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Monsanto: The monsoon effect - Views on News from Equitymaster
 
 
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  • Feb 15, 2002

    Monsanto: The monsoon effect

    The good Kharif season is reflected in the third quarter performance of Monsanto India. It may be noted that the company had merged three of its unlisted subsidiaries in May '00 last year. Thus the numbers for the current quarter are comparable on a like to a like basis. The benefit of restructuring excerise carried out by the company and good monsoon effect is reflected in the results. The company has recorded a 174% rise in PBT. Thanks to the new accounting policy on deffered taxation, there was a sharp jump in tax provision.

    (Rs m) 3QFY01 3QFY02 % change
    Sales 1,082 1,335 23.4%
    Other Income 7 7 4.3%
    Expenditure 964 1,035 7.3%
    Operating Profit (EBDIT) 117 300 156.3%
    Operating Profit Margin (%) 10.8% 22.5%  
    Interest 7 14 95.9%
    Depreciation 16 15 -1.3%
    Profit before Tax 101 278 174.4%
    Tax 13 94 655.2%
    Profit after Tax/(Loss) 89 183 106.7%
    Net profit margin (%) 8.2% 13.7%  
    No. of Shares (eoy) (m) 4.3 8.6  
    Diluted Earnings per share* 82.1 85.3  
    P/E (at current price) 5.4  
    (*- annualised)      

    The company has recorded a 174% rise in PBT. Thanks to the new accounting policy on deffered taxation, there was a sharp jump in tax provision. Monsanto had declared a loss in second quarter of the current year due to a sharp change in product mix.

    The integration of the company with its subsidiaries last year has resulted in a wide product portfolio consisting of herbicides, seeds and biotechnology products. Further, the company also carried out an expansion of its installed capacity of its formulations plant at Silvassa.

    Monsanto's chief strength has been its focus on the fast-growing herbicides segment thanks to the leadership status enjoyed by its parent in this business. The company's operating margins are amongst the best in the industry. The world market for agrochemicals is primarily dominated by herbicides, which forms 47% followed by insecticides at 32% and fungicide at 21%. By contrast, in the Indian agrochemicals market, insecticides have the lion's share of 76%, followed by herbicides with 13%. This is because insecticides are cheaper than herbicides. However, the consumption of agrochemicals is expected to move in favour of herbicides over a period of time, with steady increase in rural labour costs. This is because though insecticides are cheaper they incur higher labour cost. Further, with MNCs phasing out technical manufacturing in some parts of the world due to environmental reasons and relocating to Asian and African countries, multinational players in India, like Monsanto have better export opportunities.

    The stock is currently, trading at Rs 462, implying a P/E of 6x its 9mFY02 annualised earnings. The longer term outlook of the company looks encouraging considering the fact that internationally the company is one of the pioneers in biotech business. Going forward, the company is likely to benefit from new product introductions from the parent company.

     

     

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