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Monsanto: Merger costs suppress margins

Jan 22, 2001

Monsanto has declared a net profit of Rs 89 m on a turnover of Rs 1.19 bn for the third quarter of the current year. Though the operating margins for the current quarter vis-à-vis the corresponding quarter have gone up substantially, the results are not strictly comparable.

(Rs m) 3QFY00 3QFY01 9m FY00 9m FY01 Change FY00
Sales 57 1,198 916 2,532 176.6% 1,132
Other Income 3 7 5 22 363.8% 13
Expenditure 56 1,080 787 2,271 188.7% 996
Operating Profit (EBDIT) 1 117 129 261 102.8% 136
Operating Profit Margin (%) 1.2% 9.8% 14.1% 10.3%   12.0%
Interest (0) 7 20 20 2.6% 25
Depreciation 2 16 6 40 539.7% 7
Profit before Tax 2 101 108 223 106.8% 117
Other Adjustments       27   3
Tax - 13 3 13 333.3% -
Profit after Tax/(Loss) 2 89 105 237 126.1% 120
Net profit margin (%) 3.2% 7.4% 11.4% 9.3%   10.6%
Earnings per share* 1.67 82.51 48.70 110.09   27.98

This is because, till last year, the company had four entities operating in India. These were Monsanto Chemicals, the listed company which was a manufacturer of herbicides, Monsanto Enterprises a 100% subsidiary of the parent which was into the marketing these products, Monsanto Technologies (another wholly owned subsidiary of the parent) was engaged in the manufacture of seeds and finally, Monsanto Holdings, a third 100% subsidiary, which was holding the equity in Monsanto Chemicals!!

Last year, the company merged the three unlisted companies into the listed company. Hence the current quarter’s numbers include the figures of the other three companies as well. Hence it would be relatively meaningful if one were to look at the operating margins of the full nine months in the current year and compare those with the comparable figures for the nine months of last year. These have actually dropped from 14% last year to 10% in the current year.

The management has explained that the staff cost, depreciation and other expenses have increased as compared to the previous periods due to the acquisition of agriculture business of Monsanto Enterprises and agriculture business related assets of Monsanto Holdings.

The stock has come off from its yearly high (recorded pre–merger) of Rs 1,955 to the current level of Rs 1,026. The current valuations imply an earnings multiple of 12.4 times. However, if one were to overlook these short term concerns and focus on the fact that internationally, the company is one of the pioneers in the biotech business and the fact that the interests of both the majority and minority shareholders are more closely aligned now, long term investors could take a relook at the stock at its current valuations.

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