21 August 2014

1QFY15 Results Update | Sector: Agri

Monsanto India
BSE SENSEX S&P CNX
26,360 7,891 CMP: INR2,135 TP: INR2,600 Buy
Bloomberg MCHM IN  Strong beat in growth, market share gain continues: Monsanto reported 16% YoY
Equity Shares (m) 17.3 increase in overall revenues to INR2.65b as against INR2.28b in 1QFY14, beating
M.Cap. (INR b) / (USD b) 36.9/0.6 our estimate of INR2.45b (8% growth). Seeds grew ~14% primarily driven by price
52-Week Range (INR) 2,415/560 increases and better product mix due to launch of newer products with higher
1, 6, 12 Rel. Per (%) -2/39/215 average selling price. Inspite of 10% de growth in industry volumes in Kharif
season (75,000MT market size), Monsanto has outpaced its competitors which
Financials & Valuation (INR Million) have seen 10-20% revenue de-growth in the corn segment. Monsanto has gained
Y/E Mar 2015E 2016E 2017E market share in 1QFY15 and is on track to further improve its share to 30% over
Net Sales 6,739 8,028 9,533 next few years from 25% in FY14. Herbicide business grew ~17% led by increase in
EBITDA 1,771 2,181 2,648 prices as well as in volume, albeit in lower single digit. With monsoon picking up in
Adj PAT 1,623 2,040 2,477 July we expect volume growth to pick up in herbicide segment in H2FY15. EBITDA
EPS (INR) 94.0 118.2 143.5 margins expanded 320bps to 31.3% in 1QFY15 from 28.1% in 1QFY14 primarily
Gr.(%) 24.5 25.7 21.5 due to reduction in other expenses. Consequently, Reported PAT grew 26.3% to
BV/Share 258.6 341.8 450.3
INR710m in 1QFY15 from INR562m in 1QFY14.
(INR)
RoE (%) 41.0 39.4 36.2
 Rabi continues to hold promise; margins profile set to improve: Management
RoCE (%) 45.7 43.7 40.3
believes that the company is strongly positioned to take benefit of Rabi season on
P/E (x) 22.7 18.1 14.9
the back of newer product launches and improving age profile of its corn
P/BV (x) 8.3 6.2 4.7
portfolio. While MCHM’s 1HFY15 corn volume growth was muted due to weak
rainfall, we believe the company is on track for a robust Rabi crop. Company has
launched three new hybrids in FY15; most of them have been single-cross. We
expect higher share of single-cross in upcoming Rabi season to result in better
margin profile going forward.
 Valuation and view: We upgrade our estimates 20% and 3% for FY15E and FY16E,
respectively, to factor in market share gain in corn segment and strong upcoming
corn season. We believe that the investments made during FY09-12 have started
paying off for MCHM in terms of new product launches and market share gains.
We remain excited about the huge potential in genetically-modified (GM) foods
and MCHM’s Roundup Ready Flex. We upgrade our target price to INR 2,600 (22x
FY16E EPS) from INR2,300, Maintain Buy.

Niket Shah (Niket.Shah@MotilalOswal.com); +91 22 3982 5426

Atul Mehra (Atul.Mehra@MotilalOswal.com); +91 22 3982 5417
Investors are advised to refer through disclosures made at the end of the Research Report.
 Monsanto India

Strong beat in growth, market share gains continues

 Monsanto reported 16% YoY increase in overall revenues to INR2.65b as against
INR2.28b in 1QFY14, beating our estimate of INR2.45b (8% growth).
 Seeds grew ~14% primarily driven by price increases and better product mix due
to launch of newer products with higher average selling price.
 Inspite of 10% de growth in industry volumes in Kharif season (75,000MT
market size), Monsanto has outpaced its competitors which have seen 10-20%
revenue de-growth in the corn segment.
 Monsanto has gained market share in 1QFY15 and is on track to further improve
its share to 30% over next few years from 25% in FY14.
 Herbicide business grew ~17% led by increase in prices as well as in volume,
albeit in lower single digit.
 With monsoon picking up in July we expect volume growth to pick up in
herbicide segment in H2FY15.
 EBITDA margins expanded 320bps to 31.3% in 1QFY15 from 28.1% in 1QFY14
primarily due to reduction in other expenses.
 Consequently, Reported PAT grew 26.3% to INR710m in 1QFY15 from INR562m
in 1QFY14.

Revenue growth strong led by pricing growth EBITDA margins expand 320bp YoY

Net Sales (INR m) YoY Change (%) EBITDA (INR m) Margins (%)
89.9 36.6
28.1 31.3
69.6 25.7 24.6
62.8
16.3 12.4
2.3 3.3
2,276 2,648 828
8.4 14.1
2,044 13.3 11.4 1,825 8.8 525 639 668
690 966 751 -21.1 275 16 120 25
570
1,121
-120
1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14

4QFY14

Source: Company, MOSL Source: Company, MOSL 1QFY15

Strong PAT growth continues Leadership in corn market in India

PAT (INR m) YoY Growth (%) Market Share in Corn
160.3 Monsanto,
122.4 Nuziveedu, Others, 5%
10% 25%
10.4 13.3 15.6 26.3
0.2
651
486 -120.2 -162.7 710 Kaveri, 14%
293 15 562 76 40

-121
1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

Pioneer, 23
Du %
Pont, 23%

Source: Company, MOSL Source: Company, MOSL

21 August 2014 2
 Monsanto India

Rabi continues to hold promise; margins profile set to improve

 Management believes that the company is strongly positioned to take benefit of
Rabi season on the back of newer product launches and improving age profile of
its corn portfolio.
 While MCHM’s 1HFY15 corn volume growth was muted due to weak rainfall, we
believe the company is on track for a robust Rabi crop.
 Company has launched three new hybrids in FY15; most of them have been
single-cross.
 We expect higher share of single-cross in upcoming Rabi season to result in
better margin profile going forward.

21 August 2014 3
 Monsanto India

Story in charts

Corn hybridization still at nascent stage in India 5 States contributing 65% of the total corn production in India

94% % of Crop in Hybrid

88% 86% 85%
Share by State
75%
60% AP
Others
35% 35% 22%

Mah 8% Karnataka
Brazil

Global
USA

Argentina
SA

India
Canada

16%
Rajasthan Bihar
8% 11%
Source: Company Source: Company

Worldwide Corn Production (mt) Worldwide Corn Consumption (mt)

Canada South Others Others

2% Africa 14% 21%
Mexico 1%
2% Indonesia US
US
India Argentina 37% 1% Egypt 32%
Canada
2% 3% 1% Japan 1%
Ukraine EU 2% India
3% 2%
7% China Mexico China
22% 3% Brazil 23%
Brazil
6% EU
7%
8%

Source: Company, MOSL Source: Company, MOSL

Herbicide penetration (%) Consumption of Agrochemical is lowest in India

Source: Company, MOSL Source: Company, MOSL

21 August 2014 4
 Monsanto India

Monsanto India: an investment

= profile
Company description
Monsanto India limited (MCHM), the flagship company of
Monsanto company, is a subsidiary and the only listed
Monsanto entity outside the United States. MCHM has
partnered with farmers for over four decades. In India,
the Monsanto group operates through 3 entities i.e. (1)
the listed entity Monsanto India Ltd (MCHM) which is
primarily involved in Maize seeds and Herbicides; (2)
50:50 JV between Mahyco and Monsanto Holdings Pvt.
Ltd known as Mahyco Monsanto Biotech (MMB) which is
sub-licensed to distribute BT cotton technology in India;
and (3) Monsanto Holding.
Key investment argument
 Monsanto has launched 7-8 hybrids in last 2 years
leading of regain of market share from players like
pioneer and DuPont which are around 20-23% market
each
 Monsanto India currently derives 40% of its revenues
from products launched in last 2 years.
 Operational efficiencies and consolidation measures
have helped reduce seed write offs to less than 7% of
revenues from an average of 20% for last 3 years.
 Farmers choosing maize hybrid seeds have
contributed to increasing maize production by
approximately 93 per cent in the last 11 years.
 Monsanto has a ~60% market share in the
global USD5.4b glyphosate industry and ~25%
market share in the Indian INR8b glyphosate
industry selling products under the ‘Roundup’
brand.
Investment risks
 Failure of performance of the product.
 Competitor product starts giving better yields.
 Farmers choosing other crops like cotton etc.
over maize resulting in decrease in acerages.
Valuation and view
We upgrade our estimates 20% and 3% for FY15E
and FY16E, respectively, to factor in market share
gain in corn segment and strong upcoming corn
season. We believe that the investments made
during FY09-12 have started paying off for MCHM
in terms of new product launches and market
share gains. We remain excited about the huge
potential in genetically-modified (GM) foods and
MCHM’s Roundup Ready Flex. We upgrade our
target price to INR 2,600 (22x FY16E EPS) from
INR2,300, Maintain Buy.

Target price and recommendation

EPS: MOSL forecast v/s consensus (INR)
Current Target Upside Reco
MOSL Consensus Variation
Price (INR) Price (INR) (%)
Forecast Forecast (%)
2,135 2,600 21.8 Buy
FY15 94.0 90.6 3.7
FY16 118.2 119.9 -1.4

Shareholding pattern (%) Stock performance (1-year)

Jun-14 Mar-14 Jun-13
Promoter 72.1 72.1 72.1
DII 3.3 2.5 2.1
FII 1.4 0.3 0.0
Others 23.2 25.1 25.7
Notes: FII includes depository receipts

21 August 2014 5
 Monsanto India

Financials and valuation

Income statement (INR Million) Ratios

Y/E Mar 2014 2015E 2016E 2017E Y/E Mar 2014 2015E 2016E 2017E
Net Sales 5,819 6,739 8,028 9,533 Basic (INR)
Change (%) 31.5 15.8 19.1 18.7 EPS 75.5 94.0 118.2 143.5
EBITDA 1,450 1,771 2,181 2,648 Cash EPS 82.4 101.7 126.7 152.9
EBITDA Margin (%) 24.9 26.3 27.2 27.8 Book Value 199.6 258.6 341.8 450.3
Depreciation 119 133 147 162 DPS 30.0 30.0 30.0 30.0
EBIT 1,331 1,638 2,033 2,485 Payout (incl. Div. Tax.) 44.2 37.2 29.6 24.4
Interest 5 0 0 0 Valuation(x)
Other Income 129 168 233 267 P/E 28.3 22.7 18.1 14.9
Extraordinary items -69 0 0 0 Cash P/E 25.9 21.0 16.9 14.0
PBT 1,524 1,807 2,266 2,752 Price / Book Value 10.7 8.3 6.2 4.7
Tax 159 184 227 275 EV/Sales 4.7 3.9 3.1 2.5
Tax Rate (%) 10.4 10.2 10.0 10.0 EV/EBITDA 19.0 15.0 11.6 8.8
Reported PAT 1,365 1,623 2,040 2,477 Dividend Yield (%) 1.4 1.4 1.4 1.4
Adjusted PAT 1,304 1,623 2,040 2,477 Profitability Ratios (%)
Change (%) 93.6 24.5 25.7 21.5 RoE 34.7 41.0 39.4 36.2
Min. Int. & Assoc. Share 0 0 0 0 RoCE 38.8 45.7 43.7 40.3
Adj Cons PAT 1,304 1,623 2,040 2,477 Turnover Ratios (%)
Asset Turnover (x) 1.7 1.5 1.4 1.2
Balance sheet (INR Million) Debtors (No. of Days) 19.9 19.9 19.9 19.9
Y/E Mar 2014 2015E 2016E 2017E Inventory (No. of Days) 106.1 107.4 103.9 102.4
Share Capital 173 173 173 173 Creditors (No. of Days) 115.3 118.8 116.3 115.6
Reserves 3,272 4,291 5,727 7,600 Leverage Ratios (%)
Net Worth 3,445 4,464 5,899 7,772 Net Debt/Equity (x) 0.0 0.0 0.0 0.0
Debt 0 0 0 0
Deferred Tax 0 0 0 0 Cash flow statement (INR Million)
Total Capital Employed 3,445 4,464 5,899 7,772 Y/E Mar 2014 2015E 2016E 2017E
Gross Fixed Assets 1,678 1,878 2,078 2,278 OP/(Loss) before Tax 1,455 1,807 2,266 2,752
Less: Acc Depreciation 793 925 1,073 1,235 Depreciation 119 133 147 162
Net Fixed Assets 885 952 1,005 1,043 Others 0 0 0 0
Capital WIP 0 37 44 52 Interest -124 -168 -233 -267
Investments 2,667 2,667 2,667 2,667 Direct Taxes Paid 159 184 227 275
Current Assets 2,523 3,900 5,698 8,050 (Inc)/Dec in Wkg Cap 664 61 -34 -45
Inventory 1,692 1,984 2,285 2,674 CF from Op. Activity 1,886 1,647 1,920 2,328
Debtors 330 382 455 541 (Inc)/Dec in FA & CWIP -112 -237 -207 -208
Cash & Bank 85 1,060 2,403 4,186 (Pur)/Sale of Invt -158 0 0 0
Loans & Adv, Others 416 474 555 650 Others -1,125 168 233 267
Curr Liabs & Provns 2,668 3,130 3,552 4,077 CF from Inv. Activity -1,395 -68 26 59
Curr. Liabilities 1,934 2,259 2,628 3,088 Inc/(Dec) in Net Worth 0 0 0 0
Provisions 734 871 925 989 Inc / (Dec) in Debt 0 0 0 0
Net Current Assets -145 770 2,146 3,973 Interest Paid -5 0 0 0
Total Assets 3,445 4,464 5,899 7,772 Divd Paid (incl Tax) -604 -604 -604 -604
E: MOSL Estimates CF from Fin. Activity -609 -604 -604 -604
Inc/(Dec) in Cash -118 975 1,342 1,783
Add: Opening Balance 203 85 1,060 2,402
Closing Balance 85 1,060 2,402 4,185

21 August 2014 6
 Monsanto India

NOTES

21 August 2014 7
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Disclosure of Interest Statement MONSANTO INDIA LTD

 Analyst ownership of the stock No

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