 "Better days ahead for agri input firms")
Seed companies have gained the spotlight, following the government’s focus on rural India in the Union Budget and the row on genetically modified cotton (termed Bt cotton, the former standing for Bacillus Thuringiensis; Bt seeds are known to be more pest-resistant).
This should give sheer to these entities, as below normal monsoons for two years had hit the growth and profitability of agro-focused companies. Consumption fell and farmers’ limited income also curtailed their ability to try newer technology-based products. So, the stock prices of Monsanto India, Rallis, Bayer Crop Sciences and Kaveri Seeds took a beating, down 40-60 per cent (Bayer was down 15 per cent) from their 52-week highs in the past six-odd months.
Things seem to be looking up. The government panel recommendations to significantly cut cotton seed pricing through a big cut in the Bt tech fee has led to a lot of debate on pricing and a focus on the shares. The recommendations mean the price will be lowered to Rs 800 a packet of 450g, from Rs 830-1,100 at present, by cutting the royalty payable to innovators. This vindicates Kaveri Seeds’ stand; it had paid Monsanto royalty at no more than Rs 70 a packet, which the latter had disputed in the high court and this had raised concerns over continuing tech collaborations.
A final decision by the government is awaited. Rajat Wahi, partner at KPMG, says it will have to strike the right balance, as a certain level of fee for the multinationals is necessary to incentivise those bringing newer technologies.
Rallis India faces challenges on working capital and receivable days but its prospects are also on the mend. Sales in the first nine months were soft. In the December ’15 quarter, Rallis’ seeds business recorded a 17 per cent year-on-year drop in revenues and international sales also remained soft. Though exports are likely to rebound in the March quarter, the FY16 consolidated performance might remain soft. Analysts expect a rebound in FY17 and those at Kotak Securities build strong recovery in revenues and earnings, led by a likely revival in demand next year and on expectation of a normal monsoon.
Historically, after two bad monsoon seasons, the following one has been encouraging. The government is also trying to give a push to the rural economy, reflecting in the higher outlays for irrigation, etc, in the Union Budget. These moves should boost demand for agri-inputs like seeds, pesticides and crop protection solution providers, as will the government’s plan to double farmers’ income over the next five years.
Looking at government’s focus, improved connectivity, foreign investment in food processing and even the pay commission report, Wahi at KPMG feels it is time to get bullish on agri-related sectors. Analysts at Elara Capital say higher allocation for agriculture & farmer welfare and credit, healthy allocation for crop insurance and strengthening of irrigation will boost the agri sector in the medium term. They remain positive on PI Industries, Tata Chemicals, UPL, Rallis India, Insecticides India and Dhanuka Agritech. Sageraj Bariya at East India Securities finds Kaveri Seeds, Rallis and BASF trading at attractive valuations. The valuations for Bayer look stretched, he adds.
This should give sheer to these entities, as below normal monsoons for two years had hit the growth and profitability of agro-focused companies. Consumption fell and farmers’ limited income also curtailed their ability to try newer technology-based products. So, the stock prices of Monsanto India, Rallis, Bayer Crop Sciences and Kaveri Seeds took a beating, down 40-60 per cent (Bayer was down 15 per cent) from their 52-week highs in the past six-odd months.
Things seem to be looking up. The government panel recommendations to significantly cut cotton seed pricing through a big cut in the Bt tech fee has led to a lot of debate on pricing and a focus on the shares. The recommendations mean the price will be lowered to Rs 800 a packet of 450g, from Rs 830-1,100 at present, by cutting the royalty payable to innovators. This vindicates Kaveri Seeds’ stand; it had paid Monsanto royalty at no more than Rs 70 a packet, which the latter had disputed in the high court and this had raised concerns over continuing tech collaborations.
A final decision by the government is awaited. Rajat Wahi, partner at KPMG, says it will have to strike the right balance, as a certain level of fee for the multinationals is necessary to incentivise those bringing newer technologies.
Rallis India faces challenges on working capital and receivable days but its prospects are also on the mend. Sales in the first nine months were soft. In the December ’15 quarter, Rallis’ seeds business recorded a 17 per cent year-on-year drop in revenues and international sales also remained soft. Though exports are likely to rebound in the March quarter, the FY16 consolidated performance might remain soft. Analysts expect a rebound in FY17 and those at Kotak Securities build strong recovery in revenues and earnings, led by a likely revival in demand next year and on expectation of a normal monsoon.
Historically, after two bad monsoon seasons, the following one has been encouraging. The government is also trying to give a push to the rural economy, reflecting in the higher outlays for irrigation, etc, in the Union Budget. These moves should boost demand for agri-inputs like seeds, pesticides and crop protection solution providers, as will the government’s plan to double farmers’ income over the next five years.
Looking at government’s focus, improved connectivity, foreign investment in food processing and even the pay commission report, Wahi at KPMG feels it is time to get bullish on agri-related sectors. Analysts at Elara Capital say higher allocation for agriculture & farmer welfare and credit, healthy allocation for crop insurance and strengthening of irrigation will boost the agri sector in the medium term. They remain positive on PI Industries, Tata Chemicals, UPL, Rallis India, Insecticides India and Dhanuka Agritech. Sageraj Bariya at East India Securities finds Kaveri Seeds, Rallis and BASF trading at attractive valuations. The valuations for Bayer look stretched, he adds.