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Bayer India: Crop science focus - Views on News from Equitymaster
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  • Dec 9, 2003

    Bayer India: Crop science focus

    Bayer India is a subsidiary of German pharma and crop science major, Bayer AG. Bayer India too, is a major player in the crop protection business. It also has exposure in rubber chemicals and animal health segments. With marketing and sales of its pharma business now done by its parent's 100% subsidiary (Bayer Pharmaceuticals Limited), Bayer India has become a focused crop science company. Acquisition of Aventis CropScience by Bayer is likely to further strengthen its position in this segment and usher in operating efficiencies for the combined entity.

    Good monsoon and growing awareness among farmers regarding the advantages that new chemical products have over traditional means of crop protection, signal good growth for the company going forward in the crop protection business (domestic market size of over Rs 30 bn). Combined with Aventis CropScience, Bayer's market share is over 25% in this segment. However, generics and low priced poor quality imports continue to eat into Bayer's market share, which remains a key concern area. The company launched three new products in FY03 namely, Antracol, Raxil and Bulldock in this segment. These products have received good initial response.

    In the rubber chemicals business, tyre industry is the key growth driver. With the domestic auto industry showing signs of growth, the demand for rubber chemicals is expected to increase going forward. In FY03, Bayer India's newly launched ranges of anti-oxidants were received positively by the industry. In the animal health segment, Bayer India is a market leader in the companion animal (cat, dog, horse) healthcare segment. Export focus and launch of locally formulated livestock healthcare products is the key growth driver in this segment. Recently, the company entered into a marketing alliance with Pfizer India for the sale of its livestock and companion animal healthcare products through Pfizer India's animal health sales force.

    (Rs m) 9mFY03 9mFY04 Change
    Net Sales 4,722 4,406 -6.7%
    Operating Profit (EBDIT) 584.8 693.8 18.6%
    Operating Profit Margin (%) 12.4% 15.7%  
    Profit after Tax/(Loss) 206 195.8 -5.0%
    Net profit margin (%) 4.4% 4.4%  
    Earnings per share (Rs)* 16.9 16.1  
    P/E (x)   15.1  

    During 9mFY04, Bayer India has reported a 7% drop in topline and a 5% drop in bottomline. A 9% drop in revenues from the crop science business fueled the decline in net sales. However, a 20% growth in the rubber chemicals business provided some support to the company's performance. Despite a drop in net sales, reduction in material cost and other expenditure as a percentage of sales helped the company record a 330 basis point improvement in operating profit margins. Although higher operating profits coupled with a reduction in interest costs helped the company improve its performance at the profit before tax level, sharp rise in extra ordinary expenditure resulted in the company registering a 5% drop in net profits.

    At Rs 243, Bayer India is trading at a P/E of 15x its annualised 9mFY04 earnings (excluding Aventis CropScience). A concerning development is that Bayer AG has recently formed a 100% subsidiary, Bayer Pharmaceuticals. The subsidiary has fully taken over the pharmaceuticals sales and marketing operations from Bayer India. With revenues from the pharma business now accruing directly to the parent, the shareholders of Bayer India are at loss. Moreover, further transfers of such type remain a key concern for the shareholders' interest going forward. On the positive side, Bayer India has now become a totally focused crop science player.



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