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11 OCT 2013

NOT RATED

MONSANTO INDIA
CHEMICALS & FERTILIZERS

Seeds, agronomy big opportunities in India

CMP
Potential Upside
Relative to Sector

We interacted with the management of Monsanto India to understand


the companys positioning and opportunities in the Indian agri-space. Of
the 4 main areas for productivity improvement, the company envisages
significant potential in Seeds and Agronomic practices and moderate
potential in Plant nutrients. Irrigation has many constraints as well
irrigation is overused and canal investment intensive.

: Rs 664
:: N.A

MARKET DATA
No. of Shares
Free Float
Market Cap
52-week High / Low
Avg. Daily vol. (6mth)
Bloomberg Code
Promoters Holding
FII / DII

Key takeaways:

:
:
:
:
:
:
:
:

17.2 mn
28%
Rs 11.4 bn
Rs 746 / Rs 560
4,058 shares
MCHM IN Equity
72%
0.1% / 2%

Foodgrain production has not kept pace with population growth


in the past 2 decades: Food grain production per capita
has declined over last 2 decades. Hence it is imperative to
maximize yield

Resource crunch: (a) A large part of agricultural land is lost out to industrialization and housing, (b) labor costs are
rising at ~15% CAGR over past 5 years, (b) depletion of ground water, and (d) soil quality continues to deteriorate
(16 nutrients decide agriculture and India is deficient in more than half)

Rising income and prosperity will result in food demand doubling over the next decade there is a change in
consumer behavior and shift in dietary pattern (rising income level will drive higher consumption of dairy products,
edible oils, vegetable/ fruits, meat/ fish/ poultry/ eggs)

Hence mechanization and new technologies are a must: Opportunities for companies like Monsanto which are in
innovative seed research, crop protection, nutrition and mechanization

Financial summary (Consolidated)


Y/E March
Sales (Rs mn)
Adj PAT (Rs mn)
Change YOY (%)

Key drivers

FY10

FY11

FY12*

FY13

4,102

3,364

3,738

4,424

541

540

483

678

(10.5)

40.4

EPS (Rs.)

62.7

62.6

28.1

39.1

P/E (x)

27.2

30.8

24.0

17.0

RoE (%)

16.1

14.9

13.2

17.1

RoCE (%)

17.6

17.2

15.7

18.4

EV/EBITDA (x)

20.5

26.8

16.2

11.2

DPS

17.5

20

20

22

Source: *1:1 Bonus issue, Company,

(%)
Revenue growth

Hemant Patel Executive Director - Consumer


hemant.patel@axiscap.in

91 22 4325 1146

FY13

-18

11

18

-11

40

Price performance
140
120

Sensex

Monsanto India

100
80
60
Oct-12

kashyap.pujara@axiscap.in

FY12

PAT growth

CMP as on October 10, 2013

Kashyap Pujara Executive Director - Midcaps

FY11

Jan-13

Apr-13

Jul-13

Oct-13

91 22 4325 1105

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11 OCT 2013

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MONSANTO INDIA
CHEMICALAS & FERTILISERS

Opportunities that Monsanto sees

Seeds and biotech sector: Hybrid seed market (where Monsanto has strong
presence) is set to double to Rs 140 bn in next 7-10 years. Technology and
research are critical for improving seeds. Monsanto, a global leader, has
access to germplasm

Farm machinery, plant protection and agronomic services: Plant protection


market is Roundup (a glyphosate-based product) is a broad spectrum, postemergent systemic herbicide, discovered by Monsanto and is the flagship
brand for agricultural productivity business. The Round-up variety of herbicide is
the worlds largest selling herbicide brand. Herbicide market India is expected
to grow by 15% p.a. Monsanto has also set up a back-office, where farmers
can call and an agronomist would be answering queries/ advising on crop/
agri related issues. The project showed tremendous success in tribal Gujarat
with yields improving 3-5x (just by replacing seeds)
With access to the best R&D and germplasm, Monsanto is well placed to
capitalize on increasing demand for herbicide and corn seeds.

About Monsanto
Monsanto in India since 60 years: The parent company, based out of US, is
present in over 500 global locations with 21,500 employees. The group company
generated total revenue of USD 13.5 bn with ~75% of that from seeds and
genomics for crops (corn, soybean, cotton and vegetables) and the remainder from
herbicides for agricultural productivity. In India, the Monsanto group operates
through 3 entities i.e. (1) the listed entity Monsanto India Ltd (MIL) which is
primarily involved in Maize seeds and Herbicides; (2) 50:50 JV between Mahyco
and Monsanto Holdings Pvt. Ltd known as Mahyco Monsanto Biotech (MMB)
which is sub-licensed to distribute BT cotton technology in India; and (3) Monsanto
Holding. MIL is present in nearly all areas of crop in India (expect soya).
Company has built significant infrastructure in India: Seven R&D Seed Breeding
Stations in Abohar, Aurangabad, Bangalore, Dharwad, Ghaziabad, Kallakal,
Sonepat. Corn Seed Drying & Processing Plant in Hyderabad. State-of-the-art QA
Seed Testing Laboratory and AgroChem facility, Silvassa. Seed breeding is done
on 300 acres of farm land and seed production on 40,000 acres with the help of
21,000 growers and rural laborers.

About Indias agri-space


India has worlds 2nd largest arable land but continues to lag in terms of
productivity: Despite 110-120 mn hectares of farm land, Indias yield per hectare is
low for almost all crops. For instance, rice yield at 2,372 kg/ha vs. China at
6,590/ha; cotton at 491 kg/ha (920 kg/ha in US and 1,555kg/ha in Australia);
corn at 2,467 kg/ha (5,351 kg/ha in China and 10,338 kg/ha in US).
Cotton and corn have shown biggest yield improvement due to Genetically
Modified (GM) technology. BT cotton yield improved 100% and corn by 60% in the
last 10 years. In fact, BT cotton penetration has reached 95% during this period.
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11 OCT 2013

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MONSANTO INDIA
CHEMICALAS & FERTILISERS

Besides corn (60% penetration) and cotton (which have adopted BT seeds), yields
for other crops have remained stagnant over past 2 decades. To develop a seed
like BT cotton, over USD 150 mn is required with at least 8-10 years of R&D. Given
the level of investment, Monsanto has introduced global products in India.

Green revolution can be heralded in India

Enabling policy environment: Facilitate germplasm exchange, Market-driven


pricing, Predictable, transparent and science-based working regulatory system
that encourages Research & Innovation

Infrastructure: Strengthening supply chain, efficient warehousing and marketing

Finance: Availability of credit to farmers and crop insurance

Knowledge Dissemination: Leverage mobile revolution

Exhibit 1: Except for cotton and corn, yields of most other crops in India have remained flat
Cotton

210

Corn

Rice

Wheat

Pulses

Soy

Sugarcane

(Index yield)

180

150
120
90

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

60

Source: Company

Exhibit 2: Resources like labor continue to be constrained with cost increase over the past
few years, necessitating better use of technology

Labour Cost Trends over two decades

Last 5 Year
CAGR ~15%+

Source: Company

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MONSANTO INDIA
CHEMICALAS & FERTILISERS

Exhibit 3: Soil quality has deteriorated, requiring more soil nutrients

Source: Company

Exhibit 4: Higher yield for corn by use of better seeds and technology

Source: Company

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MONSANTO INDIA
CHEMICALAS & FERTILISERS

Exhibit 5: Advancement in agri-biotech leapfrogging Americas agriculture; India may emulate in future

Less pesticide better


protection and thereby
better yield

Conservation tillage,
better soil, less f uel,
better protection, better
yield

Drought tolerant corn,


soybeans and cotton
better yield in water
limiting condition

Ef f icient use of
f ertilizer, less is lef t in
the soil to f orm
greenhouse gases or
to run of f into
waterways.

Direct yield
increase by
boosting intrinsic
capability

Higher Yielding

Nitrogen Utilization

Drought Tolerance

Herbicide Tolerance

Insect Protection

Commercialized

Middle of decade

End of decade

and Beyond

Source: Company

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CHEMICALAS & FERTILISERS

Axis Capital Limited


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