Monsanto india ltd

Stock Opportunities Not-so-Hidden Gems
21

Some ways to dissect this opportunity better.

1). Establish total Maize market size

With Monsanto consistently at ~260-270 Cr last few years, total market size is probably around 750-800 Cr. Nothing to get too excited about:)

2). Establish Monsanto Inventory at March 2013

If you read Monsanto 2012 AR, there is lot of talk of Inventory rationalisation. I doubt if Monsanto would suddenly up the ante on Seed Inventory in 2013.

Can someone take a look at March Qr BS and make an educated guess. If it is more or less at same levels as earlier years, its a good guess they might not have been able to supply enough to absorb the demand - probably the others could have!

3). Establish broad ranges of what others in the industry might be capable of

Monsanto did 265 -272 Cr sales in last 3 years. Roughly 21000 MT -26000 MTrange. Kaveri did 125 Cr Maize sales last year (12000MT). Say Kaveri does so well to double their Sales in FY14 they can touch Monsanto Sales!!

It also means price-points may no be too different between a Kaveri variety and Dekalb??

4). Establish what has actually happened on the ground

I am on the job. Request others to pitch in

Anyone with friends/contacts in Monsanto/Syngenta for an industry quiz:)??

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** 1).

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As per Monsanto annual report 2011 total market size of maize is 750 crores . This year in Q3 concall Mithun indicated that they have 13-14 percentage market share of maize market . That will give 1000 crores market size as on march 2013.But with total acreage of more than 8 million hectares maize is larger than cotton ( 7 million ). Here we have to remind that as on 2013 there is hundred percentage adoption of cotton hybrids . Now with acreage stagnation and hundred percent adoption of hybrids cotton hybrid market size will stands at 3500 crores ( In coming years too ) .But in maize just sixty percent of farmers adopts hybrids and remaining farmers sowing normal seeds . But year on year adoption to hybrid maize is increasing and in coming 2-3 years it will hit roof . One more important point that here companies have liberty to fix prices . So we can assume with hundred percent hybrid adoption with same acreage market size will stands at 2000 crores . Its not a small size to ignore for.

2).

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As on march 2012 monsanto holds 129 crore inventory . Out of that 83 crore is maize ( Both as standing crop and finished seeds ). Remaining inventory is chemicals . As on march 2013 they holds 139 crores inventory . Its almost equal to previous year .So we can assume they are holding 90 crores worth of maize .

3). from last four years did sales in range of 265 crores . In terms of quantity it is 21000 - 26000 mt . Kaveri sold 125 crores of maize in term of quantity it is 12000 mt.

If we calculate that kaveri selling their maize product at premium to or atleast near tomonsanto .

# Previous figures of kaveri maize sales and this year monsanto segmental details unavailable . Did just to compare where kaveri stands near to technology innovator .

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Thanks Omprakash for the details

a) In terms of opportunity in Maize - I dont look at Monsanto for the long term at all. I am looking at quantifying at best if there exists a mispriced opportunistic bet for next 6-9 months:)

If I have to think long term in Maize, I will stick to Kaveri for obvious reasons.

Point is I am not excited for Monsanto for a potential maize market 3-5 years down the line. Maize has been here in India longer than cotton I guess and hybrid penetration is still 45%. There are reasons for that. Large parts of the market remain under-penetrated. maize is also very very monsoon dependent. So rapidly higher uptake of maize hybrid seed is unlikely. To double the market size from here may easily take more than 5 years even…3 years reaching 2000 Cr is certainly not a given!

b) Given that Mar 2013 inventory levels are similar to FY12 levels, A more realistic performance range from Monsanto this year is 20-30% growth perhaps.

Unless Rabi crop can be/has been diverted to Kharid Sales and can be replaced in time for Nov/Dec sowing season

c) I am astonished to think that Kaveri can actually catch up with Monsanto teh market leader in 1 single year???

Seems improbable too!

Time to reach out to some industry professionals. Will try and make some calls tomorrow and see what we can decipher.

Guys - please keep throwing up more inputs. OM’s inputs were very helpful

1 Like
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A friend is trying to get some answers for us from Monsanto/Syngenta/Pioneer contacts. Prepared this question Bank for our use.

If you have any friends/contacts in the Maize Seed industry, request you to seek out answersfor following. Feel free to add more from your side:))

Basically for Understanding the Maize Industry issues.

1). Is it true that the Maize Industry size is not more than 800-1000 Cr annually? and 72,000 - 90,000 MT?

2). Is it true that Monsanto, Syngenta, Kaveri, Pioneer are the 4 biggest players? Roughly what is the kind of market share for each player. Are these all pan-India or are there regional dominance?

3). Is it true that this year Maize market in AP has done exceedingly well. 2x or 3x over FY13

4.What is the picture for rest of the country? esp in other big maize markets like Karnataka, Maharshtra.

5). Is it true that Hybrid Maize Seeds share in Total Maize seed Sales is <50%? Do penetration levers differ dramatically across regions/states? How is it in Karnataka and AP? How is it in TamilNadu?

6). What is the penetration levels in next rung of states like Rajasthan, Bihar, Uttar Pradesh?

7). How is inventory planning/build-up done for Hybrid Maize Seed in light of anticipated Sales for coming Year? E.g In Hybrid Cotton we have heard that seed companies prepare for a Plan+20%. So they can atleast supply 20% more if demand exceeds plan. Similarly they are okay if they do 20% less than plan on the downside?

8). Were the Seed Companies anticipating this kind of Maize demand build-up of the order of 2x-3x? Is it likely anyone would have built up double the Inventory over FY13?

9). Which company has benefited the most this year from this Maize upsurge?

10.Is it true that Maize Seed sale is highly Monsoon-dependent? If Monsoons are delayed there is an effect? There are 2 crops in Maize. Kharif (rain-fed) and Rabi (mostly seeped-in groundwater) ? What are the differences in the 2 seasons? If Monsoon is scant, there is a big effect? So if there is scant/deficient monsoon, Kharif (June-Aug sowing) is affected badly but the subsequent Rabi (Winter sowing) season is effected even more?

11). Geographically do different regions sow differently? Is the Hybrid Seed the same for both seasons, or they are totally different for different seasons? When is the Seed production completed for Kharif season and Rabi season respectively? Is there any chance of carry-over/pre-use of Seeds from Rabi to Kharif Season or vice-versa or none at all?

12). Finally, how long can Maize hybrid seeds be stored? Can it stored in the open or does it require cold-storage facilities? Do seed companies have adequate cold storage facilities? Like Cotton Seeds (do not require cold storage) which can be carried forward for 3 years, what is the longest that Maize Seeds are carried over/ What is the practice in the Industry?

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By the way, given the history of this Company to declare special dividends ever 3-5 years, this stock is surely good for portfolio stabilisation. Moreover, a buyback cannot be ruled out altogether. I wont look for short term gains here. This is a stock which may not go places, but is also unlikely to sink very deep from here. As far as upsides are concerned, given the increasing requirement for poultry feed, maize hybrid is not a bad place to be in. Moreover, given the way the monsoons are behaving in the recent years, the incidence of diseases in the plants is only going to increase. So, Roundup is also likely to do well. That the company hasnt been able to meaningfully jack up its turnover all this while, is a question-mark. That surely needs to be explained.

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Results on 29th…and are expected to be goodbut not reflected in market behaviour. any clue ?

27

vimal,

Interesting to put things in perspective on monsanto…looking at last two june qtrs and full year figures would be interesting.

qtr/year june 11 fy 12 june 12 fy 13

sales 185 373 200 442

NP 44 60 48 75

This goes to show that almost 60-70% net profits are registered in first quarter for monsanto.

this year’s numbers should be very interesting to watch in view of good quarter all seed companies have had from all the reports especially the maize hybrid companies.

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The higher sowing of Maize would benefit Monsanto(to the extent of the inventory they had or could buid up) and due to heavy rains, the roundup sale may go up due to more weeds in the farm(may be that would reflect in Q2).

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Rightly said…but Area under Maize have increased tremendously by around 150% when compared to last year …some company or other have to have benefit of this increase or company carrying higher unsold inventory from lastyear ( understand maize Hybrids seedscan be used for 18+ months .

any idea about carry over inventory of Maize seeds for Kharif ( read somewhere different variety is used in Rabi sowing ).

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Q1/Fy 13-14 Results out…

Total Income up 11.4% to 227.64 Cr from 204.37 Cr.
EBIDTA up 21.6% to 63.9 Cr from 52.54 Cr.
Net Profit up 15.6% to 56.24 Cr from 48.63 Cr.

EBIDTA margin is 28.1% v/s 25.7%
NET Profit margin is 24.7% v/s 23.8%

Total Raw material costs as a %ge to Income is 48.3% v/s 53%
Employee costs to Income is 5.8% v/s 5.2%
Other expenses to Income is 17.8% v/s 16.1%

Tax Rate 11.8% v/s 9.7%

EPS 32.58 v/s 28.17

At 03:20 pm on 29/07/2013, stock on BSE trading at Rs. 1521/- down 1.7%

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Looks like they either did not have enough stock of Maze or most of the sales will be recognised in Q-2.

32

Hi,

Like most other companies looks likeMonsantoalso did not expect the surge in Maize demand!!

Regards

33

I think kaveri guys might have been a step ahead in anticipating the huge maize hybrid demand or else they go plain lucky with their inventory of maize… Whatever may be the case, kaveri is likely to emerge even stronger with good growth in maize besides cotton.

Monsanto will have another season to attend to in maize and that should provide them with a good fy 14…

Looks attractive at cmp with limited downsides.

disc: holding in monsanto.

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Q1/Fy 13-14 Results out…

A correction is needed here… stock price mentioned is of kaveri whereas the stock in question monsanto was trading around 648 up by around 2-3%.

35

Was checking if this moderate result of Monsanto affected Kaveri price…

Ghai ghai mein mistake hogaya!

36

Hi,

Excellent results by the company.

Topline increased by 70.67% on a y-o-y basis to Rs.95.49 crorein Q2FY14from Rs.55.45 crore inQ2FY13.

EBIDTA Margins increased to 12.39% in Q2FY14 from -21.13% in Q2FY13. I think the margins increased on account of operating leverage coming into play in this quarter with healthy growth in topline.

Net Profit for Q2FY14 stood at Rs.7.59 crore against loss of Rs.12.11 crore.

Other thing to note in seeds stock is the inventory level:

As on September 30, 2013 September 30, 2012

Rs. Crore 87.56 68.40

The board has recommended a dividend of Rs.12/- per share.

Lets see how the Rabi seasons goes for the company.

37

I have naive question if someone can please answer.

The company is paying very less tax so why is no action taken against company by income tax department?

In what cases can company can pay less tax?

Why would a company show very less tax paid knowing that it may loose investors faith?

Thanks,

Sunil

38

sunil,

Most seeds companies dont pay taxes or pay minimum taxes… Because their products are considered agricultural products and in India, these dont attract income tax… That was the main bone of contention in case of Kaveri also earlier but since things got cleared, stock has undergone substantial re rating.

hitesh.

1 Like
39

Thanks hitesh for clarifying this.

Got to know new thing that agricultural companies get some tax benefit.

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