A good agriculture performance is reflected in encouraging numbers posted by 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. Thanks to the new accounting policy on deffered taxation, there was a sharp jump in tax provision. PBT however, jumped more than 104%.
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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 capacity expansion 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 495, implying a P/E of 14x its FY02 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 as the parent company remains committed to introduce new products in the domestic market.
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