Motilal Oswal is bullish on Monsanto India and has recommended buy rating on the stock with a target of Rs 2300 in its July 22, 2014 research report.
"Monsanto India, delayed monsoon could result in 5-6% decline in corn acreages and the herbicides business could de-grow 6-8% due to deficient rainfall. Slower growth and higher sales returns could impact MCHM's Kharif revenue and profitability. While MCHM's 1HFY15 earnings are likely to be negatively impacted, we believe the company is on track for a robust Rabi season. We expect higher share of new products and single-cross seeds in Rabi to result in better margin profile. We believe lower than expected earnings led by a poor monsoon could result in stock price correction in the near term, which should be utilized as a buying opportunity. Maintain Buy with a target price of INR2,300."
"Cumulative rainfall has been deficient to the tune of 35% till 17 July 2014. Around 80% of the country has still received only deficient or scanty rainfall. Our channel checks suggest that delay in rainfall and significant fall in corn prices globally and in India has driven farmers to shift from corn to cotton, which could result in 5-6% decline in corn acreages for the current Kharif season. This is likely to impact growth for MCHM's corn portfolio and the industry as a whole in 1HFY15 which is expected to register ~5-8% de growth in volumes. Apart from slower growth, margins in the corn portfolio could be negatively impacted during 1H due to higher sales returns, which could go up from 5% in FY14 to 7-8% in FY15, impacting EBITDA margin as corn has a shelf life of only one year unlike cotton of three years. Similarly, we believe growth for MCHM's herbicides business could also be impacted in 1HFY15 due to lower weed pressure on crops due to deficient rainfall."
"We expect revenue to grow at 17% CAGR and PAT at 23% CAGR over FY14-16. We downgrade our earnings estimates by 25% for FY15 and by 14% for FY16 to factor in lower than expected growth. We believe investments made during FY09-12 will start 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 believe lower than expected earnings led by a poor monsoon could result in a correction in the stock price in the near term, which should be utilized as a buying opportunity. We maintain Buy, with a target price of INR2,300 (20x FY16E EPS)," says Motilal Oswal research report.
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