Bayer CropScience: New products to boost growth

While growth is expected to pick up after a weak June quarter, merger with Monsanto will offer an upside

The Bayer CropScience stock is up two per cent over the past couple of trading sessions. This comes on the back of an ongoing buyback and the government’s decision to defer any restriction on the import of pesticides. The immediate trigger is the buyback price of ~4,900, which offers an upside of 20 per cent from the current levels.

This is the third buyback in the past four years, and the size is ~500 crore.

Analysts at Axis Securities said the buyback was expected, given that the company has spiralling cash and the dividend pay-out was low at 17 per cent. German promoter Bayer AG, which holds 68 per cent shares, has indicated its intention to participate in the buyback. At the global level, the promoter will be looking at increasing its cash, given its plan to acquire Monsanto Inc, USA, which is currently underway.

While tendering shares is an option, analysts say the acquisition of Monsanto (if it goes through) will fill product gaps in Bayer’s India portfolio, which can be leveraged through the latter’s strong distribution network. Analysts also see synergies and cost savings in plant utilisation, employee and distribution. Those at Axis Securities, who expect earnings per share to grow at 32 per cent annually over the FY17-19 period, see Bayer as a best play in Indian agriculture and recommend buying with a three-year perspective. The merger with Monsanto will help.

Another positive for the company is deferment of an order related to imports of pesticide, given its sizeable imports.

Brokerages, however, say even if the policy is implemented, it allows for imports of pesticides up to 75 per cent of the last three-year average. This gives sufficient time to companies to phase out unviable products, use an alternative formulation for the same plant disease or establish raw material contracts with domestic manufacturers. Analysts at Emkay say Bayer may not be impacted significantly since majority of its products are novel, which do not have its substitution available in the country. However, the deferment of the policy should provide some relief to the stock price, according to an analyst.

Though the sector had reported a weak June quarter performance because of a transition to the goods and services tax regime and weak exports demand, the company is confident of outperforming the industry in the current financial year. The demand is expected to be strong in FY18, led by a normal monsoon, firm crop prices and three product launches.