I had considered this as a potential upside but had subsequently discounted it.
I don’t think they sell their broader pharmaceutical / consumer health products in India yet - and so no other entity. From my perspective, I assume if this is ever launched in India it will not be through BCSL. The rationale is the following
a. India is one of the very few countries where they have a publicly listed subsidiary. However, it appears that the listed entity is primarily a marketing entity - selling crop protection / seeds - without significant research being done here (like a PI Industries for example)
b. My reading (pure speculation) is that they have created a publicly listed subsidiary to show they are an ‘Indian’ company as the agriculture sector is quite sensitive. Bayer themselves own 76% of BCSL - so it does not look like they have monetised a significant shareholding. The company has German senior representatives (COO/CFO) so I assume it is very tightly controlled.
c. If they wanted to launch their other products, they could do so with separate subsidiaries and earn a 100% of the profits. I guess Abbot has a similar business model - multiple subsidiaries but only one listed
If ever they were to expand into Pharma / Health through BCSL - I would be pleasantly surprised and would of course welcome this. However, my investment decision was based on what was in front of me.
For the avoidance of doubt - I am personally invested because I think there are upsides to the business (but more a steady compounder) - however, if I sound frustrated or confused it is because I am unable to get under the skin of the business - which always leaves me feeling uneasy and makes it more difficult to hold in times of market crashes
Manufacture, sale and distribution of insecticides, fungicides, herbicide and various other agrochemical products and corn seeds.
Sale and distribution of hybrid seeds.
Own manufacturing site for agrochemical production at Himatnagar and Silvassa, drying and processing stations at Hyderabad and breeding stations at Bengaluru and Udaipur.
FY22: Top 5 products are Dekalb,Roundup, Nativo, Laudis, and Antracol.
DEKALB (Corn Seed): Maize is the third largest cereal crop in India after rice and wheat
Roundup (Herbicide, glyphosate-based): Acquired in 2018 from Monsanto.
Nativo (Fungicide): Offers not only a disease control but also improves quality and yield of crop.
Laudis (Herbicide): For control of broadleaf and grassy weeds in maize.
Antracol (contains Propineb, a contact fungicide): Broad spectrum activity against various diseases of rice, chilli, grapes, potato and other vegetables
Opportunity Size: By 2050, India will have 1.7 billion people. The yield per hectare in India needs to increase significantly- Current yield far lower as compared to global averages and declining arable land in India.
Challenges/Risks:
Reduced acreages due to delayed/excessive monsoon and better prices for alternative commodity
Erratic Monsoon: South West Monsoon (June to September), the single biggest driver for Indian Agriculture
Regulatory Hurdles: Delays in product registration and ongoing glyphosate supply chain restrictions by the Indian Government
Hyper competition from cheaper alternatives (generics) and increase in the raw material Costs. Note: Due to Bayer’s deep and integrated global supply chain, erratic cost might benefit Bayer as the differential between generics and Bayer’s branded products will become smaller.
Significant compression in gross margins over the last seven quarters: Bad season for corn seed portfolio causes these swings will come in bad corn seasons. It will remain so.
Sedate overall growth opportunity as business if primarily focused on Indian opportunity.
New business models to achieve a better acre share:
Better Life Farming centers (1566) as an inclusive model to scale up and help the farmer expand the channel and really collaborate with others.
5,000 Sahbhagis: Rural entrepreneurship that significantly increased farmer reach
Focus on commercial key accounts. These accounts basically work with food value chain partnerships, e-commerce, and differentiated smallholder portfolio.
Reducing prices to attract a new segment. Gives an opportunity to up sell also in future.
Other Observations:
Post-merger with Monsanto in 2019, revenue and profit (normalized for exceptional items and tax rate - @25%) grew at ~13%. Dividend payout has significantly increased in the latest 3 years.
~60% of sales and ~70% of Operating Profit happen in H1
