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Excel Crop Care - Turn Around - Sumitomo Acquisition

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
molecules.

  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

6 Likes

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

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 .

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Got this news on WhatsApp group…was surprised by Chetan Shah name on block deal. He MD of Excel Crop.

It seems MD and an Independent director of Excel Crop (some Shroff) have bought 8% stake . Other 15% stake has been purchased by Ratnabli Investment. It is same Ratnabli who sold 24% share of Excel Crop to Sumitomo Chemical.

What is cooking ? Sumitomo Chemical comany planning to buy THIS company in India through Ratnabli. ?

Checked the history of Bhagiradha ,it is loss making company .Why Sumitomo Chemical or Ratnabli would like to buy it?
Is it a pump and dump story ?

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https://www.moneycontrol.com/stocks/company_info/blockdeals_query.php?sc_id=BCI01&post_flg=1&myexchg=Both#BCI01

Thanks ,checked bulk deal on money control for Bhagiradha .Also read announcements

  1. Ratnabli ,Chetan Shah, Dipesh Shah bought the shares of this company on same day .
    2.CFO of company resigned.

Ratnabli -is famous market investor and operator. Buys illiquid stocks in bulk and sells later on a higher price (not exactly pump and dump but it is buying a potential take-over company and later selling to some big player ). This firm is same that had 24% shares in Excel Crop and later sold to Sumitomo Chemical. So a doubt whether Ratnabli is buying for Sumitomo may or not may not be correct. But a doubt is there.

Chetan Shah -MD of the company Excel Crop

Dipesh Shah -Ex promoter of Excel Crop who sold his shares to Sumitomo, he is still independent director of Excel crop.

A doubt definitely comes when 3 people who are and were involved with Excel Crop deal are involved . All 3 persons buying shares of Bhagiradha on same day is not a coincidence.

If sUMITOMO NOT BUYING bHAGIRADHA, then why MD and Executive Director are having partnership in a competing company. Total purchase is about 23% share, promoter has only 19%.CFO of Bhagiradha resigned after 23% shares bough by above 3 people.

Doubts are many. MD joining new company Bhagiradha? Sumitomo buying Bhagiradha with help its employees and Ratnabli ?

Why MD and other board members are working with a big investor like ratnabli. It is not good for company image.Hope things would be clear in next few days.

As per country head of Sumitomo Chemical,India , Pran Arora, the company is launching a new product . There is great buzz in the trade.

It is a herbicide. Herbicide market is growing very fast. As per company staff , this product goes in many crops. If this product becomes successful, Sumitomo chemical company will grow very fast.

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Sumitomo Chemical has launched a farmer focused product website in India. It is a new product and it is first time that some company has launched a usable website for farmers.

Trade is very bullish about this product. As I belong to agrochemicals space, I find this digital approach a very big development. This would help the company to expand its reach multiple times at grower level.In this trade, creating awareness at farmer level is a big challenge. This shows the company is progressive and innovative.

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max dainik bhaskar.pdf (264.9 KB)
Got some detail on new product.

PK

Today all North Indian papers have front pages have advertisement Sumitomo Chemical new product.Should be an important product , the company has never spent so much money on any product in past.

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Q2 results are much below expectations . It seems that the company does not have any moat, unable to pass on all the increased RM costs to the customers . It’s also visible that the company is not able to take any volume growth as all the income growth is coming from price -increases.But price -increases are not in the same ratio of RM price increases ,hence the pressure on margins.Feel that Q3 ,Q4 would be more challenging for the company.

The company seems to have a long runway. How they manage the merger of 2 companies in India (local Indian generic company and a MNC ) would be the key to success or failure in India.Excel Crop although has a good distribution network but not doing so great (all growth of last one year has come due to cross-selling of Excel products by Sumitomo Chemical in its own channel)

Found an interesting article on the merger rationale for Sumitomo Chemicals.

From the article:

Rational for creating huge paid-up capital of ₹499.14 crores of the merged entity having turnover of ₹ 2086 crores and PAT under ₹150 crores is not clear except that Sumitomo does not want legacy of Excel as the continuing company. Further, in the process, it gets the advantage of free reserves of ECCL while it can adjust consideration paid by SCIPL to acquire 19.98% stake ECCL against share premium account of SCIPL amounting to ₹235.06 Crores.

Link to the article - Excel Crop Care merger with Sumitomo Chemical India will be like house of fire!

Sumitomo Chemical India key driver leaving India

Got this news from industry. Mr Pran has been the key driver of Sumitomo Chemicals in India. He has been the brain behind meteoric rise of this Japanese company in India and for acquisition of Excel Crop. Before his joining , the company was nowhere in the picture in India and now it is one of the top 3 players and that too in 8 years,

Now the merger has been announced between Sumitomo Chemical and Excel Crop, and the key person has been moved to Singapore as Regional Lead for Asia and Australia ! That is strange !

Need to see how much influence he would have on India business ! He has a credibility in trade channels as well is known for attracting best talent in the industry . If he can still keep steering India business, then it would be great for the merged entity. If we see other positive of this move, may be he can expand Excel products to other Asian nations in coming years.

Had attended excel crop care egm last week. Here is brief summary of discussion.

Present China situation:
There is lot of uncertainty and situation is dynamic currently. Excel crop care has a office in china and have Chinese staff who are abreast of the latest developments.
Again after the recent blast issue, some products have disappeared.
Excel has stocked enough inventory that will last upto June of this year.

India sales:
Excel sales are heavily skewed towards khariff season. Khariff has 60% of sales. For Sumitomo the mix is better.

Excel launched one 9(3) last year which is a plant growth regulator. It is a combination product. It has got a good response so far.Expecting more sales from this during the upcoming khariff season.
They were also planning to launch one more 9(3). But due to delay in registration could not get launched. It will be launched this khariff season. This is a fungicide.

Excel is very strong in Gujarat, karnataka and tamil nadu where after August rains have disappeared. This caused lower sales growth in Q3.

Capex for ECC for FY19 will be around 60cr.

Glyphosate is used in lot of countries including US, EU, Australia etc. There are only some news articles that it will get banned. This is only news.But nothing has happened so far.
Last year it was banned in 3 states in india. It was due to wrong information passed between ministry of agriculture and state government.
In feb of this year, Ministry of agriculture rectified this status. Soon notification will be provided to states and states will revoke this ban.

So far excel has not launched any new product from Sumitomo stable.
ECC has to prove to sumitomo about having capability and capacity to manufacture new products. ECC is pitching hard with sumitomo japan.

sumitomo chemical is very strong in plant growth regulators. PGR are used in variety of crops. ECC is trying to convince sumitomo to launch many of the innnovative products in india.

Sumitomo chemical india has almost 30% of sales coming from plant growth regulators.

ECC is also in discussion in sumitomo japan to do manufacturing of technical for sumitomo japan. There are 3-4 products under discussion/pieline.
Excel has to prove to sumitomo that they are cost competitive visa vis other locations/mother manufacturing entities.
one such product manufacturing could need more than 50cr capex next year. other 3-4 products manufacturing will need lesser capex. Asset turns will be minimum 2x.

Immediate synergy benefits will come once sumitomo chemical india products are launched thro excel distributors after merger.
Sumitomo india agro products are speciality products which have much higher margins.

sumitomo chemical india has good 6m of fy19. They have launched one insecticide and one more product (missed the name) which are 9(3).

This is one of the rare instances where MNC is merging its 100% subsidiary with listed entity. It shows serious/intent of sumitomo in india.

My Takeways:

  1. There could be good synergies sumitomo EXISTING products across the excel distribution network. There could be operating leverage due to this.
    SCI has 9000 distributors and ECC has 4000 distributors. On merging there would around 500 in common areas that would get reduced.
    Existing ECC distributors can easily sell sumimtomo products.
    This may come in the shorter term once merger is done.
  2. Introduction of newer innnovative products from sumitomo stable. Sumitomo is strong in PGR. This seem to be one of the strong growth areas.
  3. Contract manufacturing for Sumitomo Japan. Sumitomo india already does one molecule for sumitomo japan. This molecule is sold worlwide by sumitomo Japan. SCI is the sole manufacturing site for this product.
    Given china issues can scale up happen faster here ?

Disclosure: Holding.

6 Likes

Updated investor presentation.
(sumitomo chemical india financials have been included and timelines on merger)

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Sumitomo Chemicals launched a website for farmers.

As per industry sources ,this company has taken a lead in digital marketing in rural India .
Hope they continue the momentum after the merger

As per me this is really an innovative step , as data is very cheap and most of the farmers have smart phones today. This is definitely going to help to increase its sales for progressive farmers.qr%20code