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Camson Bio Technologies Ltd-Initiating Coverage

Camson Bio Technologies Ltd-Initiating Coverage

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Published by A_Kinshuk

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Published by: A_Kinshuk on Jul 22, 2010
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Camson India is an R&D centric ISO 9001:FY2000 certified bio technologycompany operating mainly in the field of manufacturing biocides, biofertilizers and stimulants and hybrid seeds. The company is one of the veryfew companies and only one in the listed space which is producing zeroresidue bio fertilizers and engaged in research related to Phytochemicals,Agronomy, Entomology, Biodiversity, Microbiology, Fermentation, PlantPhysiology, Molecular Biology, Contract Research, Genetics & PlantBreeding, Plant Pathology and Bioprocess Engineering. Since its inceptionin 1993, the company has received several awards and recognitions. Thecompany has been recognized as a leading technology company in theDeloitte Technology 'Fast 50 India' FY2009 Program and ranked at the 33rdposition. It has also received recognition for its state of the art R & D unit, byGovt. of India, Dept of DSIR among others.In the current situation where the prices of fruits and vegetables areskyrocketing, we see it as an interesting and significantly rewardinginvestment theme where companies, like Camsons, which continuouslyhelp the farming community to increase yields (by providing better qualityinputs like seeds and fertilizers) as well as provide safe crop protectionproducts (like bio-pesticides). We believe that there will be significantdemand for its product which we believe will form a more healthy andeconomic substitute to existing products. We expect the revenues for FY11to increase by 50% to Rs. 120 crs (after a 62% jump in previous year). Thehistorical spends in R&D and the products developed would increase theasset turnover. Owing to the operating leverage, the margins and henceROE are expected to expand from here. We expect a 200 bps improvementin Operating Profit Margin (OPM), from current 21% to 23%. Due to somecapital investment, leading to interest and depreciation cost, the PATmargins will not expand significantly. PAT margins are expected to be at20% for FY11. RONW is expected to improve from 27% now to 29% in FY11despite dilution by fresh issue of 23.5 lakh shares at a price of Rs. 75 pershare during FY10.
We have valued the share at Rs. 250 at 12.5 times its FY12 expected EPS of Rs. 20.04.
20th July, 2010Initiating Coverage
Camson Bio Technologies Ltd.
RecommendationCMPTARGET: Rs. 166.00: Rs. 250.00
BSE CodeNSE SymbolBloombergMarket Cap. (Rs. Crs)Free Float52 Week High52 Week LowDividend Yield -%BetaPromoter GroupFIIDIIOthersTotal590076-CBTL IN16514121035.255.570.7131.748.220.5859.46100
Kinshuk Acharya
91-33-3918 0386 - 87
Promoter's BackgroundInvestment Rationale
The company was promoted by Dhirenrda Kumar a technocrat in 1993. Prior to this he has served as General Manager at ITCand as a marketing manager at Pioneer Seed Co. In addition to this, he also held positions in Ranbaxy and Coromondal Indag.Mr. Kumar holds an M.Sc in plant genetics and breeding and an MBA in Marketing from Punjab Agricultural University and anMBA in Export Management from IIFT, New Delhi.
Intellectual property involved with R&D provides High Entry Barrier
Rigorous research done by the company in the field of agronomy and bio technology over the period of last 15 years hasenabled the company to produce 22 different variants of Bio Pesticides, 7 Bio Fertilizers and 17 Hybrid Seeds. The intellectualcapital and time require for development of these products creates high entry barrier for new entrant to replicate thebusiness model
Enjoy the benefit of being the first mover
Camson enjoys first mover advantage in certain product categories such as ice-box watermelon, hybrid musk melon andhybrid sweet corn using latest molecular biology tools. There is a substantial demand for these products in the market whereall these products are presently being imported into the country at a premium price. These products are already findingpopularity among the farmers and are expected to have better market going forward
Intense research by the company over the last 15 years is about to yield fruit
A typical biocide research takes 9 to 12 years to yield results. Similarly it takes 5-6 years to launch a new hybrid. Camsonalready has a proven track record of hybrid vegetable seeds with a complete range of over 49 varieties. In-house library of selected and characterized microbes (3700) which have been found to be very effective in controlling various pests andpathogens through their secondary metabolites have enabled the company to develop various products for pest control andcrop protection. Camson's Biofertilizers are well known for their effective mobilization of nutrients to plant.
Huge export market for zero-residue farm products
With the world increasingly becoming sensitive to chemical-free food and exports increasingly needing to be zero-residue,demand for bio-fertilizers & bio-pesticides is zooming yearly. The world over, countries are moving towards banning agro-chemicals due to the increasing realisation of the longer term costs on the health of their populations. As consciousnessregarding non residue farm products spread the company would experience substantial enhancement of demand for itsproducts going forward
Competitive pricing
The company's fruits and vegetable business is slated to rise many fold as the R&D effort of the company enables it toincrease yield per hectare substantially which in turn enables the company to sell its products at lower than the equivalentprices for the chemical-based products, and with the "chemical-free, zero-residue" advantages. This makes it a win-winsituation for the farmer / contract farmers involved. Company also has all the necessary certifications for its products.
Strong Top line, bottom line and cash flow visibility
In FY10' the company showcased a growth of 62.6% in topline and 85% in its bottomline. Looking at the business
20th July, 2010
fundamentals and the growth in target market, we expect the topline to grow at a CAGR of 35% for next 3 years. Our belief that the R&D expenditure booked by the company in previous years would bear fruits in coming years supporting andimproving the margins going forward as well.From increase in population and food demand to resource depletion and climate change, governments and nations acrossthe world are grappling with the changing dynamics of food security. According to estimates, the global demand for food islikely to double by 2050 as world population multiplies and economic growth enables higher spending on food.Meeting the food demand of the world, across developed and developing nations is the biggest challenge governments andthe private sector face in the near future. With land shrinking and agricultural land resources diminishing, the only way tomeet the food demand is by producing more from less and protecting the produce from destruction. In this changingscenario, agricultural biotechnology continues to promise higher value agriculture for farmers and is witnessing a high rateof adoption.According to
Wood MacKenzie,
a US-based consultancy firm to the agricultural biotechnology sector, in FY2000, the globalmarket size of synthetic chemical pesticides was approximately US $60 billion. Although synthetic chemical pesticides, often,are effective in controlling pests, many are acutely toxic and are suspected carcinogens. The Indian pesticides market isabout Rs. 8,000 crores and growing at the rate of 5-7% p.a. However, the awareness against the pesticides residue and theincrease in export of fruits and vegetables from India has adversely affected the chemical pesticides business and its growth.With the advent of non residue biocides, chemical fertilizers are going to suppressed growth going forward. However, thispresents excellent opportunities for non chemical based fertilizers and the company, being one of the pioneers in this field, isall set to witness substantial growth in its business going forward. As a strategy the company is partnering with rural farmingcommunities, government agencies and corporate houses in order to empower farming communities through need focusedresearch and development. The company's motto is that innovation in agricultural science and technology is the mostpowerful means to realize the vision of creating a healthy and disease-free society.As depicted in the adjacent schematic, the company'sbusiness revolve around the development and productionof zero residue biocides, bio fertilizers, high yielding hybridseeds and sale of branded hybrid & Genetically Modified(GM) fruits and vegetables.In this segment the company has launched freshvegetables and fruits under its brand
"Camson ZeroResidue Vegetables and Fruits".
This is in keeping with itsphilosophy to provide safe food to promote a healthy anddisease free society. The company uses its own high
Industry OverviewBusiness OverviewHybrid Fruits & Vegetables
20th July, 2010

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