 (deficit likely to narrow down) led by delayed monsoons. However, remunerative corn prices in the domestic market (up 26% YoY as on July'22) augurs well for the company (largest product portfolio). With corn hybrids witnessing volume growth is being reflected into the gross margins up 400bps YoY to 48.5% in 1QFY23.

Superior product mix offset by higher operating cost: Gross margin increased by 400bps YoY to 48.5%. We believe improvement in gross margins was primarily led by higher realizations in glyphosate, where there has been a multi-fold jump in realizations as compared to last year. We also anticipate market share gains in Glyphosate for Bayer crop science (one of the major player in domestic market), as higher RM prices have in turn made it unviable for the smaller players to pass on this sort of inflated cost. Additionally, higher liquidation of maize hybrids during the ongoing kharif season aided margin expansion during the quarter. While, healthy improvement in gross margins offset by higher other expenses up 310bps YoY has in turn restricted EBITDA margin expansion by 90bps YoY to 23.7%. Absolute EBITDA was up 23% YoY to Rs3.9bn (PLe Rs3.7bn). Adjusted PAT came at Rs3.0bn (PLe Rs2.8bn).

Shares of Bayer Cropscience Limited was last trading in BSE at Rs. 5280.55 as compared to the previous close of Rs. 5266.40. The total number of shares traded during the day was 398 in over 185 trades.

The stock hit an intraday high of Rs. 5311.50 and intraday low of 5231.70. The net turnover during the day was Rs. 2101343.00.

Source : Equity Bulls

Keywords

BayerCropscience INE462A01022 Q1FY23 ResultUpdate PrabhudasLilladher