Nath Bio-Genes ..... Seeds player

Stock Opportunities
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Disclosure : I hold shares of this company

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Wanted to open a thread on this firm on ValuePickr as i think ValuePickr has the best insights into the hybrid seeds industry. Company listed 2 weeks ago on BSE & NSE.

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Rather than write a note myself … as the blogger ValuePick has written a lengthy article about this firm couple of days ago … i am reproducing the same below with due credit to him.

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Am trying to get independent confirmation of the story here, though prima-facie i am convinced about one thing - relative undervaluation .

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Speaking to one of our members (Gaurav), i got the feedback that the management doesn’t seem to have got it’s act together, and that it’s seeds don’t seem to be in the Top-3 category in any segment either.

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Look forward to more news, views & opinions - ZeeNut

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Here is Valuepick’s article …

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Ever since I started** this blog , I have recommended four pure play seed companies here JK Agrigenetics ,Advanta India,Kaveri Seed Company and RJ Biotech. By the grace of god** ,** three out of these four already turned as multi baggers( Adjusted to stock Split and De-merger) and the recently listed RJ Biotech returned more than 50 % in short span of time . This happened not because of my smartness but due to sheer growth prospects of this sector in a country like India with huge population on one side and shrinking agricultural land on the other side. I still believe the prospects of this industry will increase when time passes. Recently government hinted its willingness to permit field trials for more GM crops after realizing that the adoption of scientific methods are the only remedy for mounting food inflation pressure in our economy .Eventually there is every chance for such a permission to feed the increasing population in a highly populated country like India. At least five years are necessary to introduce a new variety of seed from R&D stage to commercialization after going through years long field trials and various regulatory approvals. Because of this reason, when government permits field trials, it will open up huge opportunities for existing seed companies like this company who are at various stages of R&D to develop such varieties . On this backdrop now I am recommending the newly listed Nath Biogene India Ltd ( NBIL) as a strong buy even after considering some negative points related with the company which will discussed later. **

History

**Even this company listed only recently in Indian bourses , this business was listed since 1994 under the company named Nath Seeds. Nath Seeds came out with an IPO at a price close to Rs.100 per share each ( If my memory is correct) even 20 years back .It was the first pure Indian seed company made an IPO even when this business was at very nascent stage.Later the seed business of Nath Seeds de-merged into Nath Bio-Gene in 2004 ,but the de-merged entity took 10 years long waiting to get listed in stock exchanges.Even the main seed production business divested to this company earlier , the entire business (including distribution) transaction completed only in last year .Now each of these companies consists of business as follows - **Nath Seeds( real estate ,Infra development …etc) , Agri-tech India (corporate farming ) and Nath Bio-Gene ( Seeds and Bio-technology).

**Promoters having vast experience in this industry and company having good R&D facilities . Company is front runner in many varieties of seeds including BT Cotton and being present from 1979 ,Nath is the most experienced seed company in India. Actually it was the only seed company which did not depend only on Monsantos BT technology to develop BT Cotton in India .Company developed BT cotton using fusion genes (cry 1Ab+Cry 1 Ac) technology available from Biocentury Transgene ,China - in 2006 and sub-liscencd the same to many other seed companies including the seed division of United phosporos (now Advanta India) .Later in 2012 ,NBIL tied up with Monsanto for their BG-2 version of BT cotton technology and thus Nath Biogene becomes the only company in India offering BT cotton based on American as well as Chinese technologies . Nath **Bio-Genes is the first seed company in Asia Pacific region to get ISO 9001 certificate. Company producing seeds using most modern technology and having facilities to produce seeds from 30,000 acres of land ( own and contract farming basis) span across Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Rajasthan, Orissa, Uttar Pradesh, Madhya Pradesh and Tamil Nadu.Companys R&D collaborators list includes National Centre for Plant Biotechnology at IARI, New Delhi ,International Rice Research Institute at the Philippines, Biocentury Transgenes Corporation (China) Ltd, Biotechnology Research Institute at Beijing China, National Rice Research Institute at Sichuan Province in China, Guard Rice in Pakistan, Cotton Development Agency (Ministry of Agriculture), Govt of the Philippines, etc.These collaborations helping the company to access and utilise the new Germplasm and breeding materials.Its main R&D laboratory is located at Aurangabad and having two R&D farms one each at Isarwadi (150 Acre) and Aurangabad ( 40 Acre) .In addition to this Nath also possessing three R&D sub stations one each at Medchal (Andhra Pradesh) , Faizabad (UP) and Abohar (Punjab).In the last three years company introduced many new varities in various segments which includes Jagannath-2 and Arjun-21 ( Cotton), Big-B ( Bajra) , Singhum ( Maize) and Tehelka(Rice).Many other new products like NMH 1007,NMH 1008 …etc are under various stages of testing and evaluation. In 2011 ,company got permission for conducting large Scale trial of some of the NBIL Bt. Cotton hybrids in Pakistan.One most important positive about Nath Bio-Gene is its presence in a wide variety of Seeds and its large marketing network.Company is present in Cereals,Oil seeds,Vegetables,Cotton…etc and producing more than 90 variety of seeds and present across India through 13 offices,1000 distributors and 5000 dealers.

The Negative Side

As mentioned at the beginning ,company de-merged its business into three in 2004 .But the management kept its share holders in dark for the past ten years by not listing its stock in any stock exchanges.I am not sure about the real reason for that whether it is only due to poor corporate governance or delay in getting listing permission after the scheme of arrangement .Another point is all other listed companies from the same group Nath Seeds( Teak plantation, real estate …etc) , Agri -tech India (corporate farming ) and Nath Pulp and Paper are trading at lower valuations. But all the mentioned companies having either no sizable operations ,no potential or not an attractive sector as far as investors are concerned. Even after considering all these negative factors I strongly believe there is still huge value in this stock. Nath Bio-Gene is currently trading at a P/E multiple of less than 7 compared with the average P/E of 20 prevailing in this industry.

What is Ahead ?

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There is lot of companies re listing after a gap of many years but financials of such companies are nothing to comment.But here the case is totally different .Companys financial performance improved during this 10 years and the prospects of industry even brighter now compared with the time of its IPO. One more point is ,at the time of de-merger of various divisions about ten years back the reason mentioned by the management for such an action was only for inducting a strategic partner into the company.Till now they didnt inducted any partner and in the recent annual report company again mentioned the necessity to induct such a partner for further improvement in technology. I believe this listing after a gap of 10 years is mainly for that purpose .Many MNC players are keen to enter in Indian Seed market through associations with Indian seed companies.In such a situation Nath Bio-Gene will be an excellent target of such companies. If it happens there is every chance for improvement in corporate governance issues related with the company. In recent times company recruiting lot of professional for various posts in the company ( Check it HERE) which also indicating company is in an expansion drive and planning to enter into new varieties and territories.

**OVERSEAS FORAY - THE UNTOLD STORY AND A HIDDEN TREASURE **

Another exciting part and a possible mile stone in the history of the company may be the recent developments in its overseas operations.Since 2005 company started various options to explore the overseas opportunities.Few years back company permitted by Philippines government to conduct open field testing and multi location field trials for its fusion gene based BT cotton along with its technology partner from China . (Read related news items HERE ,HERE andHERE) These experiments conducted with the association of various govt agencies of Philippines. Completion of experiments originally scheduled in 2011-12 but delayed due to various regulatory issues .Nath is the only company got such a permission and completed all these trials now .Cotton Development Administration and Ministry of Agriculture Philippines showed complete satisfaction on NBIL’s fusion Bt cotton technology and hybrids developed through this technology. Now all formalities are completed and NBIL is confident of getting the approval for commercialization of Fusion Bt cotton in Philippines in this year (2014) itself . This means company is going to reap the benefits of its past many years effort.Philippines is a country consuming 50,000 metric tons of lint cotton per year and about 97 % is coming from import.Philippines’government is planning to displacing the imports by indigenous production mainly Bt cotton varieties.Since Nath and its technical collaborator enjoys a near monopoly situation and it is opening a huge opportunity for the company from next year onwards.Entry of any new company in that country should go through all tedious processes which will take many years (Nath itself took more than 5 years to reach commercialization stage). This situation offering a windfall for NBIL which is expected to commence in near future.

Listing and Price difference

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As I mentioned above ,Nath Bio-Gene listed in last week in both exchanges. According the new opening price fixation methodology implemented by SEBI few months back , opening price of any newly listed stock will be calculated through a call auction system with 45 minutes duration.In case of this stock during this period somebody sold just 20 shares in NSE @ Rs.20 even though there was buyers in BSE @ Rs.50. Thus the opening price in NSE fixed @ Rs.20 and BSE @ Rs.50 to start with .This price difference is still going on,but I believe only blinds will sell in NSE when there is buyers in BSE @ higher rate and the difference is significant.So chances for order execution in NSE is very less for a buyer is concerned till there is buyers in BSE at higher rate .Due to this reason I took BSE rate as a benchmark for valuation purpose .

Financials and Valuation

For the past many years company reporting steady growth in its key business .See table below :

nat-crop.bmp

On an equity base of Rs.16 Cr ,In FY 2012-13 Company reported anEPS of Rs.7.34. In the latest June quarter Company reported a top line of Rs.110 Cr and a net profit of Rs.36 Cr as against Rs.96 Cr and Rs.26 Cr reported in the same period of last year. June quarter Result HERE )- ( There is a calculation error in EPS calculation in the result where 2012 June quarter EPS indicated as Rs.38.54 instead of Rs.16.67 ,but profit figure is correct .EPS calculation on old equity causes for such an error) .EPS for this is June quarter is Rs .22.44 .One main point to note in the result of any seed company is ,about 90 % of sales of seed companys are from first quarter and most probably the next three quarters will be in loss ( You will get a clear idea about this seasonal trend by checking the quarterly financials of JK Agrigenetics) . Here in this case March quarter result also provided by the company which is surprisingly in profit .What I mean is , annualising the performance only on the basis of June quarter result may give a wrong picture .Even after considering this fact ,I expect an EPS of Rs.9 -10 in this full year.Average P/E ratio of seed industry is 20 or above and this companys P/E on expected FY 2014 EPS is still close to 5 which offering very huge valuation gap.

Some skeptics may argue this company deserves only low valuation on account of delay in listing …etc.But ,to realise how hot this sector among investors ,we should check the valuation of some recently concluded deals in this sector.Camson Biotech is another listed company from this space .If Naths corporate governance is bad ,the same of Camson may be called as worse .Few years back its auditors itself questioned its accounting practices .Recently Bio Harvest ( part of CLSA capital ) took 20 % stake in Camson Biotechnologies at a cost of Rs.65 Crore .If CLSA paid Rs.65 Crore for a 20% stake in that company what should be the valuation for Nath Biogene which is superior in many aspects .( Camson is mainly a regional player with limited seed varieties in its portfolio compared with Nath Bio-Gene) .CLSA valued Camson for Rs.325 Cr (approximately) but the entire Nath Biogene is available for less than 100 Cr. There is no justification for such a low valuation for the pioneering company in seed business even after considering every negative aspects. If we look through these angles , even @ Rs.100 we cant say it is over valued .

There was some problems in this company in the past mainly connected with mounting debt issues.Asst Re-Construction company(ARCIL) extended loans by subscribing debentures during that tough times.But liability to ARCIL was still there till last year.In last year , as part of a scheme of arrangement , promoters subscribed 47 lakhs shares and infused Rs.4.7 Cr into the company .Loans from ARCIL also converted into equity by allotting 48 lakhs shares.Thus the company cleaned its balance sheet and reduced it long term debt to just Rs.1 Cr now.As I mentioned at the beginning, prospects of sector is very bright and companys experience and recent expansion plans giving lot of hope. Commercialisation permission for BT cotton in Philippines is a game changer for the company which we can expect at any time, and it will place NBIL at par or above many large seed companies operating in India .

Its old share holders (IPO of Nath Seeds in 1994,de-merger to NBIL in 2004) may be not aware about the changes happened in the potential of its business during this 20 years.In addition to that they never got a chance to encash this stock during last 10 years .This may be the reason somebody sold this stock at a slump sale price on the initial days of listing .
These kind of value mismatch opportunities are rare in stock market and if we are not ready to utilise it with some risk on account of excuses like valuation of other companies under same management,delay in listing …etc ,there is no meaning in remaining as a small cap investor in Indian Stock Market.As I mentioned above ,Since seed is a seasonal business reporting loss in all quarters except June quarter is a possibility but that is not a reason to sell this stock . Keep it for long term .

Link to Company Website HERE

Link to the latest issue of Company’s in-house publication HERE

  • As per new listing norms NBIL listed in 'T / BE ’ segment with 5 % circuit limit ,but on completion of 10 trading days it will be shifted to B group with 20 % circuit limit ,which may happen by 11/02/2014

Disc: I have vested interest in NBIL

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2 Likes
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The highest order bit for investment in Indian companies in my opinion is to stay away from companies with poor management track record. It is difficult specifically when we see companies available at cheap valuations but you need to remind yourself of this constantly. It was difficult for me to stay away from FT and MCX when the valuations got extremely attractive but I had to mentally re-emphasize about this again and again. I would have nearly doubled my money if had invested in FT and MCX, infact I got into FT at 168 and exited at 160 (booked a loss) just to correct the violation of this basic rule.

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Nath Bio-Genes has put up it’s Dec results on it’s website. In line with other seed firms, it has done well this year. The 9-month EPS is Rs 17.75 .Yearly EPS should be Rs 19 odd (my guess) . Forward PE ratio is 4 versus double digits for it’s other peers.

Company has just listed, so it will take some months to figure out what PE market is willing to give this company, given some question marks about management quality, and no research coverage as yet.Given the question marks on promoter pedigree, this stock may get a lower discounting than it’s peers. However at around 4 PE (taking BSE quote) it does look underpriced.

)- ZeeNut

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Need some clarity on how seed companies account for Sales Returns :

I had pointed out to Nath Bio-Genes that the declared q1+q2+q3 numbers did not add up to the 9-month figure published with the Dec qtr results. They explained that it was due to Sales Returns .

The company declares unaudited figures for Q1, but the return of seeds happens in following quarters, mostly in Q2 . Company has not been making provisions for sales returns in the unaudited figures of Q1.

The sales returns are booked in Q1 accounts itself, as they trickle in, so actually it is the Q1 figures that are undergoing revision. But since the company has not declared revised/audited Q1 figures , the results declared for q1,q2,q3 qtrs did not add up to the 9-month figure.

Do members know how other seed players like Kaveri Seeds, JK Agrigenetics etc account for Sales Returns - is the accounting entry passed in the accounts of the qtr when the seeds are returned/received back, or the quarter in which the original sale/despatch was made. Or do they make provisions when declaring quarterly results .

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Hi Bosco,

Nath Bio-Genes needs a closer look. It’s early days for the Co. n perhaps a good time to latch on to a potential winner. At first glance n based on recent results, the Co. looks good but we sure need to dig deeper to understand where the story could go wrong. Mgt credibility is one concern. Why did it take 10 long years for the Co. to re-list? Can’t find an acceptable answer for this, but since this can’t be a reason to give up on the stock totally, I too have taken an initial position. It would help if there is a more broad based discussion involving more members to understand the Co. better.

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I agree Rajeev.

Whereas they responded to my queries regarding their results with alacrity , and have also proven very accessible on phone, they are yet to reply to my longer questionnaire regarding various points , such as :

1). Why 10 years to relist

2). Why the trouble with servicing debt few years ago (they had to go for a scheme of compromise which saw ARCIL pick up a good stake)

3). Which are their seeds in Top-3/Top-5 status in their respective categories

4). Scope of the Phillipines opportunity / 1st mover advantage

5). Rationale for promoting a Food Park - what benefits will accrue to the company

6). Whey they took shareholders permission a year ago to enter power generation business - what is the logic/synergy/expertise

7). Details regarding royalty to Chinese company from whom they sourced technology for BT Cotton.

Stock was a steal @ 50 bucks, and still looks underpriced vis-a-vis peers @ 80 bucks (imo).

However clarity on the above questions will round off the picture & help a longer term call.

Hoping they will provide the answers.

)- ZeeNut

Disc : I Hold some Nath Bio-Genes

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Bosco,

a) From what I know the bigger guys like Nuziveedu, Kaveri also have sales returns, but they repay the dealer in kind rather than cash. Adjust against advances, against other seeds like maize for the next qtr and the like.

Given the demand pull for the leaders - this wasn’t a big issue…and we havent checked accounting practices in detail…whether provided for and adjusted for etc…but can have that checked by Team Hyderabad , if important

b) More importantly whats your feedback from the ground in Jalna/Aurangabad their home base?

c) and for me the most important - can you allocate a decent % to this company? why?

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I had a basic question, I guess the R&D in both Pakistan and Phillipens is done through its sister concern Global Transgenes ltd, So wanted to know does Nath Bio Gene holds any stake in Global , I could not find any in its annual report, and it shows it as an Associate. So if at all the commercialization of hybrid bt does happen, I am not able to understand what benifit does Nath bio will have since revenues from commercialization wont come to nath but to Global.

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Hi Donald,

Only feedback was from Gaurav, which i mentioned in my first post - that the management does not seem to have got it’s act together & that the company does not seem to have any seeds in the Top-3 category.

I have asked a set of questions last month, but till date have not got the answers. If they cared to answer it would give a better understanding & comfort about the company. I could then ask some follow-up questions including Jatin’s query regarding Global Transgenes.

But as of date no reply despite reminders. Lets see …

For the record, stock touched the 3-digit mark today. I hold 1000 shares, in fact i held more but sold the rest, partly as a profit booking exercise, and partly because the lack of answers to my questions means that i cannot develop comfort.

However, purely on PE basis, the stock still looks underpriced, even at Rs 100.

)- ZeeNut

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Annual Report for 2013-14 has been released. Excerpts from the Directors Report :-

RESEARCH & DEVELOPMENT & NEW PRODUCTS

Intensive research and technology up gradation are cornerstones of the growth strategy of your company. It is no longer good enough to offer high yielding hybrids to the Indian farmer. The modern Indian farmer demands that these hybrids carry additional built-in value through seed embedded technologies.

Our research focus is based on conventional breeding, genetic engineering technologies as well as molecular added selection systems to enable us to develop seeds endowed with multiple traits.

Your company has undertaken specific initiative to reach out even to the rain-fed and largely unreached farmers. This is in harmony with our national priorities and also a reflection of your companyâs philosophy.

During the year, your company has made significant progress in strengthening R&D programs in field crops as well as vegetable crops. Our major emphasis in field crops pertains to rice, cotton, maize, bajra as also mustard and wheat. During the current year, our multi location testing and breeding stations have increased to more than 16 across the country.

In order to provide choice of technology to cotton growing farmers, we have intensified breeding programs for generation of novel BG-II Bt-cotton hybrids with simultaneous incorporation of multiple high value traits, such as genetic male sterility, enhanced tolerance o drought, high level resistance to major sucking pests and enhanced yield potential.

Already, the new hybrids NBC-10, NBC-11, NBC-101 and NBC-102 have out-performed best checks in trials conducted in State agricultural universities of Andhra Pradesh, Maharashtra, Gujarat and Karnataka, during 2013-14.

Similarly, new Maize hybrids such as NMH-1600, NMH-1605, NMH-1008 and NMH-1591 have shown highly encouraging performance, whether in the Full-Season maturity segment (NMH-1008, NMH-1600, NMH-1605) or in the medium-maturity and early maturity categories.

After the gallant success of our Big-B (NBH-1188) in Bajra, two new hybrids in the tall and medium-tall segments, especially NBH-20 and NBH-21 are poised to be among the top Bajra hybrids in their respective markets. NBH-5151 has further consolidated its position as a leading product in the semi-dwarf Bajra segment, especially in parts of Western UP, Madhya Pradesh, Maharashtra, etc.

Introduction of new rice hybrid Tahelka has met with outstanding success. Acceptance of this hybrid has extended to Bihar, MP, Gujarat and parts of Eastern UP. Several new Rice Hybrids are being tested during Boro season (2014) in Eastern India, as promising new products for that season.

Besides, several new pipeline products of Mustard and Wheat are being tested at our especially chosen location at Alwar in Rajasthan, for these important Rabi crops in North India. We are on course for introduction of new Wheat and Mustard varieties (and even a hybrid in Mustard), during Rabi 2014 and 2015.

INTERNATIONAL COLLABORATIONS:

Nath Bio-Genes, jointly with its sister concern Global Transgenes Ltd.; have signed agreement for R & D collaboration and commercialization thereof, of Fusion-Bt. Cotton technology in Philippines. Due processes of trans-boundary regulations, in accordance to the provisions of the Cartgena Protocol, have been followed strictly for transfer of Fusion-Bt. Embedded cotton seeds.

Based on the impressive results of trials, the Bio-safety Authority of the hilippines has granted permission for large scale trials to be conducted in the current year in Phillipines. Your company hopes to receive permission for commercial sales of its BT Fusion cotton hybrids during the current year.

Excerpts from the Management Discussion & Analysis :-

AGRICULTURE AS AN ENGINE OF GROWTH:

1. Indiaâs future for sustainable and inclusive growth lies in her farms. Agriculture has the potential to accelerate economic growth and social development in India. We can never overemphasize the importance of agriculture as a provider of food, as a provider of jobs, as a provider of raw material for industry and also as a provider of purchasing power in the hands of millions of people. The benefits are so obvious, extensive and immediate.

2. Moreover agriculture is capable of generating maximum wealth with modest investments. India has 329 million hectares of land area. Nearly half of it is arable. We can increase production fivefold if our current yields are raised to international levels.

3. The resurgence of agriculture would require large scale investments in developing basic infrastructure, mainly irrigation, rural roads and post harvest technology. The increase in productivity would depend on our ability to embrace newer technologies and more particularly the seed embedded technologies.

4. Despite low seed replacement ratio, the shift to hybrid seeds has resulted in increase in productivity of food grains by nearly 100% from 1023 kgs per hector in 1980-81 to 1933 kgs per hector currently. The use of good quality seed of improved varieties and hybrids and enhanced seed replacement rate can bring in immediate advances in production.

5. The Indian farmer adapts to innovations rapidly. Success of the green revolution in the past and rapid adaptation of Bt-cotton technology by the Indian farmer has demonstrated this conclusively. Agriculture is one of the few sectors in which India can develop international competitiveness.

6. Our country has the potential to emerge as a major provider of quality seeds in the world. We have abundance of lands, hands, water, sun shine as also agricultural knowhow to produce quality seeds.

YOUR COMPANYâS STRATEGY FOR GROWTH & RISK MITIGATION:

1. Besides cotton, your companyâs product portfolio includes food crops of national importance namely, paddy, wheat, corn, bajra and jowar. Amongst oil crops, we have substantial presence in Mustard seeds.

2. Since past few years, your company has increased its focus on vegetable seeds and plant nutrition supplements. Amongst vegetable crops, our concentration is mainly on okra, tomatoes, chillies, brinjals and all types of gourds.

3. With increased income levels, the country has to transition from food security to nutrition security. We believe that there shall be exponential growth in demand for vegetables and fruits.

4. It has been your companyâs strategy to have a balanced portfolio of products comprising cotton, food crops, vegetable crops as also plant nutrition supplements so that your company is not overtly dependent on a single crop. The diversified product portfolio helps in offering a range of products to our channel partners round the year and also helps in effective utilization of our marketing team.

5. Your companyâs research program is essentially farmer-centric. The products are launched only after thorough evaluation in multi-location trials in different regions and different seasons. Your company has thus developed a robust pipeline of research products.

6. The companyâs strategy is to work intensively in 200 identified territories. The company has plans to double the number of focus territories to 400 in next threeyears.


ZeeNutâs comments :-

Management has decided to dispose of the âPaithan Mega Food Parkâ stake shortly, hence the investment in the food park has been shifted to "Current Investments" head, instead of being treated as a subsidiary. This is why there is no consolidated balance sheet in this years Annual Report.

I feel this decision is good, as Nath Bio is a seed company & should focus solely on the seeds business where it has itâs strengths. Not get in to unnecessary "di-worse-ifications".

Have prepared a couple of tables : -

Table A - Recent Performance

YearEnded 31stMarch

2012

2013

2014

Sales (Rs Cr)

124

138

189

PAT (Rs Cr)

10.6

11.75

24.30

Diluted EPS

5.75

7.3

15.19

Book Value

29

36

51

P/E Ratio

-

-

5.2

P/Book

-

-

1.53

MCap/Sales

-

-

0.67

Total Debt (Rs Cr) *

9

18

21

Equity+Reserves (Rs Cr)

46

57

82

D/E Ratio

0.2

0.32

0.26

* Long Term Borrowings + Short Term Borrowings, as per latest annual report for year ended 31.3.2014; excludingprovisions, other liabilities & trade payables

A brief comparison with couple of other desi seed companies (members are requested kindly cross check the figures for themselves) : Table - B

Face Value

Mcap (Rs Cr)

Sales (Rs Cr)

CMP

EPS

BV

P/E

Mcap/Sales

P/BV

Kaveri Seeds

2

4516

1011

648

30.4

75

21.32

4.47

8.64

JK Agrigenetics

10

151

188

414

32.9

130

12.58

0.80

3.18

Nath Bio-Genes

10

126

189

78

15.19

51

5.13

0.67

1.53

While i understand there are misgivings regarding this group, i do feel this company warrants a closer look .

Disc : I hold, am +vely biased to the extent of my holding

1 Like
11

hi Bosco,

the stock does look cheap.

few questions.

)- inspite of increase in sales for mar 14 qtr from 23 cr to 40 cr , the company has reported loss. Selling and distribution exp are more than 50 % of the total sales for the march qtr ( probably due to heavy discounts / commissions offered ) , still 22 cr is a very big amount.

)- the pledging of promoter shares has increased from 4 % to 27 %. It doesnt make sense to me in the light of 24 cr profit the company has made this year. the increase in debt yoy is only 3 cr. Is it because of the corporate guarantee of 30 cr given to icici bank for crop loan taken by seed growers, that seems like a risk to me.

)- another strange thing i find is that promoter chairman doesnt receive any salary , promoter MD receives only 18 lacs ( seems too good to be true ) and directors are paid sitting fees @ 250 rs / meeting. The current daily labour rates are more than that.

)- i am quite poor in cash flow analysis. but as per BS the capital WIP is zero, the total additions to the gross block is abt 2.9 cr ( out of which 2.3 cr is only on vehicles ? ) ,investments are at almost same level yoy, cash is almost same, so where has the NP of 24 cr gone ?. Most likely the profit has gone in purchasing land from related party - a payment of abt 13 cr is made but the land has not yet been transferred ? and as advances - again most likely to related parties. The total outstanding from related parties is abt 13-14 cr. The nature of transactions is not clearly mentioned ?

)- advances against seed production 21 cr ?

)- All the 4 associate companies are in related fields of seed production and R & D. maybe some amount of production is outsourced to these companies. i believe in such cases it is easy for promoters to siphon out money.

)- div payout is nil.

)- i cant find any instances to give comfort on promoter integrity.

Disc - i am not an expert so please pardon for asking obvious / stupid questions.

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This is my first post, friends.

I do not like some disclosures in the Annual Report(AR) of 2013-14:

1). Method of valuation of inventory on page 31 of the AR: Point no. (ii) shows that the Finished products are valued at cost. Which may be more than the market value. Similarly, point (iii) shows that breeder seeds and seed parental lines are valued by management on estimated basis. Bear in mind that inventory is 88 crore at year end and the full year revenue is 190 crore.

2). Discounts given (on page 39 of AR) are 53.6 crore!!! On a revenue of 190 crore.

3). Cash flow shows that the Operations of the co. has generated cash of Rs. 14.8 cr and most of it has been used up for paying the advance for land purchase of Rs. 13 cr to a related party.

These points do not inspire much confidence.

Bomi

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Discount of 53 cr is on sales of 167 cr , rest 22 cr of sales is from trading.

i agree, in view of the heavy discounts we cannot trust the inventory valuation of 88 cr.

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EXcellent points raised by Manish & Bomi … i had already planned to write to the company asking regarding the intra-group advance, will add all your points to my mail. More queries are welcome.

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Came across the following interesting article by a Tech company Sunera Technologies, which has implemented it’s eSeal technology for Nath Bio-genes : http://www.suneratech.com/successStories_nathSeeds.html

Reproducing the same below :

Success Stories: Nath Bio-genes

Nath Bio-genes achieves real-time brand-traceability and cost-reduction with eSeal

Nath Bio-genes is a leading producer, processor & marketer of hybrid seeds in India. The company is as old as the seeds industry itself. It has been a pioneer in bringing about indigenous seed technology, such as BT-Cotton (and many others), to India. Backed by a strong pan-India marketing network, it produces and markets as many as 75 seed products encompassing about 20 crop categories. The wealth of its rich experience and expertise equip it to play a very significant role in areas of national importance such as agricultural development, farmer prosperity, and promotion of indigenously developed agricultural technologies.

Business Challenge
Nath bio-genes works with a wide yet close-nit network of farmers to produce indigenous & hybrid seeds. The process entails seed movement, to and from Nath Bio-genes, at multiple points through various stages, and a similar process was followed in the supply-chain too (sales & returns). All the details were being recorded manually thus delaying data-updation, which meant there was no real-time data-support for the management to either plan production or ensure optimum inventory. This aspect often played havoc with the supply-chain dynamics. Another factor that compounded the problem was the short window of time (only 15 days in a year) for sowing. Thus, if the supply time wavered even slightly, it led to a multitude of problems. It was losing business at places because the manual system of entry delayed data-updation, resulting in depots/dealerships not being replenished in time for the farmers to buy seeds during the crucial sowing period. On the other hand, unsold stock-piles, which the dealer/retailer may not have returned within the allowed time of 3 months from the day it left the factory, also made a dent into revenues. This problem arose because the existing mechanisms did not fully track the seed-movement, thereby affecting the production-sales synergy.

Therefore, Nath Bio-genes needed to capture and report the product information automatically as they moved through the processing center, warehouse & marketing depots, while also verifying the returned quantities. Thus, achieving real-time out-bound and in-bound traceability coupled with optimum inventory management had become a challenge that posed a huge threat to the business prospects of the company.

Solution
That is when they chose to implement eSeal’s universal traceability feature that comes with a ready-to-integrate eSealapplication, pre-printed tracer labels and applicators, in their production-to-consumer line/link. The eSealtracer labels were applied to both primary & secondary packages while the eSealapplication helped in binding the product data to primary packages and mapping them to the secondary on the packaging line. Scanners were installed at each of the stock transit points that read the eSealtracers which ensured real-time out-bound & in-bound traceability i.e. real-time updation of the ERP system thereby facilitating optimum inventory levels across the supply-chain. The solution did exceedingly well in ensuring that the right product was in the right place and, at the right time.

The eSealsolution was implemented for over one million BT cotton-seed packages for the 2012 Kharif season. The robust and easy-to-use eSealapplication required just one day for both implementation as well as training of the labor, who took to using eSeallike ducks to water. The eSealsolutions team also provided proactive help and support through the implementation process as well as facilitated post-production support.

Outcome
The implementation of the eSealsolution resulted in the company’s stock-tracking, sales and return processes being completely automated with real-time data feeds to their ERP, thus eliminating the inordinate delays of the manual entry process that greatly hurt Nath’s operational efficiency, productivity, and ultimately, its business. Further, the company is now also able to track the returned seeds all the way up to production lots. The company now intends to expand eSealto all its products going forward.

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Q1 Results are out (unaudited)

http://www.bseindia.com/corporates/anndet_new.aspx?newsid=26af8f03-c4b2-4f8d-9bc6-ac1899fb296c

Sales @119.47 Q1 FY14 103.31

Net Profit @30.29 Q1FY14 22.90

EPS@18.88 Q1 FY14 14.31

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I was trying to study Nath bio-genes.

Link to AR 2018: https://www.bseindia.com/bseplus/AnnualReport/537291/5372910318.pdf

AR 2018 notes:
Cotton : The products like King 101, NBC 102 and NBC
1022 have displayed excellent results

Others: Maize, Wheat, Jowar etc. each crop has a potential to be a chart buster. And each has minor contribution only. Notes are same as AR 2017

Rice: We expect to grow higher than industry for hybrid, backed by our strong product portfolio. We also are enhancing our presence in the OP segment.

Veg seeds: we expect strong growth in vegetable seeds in the years to come.

Plant Nutrition suppliment: (2017)Win-chi-win is a bio growth enhancer for cereals, vegetables crops, fruits, etc.
is a promising product and can gain market share. 2018: We plan to make this product a chart buster in the years to come.

Marketing: 2017 : was a formative year and the efforts of renewed marketing vigor should yield fruits in years to come
2018: the changes commenced to show results.

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I think it is good to see company admitting weak marketing in the past and addressing them, if we review ARs.

R&D: 2017: Financial Year 2017 is a turning point as
most of the products on which the company has been working for all the years have started to yield results.
2018: FY 18 was a year in which the foundation for a long term sustainable growth was laid. developed a family of products across verticals of Cotton, Paddy, Mustard, Pearl Millet, Maize, Okra, Tomato, Gourds, Chilli and crop nutrition supplements. Your company also has a strong pipeline in each of the verticals for the next 3-4 year

We can see shift to newer areas like nutrition suppliment and Rice/Vegetable seeds over the years and I think they are yielding results
FY 18 was a year in which the foundation for a long term sustainable growth was laid. developed a family of products across verticals of Cotton, Paddy, Mustard, Pearl Millet, Maize, Okra, Tomato, Gourds, Chilli and crop nutrition supplements. Your company also has a strong pipeline in each of the verticals for the next 3-4 year

QIP: QIP in Jan 2018 to repay all long-term loans of the company and to strengthen the working capital requirement.

Revenue/Profit: increase in profits during the year under review was on account of enhanced sales, improved product mix and operational efficiencies. The revenues saw a reasonable upward trend of 12.82 %. The growth can be attributed to enhanced Cotton, Paddy, Vegetables and Win-Chi-Win sales. Cotton and Paddy continued to contribute around 20% and 40 % of the total sales. However, PNS segment contributed around 10% and the better margins in this segment resulted in better margins.

Inventory: The Inventory holding has been gradually reducing over the last 2-3 years.

Debtors: The company reduced the Cash Discount schemes at the year end, thereby enhancing
debtors but increasing the profit margin. Advances to production growers have also increased
over the year.

the trade payables have reduced in FY 18.

Disclosures: Have 2% of PF of a small size PF. Switched from JK Agri Genetics after Q1 results and AR reviews at approx 500 per share.

With Price to Book of 1.8 I think this has potential to re-rate when I compare to richly valued JK Agri genetics, especially when R&D of 8 years can yeild fruits with good marketing.

Profit/Sales Growth History:

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Questions: How is company corporate governance and management quality ?
How this company can be compared to JK Agri genetics which I feel overvalued at P/B 4.72.

Being a relatively newbie, I want other aspects and risks associated with this company.

Inviting expert views.

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Latest investor presentation is quite informative.

The last slide gives 20-25% growth production for next 3 years as against 12% by industry.
Inviting counter views as it seems tracked by very less number of VP members.

Disc: Invested less than 3% of PF

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I request other forum members to give there views

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Though this article is 1 year old but gives a meaningful insight