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Monday, October 5, 2009

Monsanto India Ltd:News/views/analysis/prospects/outlook/results

Scripscan:Monsanto India Ltd

Story:The growth prospects for the conventional herbicide business, though modest in the near-term, also appear stable for players such as Monsanto, given the robust product pipeline and the focus on premium, less price-sensitive segments of the market.Though crop protection, with a focus on herbicides, has traditionally been the key revenue driver for Monsanto India, the company has been increasing its focus on the hybrid seeds business over the past few years. The increasing shortfall of key food and commercial crops, the rising pressure to step up farm productivity (Indian yields of most crops are far below global averages) and the economics of adopting high-yielding seed varieties for the farmer are the demand drivers for high-yielding seeds.However, plant breeding (developing new seed varieties) is a specialised business that involves a fairly long gestation period and calls for considerable research strengths and access to proprietary germplasm. In this respect, the backing of Monsanto India's parent — Monsanto US, a global leader in the seeds and traits business, and the latter's strong product pipeline — is a strong positive for Monsanto India. Monsanto India currently markets seeds in India under the Dekalb brand name (a global brand) and focusses mainly on maize (corn).The demand for maize in the Indian market has consistently raced ahead of available supplies. Going forward, the demand growth for corn is likely to be strong on the back of expansion in the organised poultry industry and the growth in corn-based snack foods and starch-based industries. Though adoption of hybrid maize seeds has sharply increased sharply in the Southern States, considerable potential for hybridisation exists in the Northern states, where about 70 per cent of the maize acreage is still under conventional varieties. In the herbicides business, Monsanto has traditionally focussed on branded specialty products through well-recognised brands such as Leader, Roundup, Machete and Fastmix. However, price competition in this business is high, with several domestic players emerging as low-cost manufacturers of agrochemical formulations. Since the profitability of new products tends to wane quickly after the initial years, success in this business depends on a robust product pipeline and a steady stream of launches, apart from the company's brand equity.Investors with a long investment horizon can consider exposure to the Monsanto India stock at the current price levels of about Rs 1,700. Though the company's recent financial performance has been unimpressive, long-term prospects for the domestic seeds business, on which the company is now refocusing, are bright. Given that the business is research-driven and technology intensive, entry barriers to the business are high, translating into good growth prospects for entrenched players such as Monsanto India.

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