15 February 2016
Q3FY16 Results Update | Sector: Fertilizers
Monsanto India
Buy
BSE SENSEX
23,554
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm/ Vol m
Free float (%)
S&P CNX
7,163
MCHM IN
17.3
34.4 / 0.5
3540 / 1965
-11/-16/-22
75
27.9
CMP: INR1,991 TP: INR2,350(+18%)
Results above estimates; FY17 to see rebound led by favorable crop shift
Results above estimates led by strong growth in corn:
Revenue grew 14.8%
YoY to INR1.5b (est. INR1.4b) due to strong growth in corn business where
volumes grew in double digits (led by double digit acreages growth in rabi)
while pricing saw low single digit growth. Realizations have also been strong
given that final commodity prices have corn have been on the higher side. Corn
prices have been INR14-15/kg as against INR12.5/kg which was prevalent
during the kharif season. Growth has been strong in states like Bihar which are
Monsanto strongholds, compensating the subdued growth in southern part –
states like Andhra Pradesh and Telangana, which has been relatively low due to
poor monsoon.
Margin growth stunted by continued lower glyphosate prices:
EBITDA came in
at INR466m (est. INR376m) in 3QFY16 while margins stood at 30.3% (est. 27%)
as against 34.2% in 3QFY15. Margin contraction is due to the benign prices of
glyphosate since Monsanto procures it based on a cost plus 2-3% formula.
Glyphosate selling prices have declined 30-35% on YTD basis. Exceptional items
included an expense of INR56m towards employee severance cost.
Consequently, Adjusted PAT stood at INR463m in 3QFY16 (est. INR365m) as
against a profit of INR483m in 3QFY15. .
Valuation and view:
Two years back to back have been marked by low corn
acreages. We believe with normal monsoon expected in FY17 and considering
the increase in prices of corn seen recently, conditions are apt for a crop shift
to be seen in favour of corn, which should benefit Monsanto strongly given its
market leadership in corn. 3QFY16 was the last quarter of glyphosate prices de-
growth and 4QFY16 should see base effect kicking in, aiding margin expansion
in view of higher volumes and lower base. Our estimates remain unchanged.
Maintain Buy with a TP of INR2,350, 26x FY18E EPS (rolled over to FY18).
Financials & Valuations (INR b)
Y/E Mar
2016E 2017E 2018E
5.2
6.5
8.1
Net Sales
0.9
1.4
1.8
EBITDA
0.8
1.2
1.6
PAT
47.1
72.0
90.3
EPS (INR)
-23.6
53.1
25.4
Gr. (%)
203.8 203.8 222.0
BV/Sh (INR)
22.4
35.3
42.4
RoE (%)
26.0
41.1
49.3
RoCE (%)
42.3
27.6
22.0
P/E (x)
9.8
9.8
9.0
P/BV (x)
Estimate change
TP change
Rating change
Niket Shah
(Niket.Shah@MotilalOswal.com); +91 22 3982 5426
Chintan Modi
(Chintan.Modi@MotilalOswal.com); +912239825422/Kaustubh
Kale
(Kaustubh.Kale@MotilalOswal.com); +912230102498
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.