CMP 1805.00

Target Price 1985.00

ISIN: INE462A01022

JULY 4th

2014

BAYER CROPSCIENCE LTD

Result Update (PARENT BASIS): Q4 FY14

BUYBUYBUYBUY

Index Details

Stock Data

Sector Agrochemicals

BSE Code 506285

Face Value 10.00

52wk. High / Low (Rs.) 1939.00/1378.00

Volume (2wk. Avg.) 1781

Market Cap (Rs. in mn.) 66063.00

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY14A FY15E FY16E

Net Sales 32452.00 36021.72 39263.67

EBITDA 5102.00 5573.98 6068.54

Net Profit 2895.00 3135.16 3416.42

EPS 79.10 85.66 93.34

P/E 22.82 21.07 19.34

Shareholding Pattern (%)

1 Year Comparative Graph

BAYER CROPSCIENCE LTD S&P BSE SENSEX

SYNOPSIS

Bayer CropScience is a subgroup of Bayer AG is

one of the world’s leading crop science

companies in crop protection, non-agricultural

pest control, seeds & traits.

Revenue for the quarter ramps up by 41.54% to

Rs. 5527.00 million from Rs. 3905.00 million,

when compared with the prior year period.

During Q4 FY14, net profit stood at Rs. 462.00

million against Rs. 718.00 million in the

corresponding quarter ending of previous year.

Operating profit for the quarter stood at Rs.

848.00 million, witnessing a growth of 163% as

compared Rs. 323.00 million over the

corresponding period of the previous year.

During the FY14, turnover is Rs. 32452.00 mn,

grew by 19% as compared to Rs. 27253.00 mn in

the previous year.

During the year ended 31 March, 2014, EBIDTA is

also increased by 19% to Rs. 5102.00 mn from Rs.

4288.00 mn in the year ended 31 March, 2013.

Bayer CropScience Ltd has recommended a

dividend of Rs. 5.50/- per share of Rs. 10/- each

for the year ended March 31, 2014.

Net Sales and Operating Profit of the company are

expected to grow at a CAGR of 13% and 12% over

2013 to 2016E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Bayer Crop science Ltd 1805.00 66063.00 79.10 22.82 3.79 55.00

UPL Ltd 352.45 151061.60 9.70 36.34 4.01 200.00

Atul Ltd. 1006.90 29866.40 71.74 14.04 3.17 75.00

Rallis India Ltd 224.00 43561.00 7.53 29.75 6.11 240.00

QUARTERLY HIGHLIGHTS (PARENT BASIS)

Results updates- Q4 FY14,

Months Mar-14 Mar-13 % Change

Revenue 5527.00 3905.00 41.54%

PAT 462.00 718.00 -35.65%

EPS 12.62 18.18 -30.56%

PBIDT 848.00 323.00 162.54%

The net profit declines to Rs. 462.00 million against Rs. 718.00 million in the corresponding quarter ending of

previous year, a decrease of 35.65%. Revenue for the quarter ramps up by 41.54% to Rs. 5527.00 million from

Rs. 3905.00 million, when compared with the prior year period. Reported earnings per share of the company

stood at Rs. 12.62 a share during the quarter, registering 30.56% decrease over previous year period. Profit

before interest, depreciation and tax is Rs. 848.00 million as against Rs. 323.00 million in the corresponding

period of the previous year.

Break up of Expenditure

Break up of Expenditure

Value in Rs. Million

Q4 FY14 Q4 FY13 %

Change

Cost of Material

Consumed 1798.00 1748.00 3%

Purchase of stock in

trade 1997.00 1108.00 80%

Employee benefit

Expenses 459.00 432.00 6%

Depreciation &

Amortization Expenses 107.00 96.00 11%

Other Expenses 984.00 866.00 14%

Latest Updates

• Bayer CropScience Ltd has recommended a dividend of Rs. 5.50/- per share of Rs. 10/- each for the year

ended March 31, 2014.

• The exceptional item in the Previous Year represents profit from sale of Thane Land and Buildings Rs. 11,083

Millions and from sale of Powai Building Rs. 823 Millions.

COMPANY PROFILE

Bayer CropScience is with annual sales of about EUR 8.8 billion one of the world's leading innovative crop

science companies in the area of crop protection (Crop Protection), non agricultural pest-control (Environmental

Science), seeds and plant biotechnology (BioScience).

Bayer CropScience as a global innovator and market leader in its industry believes that its technological and

commercial expertise entails a duty to contribute to Sustainable Development.

The acquisition of Aventis CropScience has helped catapult Bayer CropScience to one of the premier

organizations in the world in the areas of Crop Protection, seeds biotechnology and non-agricultural pest control.

Bayer plans to attain leadership position in these areas in the years to come. With a sizeable existence in 122

countries & 22,400 dedicated employees, Bayer CropScience is never too far from its customers.

Business Divisions

Bayer Crop Science is divided into 3 business groups:

• Crop Protection

Crop Protection activities are focused on four fields: Herbicides, Insecticides, Fungicides and Seed Treatment.

Company markets a range of insecticides under the name Confidor. It is fungicide unit is focused on cereals,

industrial crops and pathogens.

• Environmental Science

Bayer Environmental Science is consistently deliver high quality research products for the control of insect

pests of public health. Such products include pesticides to manage malaria vectors, cockroaches, rodents,

termites, stored grain pests, house flies and other pests in general. It has developed crop protection active

ingredients catering customer of non-agricultural pest control markets. The business areas covered by BES,

India are diverse in order to address the specific needs of the customers, covering three major segments:

Vector Control, Professional Pest Control and Green Industry.

• BioScience

BioScience, is a part of Bayer CropScience, and is a global player in research, development and marketing of

high quality seeds and innovative plant-based solutions derived from modern breeding and plant

biotechnology. BioScience offers an integrated portfolio of high quality seeds, trait technologies and high

performance crop protection products. BioScience activities are focused on three areas: Vegetable Seeds,

Agricultural Seeds and Research activities into novel plant-based solutions for agriculture, nutrition, health

and biomaterials.

Quality

The company is covering all the manufacturing units in India business operations and supporting services, was

audited on Quality Management System by TUV India Private Limited (TUV) and the Company was

recommended continuation of ISO 9001:2008 certificate. The Environmental Management System for

Himatnagar and Ankleshwar plants was audited by TUV and was recommended continuation of ISO 4001:2004

certificate.

FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March 31, 2013 -2016E

FY13A FY14A FY15E FY16E

SOURCES OF FUNDS

Shareholder's Funds

Share Capital 395.00 366.00 366.00 366.00

Reserves and Surplus 18918.00 17057.00 20192.16 23608.58

1. Sub Total - Net worth 19313.00 17423.00 20558.16 23974.58

Non Current Liabilities

Deferred Tax Liabilities 18.00 0.00 0.00 0.00

Other Long Term Liabilities 75.00 99.00 116.82 130.84

Long Term Provisions 384.00 401.00 421.05 437.89

2. Sub Total - Non Current Liabilities 477.00 500.00 537.87 568.73

Current Liabilities

Trade Payables 1972.00 2921.00 3359.15 3762.25

Other Current Liabilities 1949.00 2510.00 2961.80 3257.98

Short Term Provisions 439.00 515.00 566.50 611.82

3. Sub Total - Current Liabilities 4360.00 5946.00 6887.45 7632.05

Total Liabilities (1+2+3) 24150.00 23869.00 27983.48 32175.36

APPLICATION OF FUNDS

Non-Current Assets

a) Fixed Assets 3457.00 4446.00 5246.28 5980.76

b) Non-Current Investment 37.00 34.00 36.72 38.56

c) Deferred tax assets 0.00 139.00 152.90 163.60

c) Long Term loans and advances 734.00 721.00 742.63 757.48

1. Sub Total - Non Current Assets 4228.00 5340.00 6178.53 6940.40

Current Assets

Current Investments 0.00 3.00 3.30 3.56

Inventories 5000.00 5495.00 5934.60 6290.68

Trade receivables 3224.00 4099.00 4877.81 5560.70

Cash and Bank Balances 9741.00 4862.00 5780.88 7285.08

Short-terms loans & advances 1860.00 4039.00 5169.92 6048.81

Other current assets 97.00 31.00 38.44 46.13

2. Sub Total - Current Assets 19922.00 18529.00 21804.95 25234.96

Total Assets (1+2) 24150.00 23869.00 27983.48 32175.36

Annual Profit & Loss Statement for the period of 2013 to 2016E

Value(Rs.in.mn) FY13A FY14A FY15E FY16E

Description 12m 12m 12m 12m

Net Sales 27253.00 32452.00 36021.72 39263.67

Other Income 689.00 909.00 927.18 964.27

Total Income 27942.00 33361.00 36948.90 40227.94

Expenditure -23654.00 -28259.00 -31374.92 -34159.40

Operating Profit 4288.00 5102.00 5573.98 6068.54

Interest -37.00 -48.00 -56.64 -64.00

Gross profit 4251.00 5054.00 5517.34 6004.54

Depreciation -366.00 -646.00 -723.52 -788.64

Exceptional Items 11747.00 0.00 0.00 0.00

Profit Before Tax 15632.00 4408.00 4793.82 5215.90

Tax -4015.00 -1513.00 -1658.66 -1799.49

Net Profit 11617.00 2895.00 3135.16 3416.42

Equity capital 395.00 366.00 366.00 366.00

Reserves 18918.00 17057.00 20192.16 23608.58

Face value 10.00 10.00 10.00 10.00

EPS 294.10 79.10 85.66 93.34

Quarterly Profit & Loss Statement for the period of 30th Sep, 2013 to 30th June, 2014E

Value(Rs.in.mn) 30-Sep-13 31-Dec-13 31-Mar-14 30-Jun-14E

Description 3m 3m 3m 3m

Net sales 10504.00 6544.00 5527.00 9948.60

Other income 279.00 234.00 165.00 183.15

Total Income 10783.00 6778.00 5692.00 10131.75

Expenditure -8655.00 -6061.00 -4844.00 -8655.28

Operating profit 2128.00 717.00 848.00 1476.47

Interest -7.00 -7.00 -28.00 -15.40

Gross profit 2121.00 710.00 820.00 1461.07

Depreciation -343.00 -113.00 -107.00 -97.37

Profit Before Tax 1778.00 597.00 713.00 1363.70

Tax -613.00 -207.00 -251.00 -463.66

Net Profit 1165.00 390.00 462.00 900.04

Equity capital 395.00 366.00 366.00 366.00

Face value 10.00 10.00 10.00 10.00

EPS 29.49 10.66 12.62 24.59

Ratio Analysis

Particulars FY13A FY14A FY15E FY16E

EPS (Rs.) 294.10 79.10 85.66 93.34

EBITDA Margin (%) 15.73% 15.72% 15.47% 15.46%

PBT Margin (%) 57.36% 13.58% 13.31% 13.28%

PAT Margin (%) 42.63% 8.92% 8.70% 8.70%

P/E Ratio (x) 6.14 22.82 21.07 19.34

ROE (%) 60.15% 16.62% 15.25% 14.25%

ROCE (%) 24.10% 32.99% 30.63% 28.60%

EV/EBITDA (x) 14.36 12.00 10.81 9.69

Book Value (Rs.) 488.94 476.04 561.70 655.04

P/BV 3.69 3.79 3.21 2.76

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs.1805.00, the stock P/E ratio is at 21.07 x FY15E and 19.34 x FY16E

respectively.

� Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.85.66 and

Rs.93.34 respectively.

� Net Sales and Operating Profit of the company are expected to grow at a CAGR of 13% and 12% over 2013 to

2016E respectively.

� On the basis of EV/EBITDA, the stock trades at 10.81 x for FY15E and 9.69 x for FY16E.

� Price to Book Value of the stock is expected to be at 3.21 x and 2.76 x respectively for FY15E and FY16E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.1985.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

India is one of the fastest growing economies in the world and so is its population. In order to feed the ever

growing population, cultivation of crops has to be on a very large scale and agrochemicals helps the farmers to do

the same. The market for agrochemicals is growing in India owing to the changing policies of the government and

increasing production.

The agrochemicals industry is a significant industry for the Indian economy. India has to ensure food security for

population of 1.21 billion while facing reduction in cultivable land resource. With increasing population, demand

for food grains is increasing at a faster pace as compared to its production. This necessitates the use of pesticides.

Since the Indian agricultural sector is highly dependent on monsoons, the market for agrochemicals is expected

to grow at a conservative growth rate of 7.5% to reach ~ USD 1.95 billion by FY14. In terms of agrochemicals

production, India ranks fourth in the world after USA, Japan and China respectively. Besides, the global

agrochemicals industry is growing at about 12% CAGR and is likely to cross Rs 13 lakh crore marks from the

current level of about Rs 8.5 lakh crore.

Key Segments

� Insecticides: Insecticides are used to ward off or kill insects. Consumption of insecticides for cotton has

come down to 50% from 63% of total volume after introduction of BT cotton. Fungicides: Fungicides are

used to control disease attacks on crops. The growing horticulture market in India owing to the government

support has given a boost to fungicide usage.

� Herbicides: Herbicides are the fastest growing segment of agrochemicals. Their main competition is cheap

labor which is employed to manually pull out weeds. Sales are seasonal, owing to the fact that weeds flourish

in damp, warm weather and die in cold spells.

� Bio-pesticides: Bio-pesticides are pesticides derived from natural substances like animals, plants, bacteria

and certain minerals. Currently a small segment, biopesticides market is expected to grow in the future

owing to government support and increasing awareness about use of non-toxic, environment friendly

pesticides.

� Others: Plant growth regulators, Nematocides, Rodenticides, Fumigants etc. Rodenticides and plant growth

regulators are the stars of this segment.

Competitive Landscape

The Indian agrochemicals market is highly fragmented in nature with over 800 formulators. The competition is

fierce with large number of organized sector players and significant share of spurious pesticides. The market has

been witnessing mergers and acquisitions with large players buying out small manufacturers.

Key market participants include United Phosphorus Ltd, Bayer Cropscience Ltd, Rallis India Ltd, Gharda

Chemicals Ltd, Syngenta India Ltd, BASF India Ltd, etc. Top ten companies control almost 80% of the market

share. The market share of large players depends primarily on product portfolio and introduction of new

molecules. Strategic alliances with competitors are common to reduce risks and serve a wider customer base.

Market Trends

� Focus on developing environmentally safe pesticides by the industry as well as the Government. The

Department of Chemicals has initiated a nationwide programme for “Development and production of neem

products as Environment Friendly Pesticides” with financial assistance from United Nations Development

Programme (UNDP).

� Focus by larger companies on brand building by conducting awareness camps for farmers and providing

complete solutions.

� Increase in strategic alliances among large players for greater market reach and acquisitions of smaller

companies globally to diversify product portfolio. For example: Rallis has a marketing alliance for key

products with FMC, Dupont, Syngenta, Bayer and Nihon Nohayaku. In addition, UPL has had a series of small

acquisitions globally to enter new geographies and gain product expertise.

Technology Trends

� Increased R&D expected for development of new molecules and low dosage, high potency molecules

� Focus on R&D in bio-pesticides segment with increasing preference for environmentally safe products in the

market

Growth Forecast & Drivers

The market size of Indian agro- chemicals industry is expected to more than double to $5 billion by 2017 on

rising agri production and increasing awareness among farmers. Currently, the market size of the sector is at $2

billion. In the wake of increasing agricultural production and awareness among farmers about the use of

insecticides and pesticides, the demand is bound to grow. It will cross $5 billion by 2017.

Growth in demand for food grains:

India has 16% of the world’s population and less than 2% of the total landmass.

� Limited farmland availability and growing exports

India has ~190 Mn hectares of gross cultivated area and the scope for bringing new areas under cultivation is

severely limited. Available arable land per capita has been reducing globally and is expected to reduce

further. The pressure is therefore to increase yield per hectare which can be achieved through increased

usage of agrochemicals.

� Growth of horticulture & floriculture

Buoyed by 50% growth experienced by Indian floriculture industry in last 3 years, Government of India has

launched a national horticulture mission to double production by 2012. Growing horticulture and floriculture

industries will result in increasing demand for agrochemicals, especially fungicides.

� Increasing awareness

As per Government of India estimates, total value of crops lost due to non-use of pesticides is around USD 17

Bn every year. Companies are increasingly training farmers regarding the right use of agrochemicals in terms

of quantity to be used, the right application methodology and appropriate chemicals to be used for

indentified pest problems. With increasing awareness, the use of agrochemicals is expected to increase.

Globally, North America, European Union and Asia Pacific consume over 75 per cent of the world's

agrochemicals.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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