Excel Crop Care - Turn Around - Sumitomo Acquisition

(ashishverma) #1

Excel Crop Care

From Rs 150 in 2011 to 4200 in 2018

Hidden Gem !

12 reasons you should think about it

2800% growth in 7 years !

Why it is a hidden gem :

  1. Agrochemicals market in India is growing at > 10% annum and * it would gain speed* due to following reasons :

a) Manual labor shift to other high paying attractive sectors ( mfrg, construction etc ). Less availability of manual labor means more dependence on chemicals

b ) Farmers kids getting educated. Farming won’t be core business for next generation kids , it would be a side business. They would like to outsource farm management to consultants, technologies. Hence higher chances of chemical usage as manual involvement would go down.

c) Farmers are aging very fast in the world , India has a higher younger population . In next 10 years , there would be less farmers in the world , so chances of higher exports from India . Higher export means higher margins so high chances of spending on high value chemicals .

  1. Excel is involved in generics and speciality chemicals .
    After acquisition by Sumitomo, Excel Crop has now access to speciality chemicals . Generics help to grow it business in existing markets whereas speciality chemicals would make it capable of competing in emerging opportunities.

  2. Sumitomo Chemicals track record in India
    the company’s agrochemical business grew from 30 crores to 900 crore in 7 years .It is the fastest growing company in India in agrochemical sector. If it transfers its marketing know-how to Excel Crop Care , the growth of this company can be much higher .

  3. Distribution channel of Sumitomo Chemicals

Check last year results of Excel Crop Care .

Sumitomo chemicals in India has a bigger and dynamic distribution channel than Excel Crop . If Excel Crop Products can be sold by Sumitomo in India , the growth for Excel Crop Care would be much higher . In last year , Excel Crop sold 114 crores material to Sumitomo in India . That is 10% biz and 10% growth for Excel Crop . And that was the first year . If this continues , Excel Crop would keep getting growth from Sumitomo Chemical .

  1. Old to new management

Excel Crop was managed by local Indian promoter who were not keen on too fast growth . UPL and other companies took advantage of a growing market whereas promoters at Excel Crop were happy with the status quo .
Sumitomo Chemical might change that management style and may bring fresh blood and fresh thinking in the organisation.

  1. Chances of de-listing or demerger

That would give other opportunity of value re-creation .

  1. Export opportunities

Bharat Rasayan, UPL all have grown many fold in last 10 years by becoming a global exporter whereas Excel was sleeping . Now after acquisition by Sumitomo Chemicals , chances of it becoming a global supplier as very visible as Sumitomo has footholds in every country .

8.Supplier to Sumitomo Chemicals

Most of the Japanese companies are changing their production base from Japan to China or India . There are high chances that Sumitomo may shift their production to India .Excel Crop Care would benefit from that .

  1. Less Cap-ex requirement

Excel Crop spends huge money on r & d . That may not be required as new molecules would come from parent company . Growth with reduced cap-ex would help it to realise better margins

  1. Good corporate governance

Being a MNC , we can expect a good corporate governance from new management.

  1. Focused Approach

Whereas other MNCs are focusing on too many parts of the agriculture market , Excel Crop is focused on chemicals . As many MNCs are shifting their r & d money towards seed research , this leaves a big vacant space for Sumitomo & Excel to be a strong , solo player for innovating future

  1. Herbicide resistant crops

In near future, India may give permission to herbicide resistant crops . Monsanto could not get permission due to certain image issues but now it has been merged with Bayer . Chances of Bayer getting permission are higher. Excel Crop is 2nd largest player in producing that specific herbicide. If herbicide resistant crops in India come , it would be big lottery for Excel Crop investors.
Check the last quarter results

(RadheyShyam Aggarwal) #13

Agree with you. Synergy would play a bigger role than short term disruption from integration,

(ashishverma) #14

Did some research on current management of Excel Crop Care .

Came to understand that current MD, Chetan Shah is an ex-owner of a small company named NuChemi . He was in-charge of that company for 25 years and company grew from 30 crores to 50 crores and later on he sold that company to Sumitomo.

Wondering about the dynamism of the said person. During same period ,other contemporary promoter companies (PI Ind, Dhanuka, UPL, Excel ) grew from 50 crores to 1000 crores while Nuchemi was lingering.He got the business in heredity but could not grow it like other Indian companies and sold it off .

2nd person in leadership is Ninad Gupte , Joint MD . He was MD of Excel Crop before acquisition. During his time ,company business went down drastically .

Before joining Excel , he was MD of a American company Cheminova . During his period , company lost huge business and he had to change the job .

So it is difficult to see whether current management is able to grow business.

Then I wanted to check the reason for last year growth in Excel crop business !

I found 2 reasons .

  1. As per last year’s annual report of Excel Crop Care, related party sales to Sumitomo Chemicals is 114 crores. That means at least 10% growth of last year growth came from Sumitomo Chemicals selling Excel Products. Not much has changed in Excel Itself. Let’s hope that things change when Sumitomo Chemical management takes over Excel Crop Care management.

  2. Increase in export business is there but it is very small as compared to growth of Afro chemical business of PI , UPL, Meghmani , Sharda . So again , whatever growth is there , it is due to market opportunity, it is not due to management ability . And past record of Excel export business is also not good .