MARKET MIND

Since the Indian government intends to double farm incomes by 2022, the company I would like to track would be Nath Bio-Genes.

Nath Bio- Genes has been a story of misses. Each time a recovery was estimated, this seed company underperformed.

It appears that the freak incidents that translated into under-performance could well be past; Nath BioGenes sits at the cusp of unprecedented opportunities.

Themacrocontext: Hybrid paddy seeds account for only five per cent of all the land under paddy in India, whereas the corresponding coverage is around 70 per cent in China — an index of the vast scope for hybrid seeds in one of the largest agrarian economies of the world.

The Indian seeds industry has experienced an inflection; the government indicated a maximum retail price for cotton seeds beyond which multinational companies would not be permitted to charge; it moderated the royalty outgo on cotton seeds from ~165 per packet of 50 grams to ~43; some prominent multinationals froze launches, which created an unprecedented opportunity for research-driven Indian seed companies.

Nath Bio- Genes appears to be one of them for good reasons.

The company was selected by the Chinese government for a Bt cotton technology transfer in 2006, coupled with Bt technology sourcing from Monsanto, empowering its platform to generate unique cotton hybrids (more genes and traits) that deliver a combination of drought-tolerant, high-yield and ecologically-accommodative crops. While it would have been easymarketing low-management seed products in well-irrigated regions, Nath marketed high-management products in vulnerable rain-fed areas, empowering marginalised farmers through champion NBC 1022 cotton seed products to counter droughts, pest attacks (sucking pests), spraying costs, labour intensity and low yields.

The company selected to focus on specific segments (vegetables, cereals, fibre and oilseeds and nutritional supplements), holding out the largest sustainable opportunity and on select geographies with compacted farm clusters and lower logistic costs.

The company claims to possess a portfolio of winning products — NBC 102 and 1022 in the area of cotton, Amrapali and Amoli in the okra space, with demonstrated disease resistance;

MUDAR PATHERYA

NBC 1894 and 1831 in the tomato category — with demonstrated characteristics considerably superior to competition. Theevidencehasbeguntotranslate into numbers. Seed returns declined from39percentto32percentin2016-17; revenues strengthened 4.56 per cent, while profit after tax increased 15 per cent; long-term debt was a mere ~22.07 crore as of March 31, 2017.

The company launched cotton seed products in the Philippines, which comprised fusion gene and hybrids. This should generate international sales starting 2018.

The company is focused on GMSinduced reduction in cotton seed production costs, coupled with a substantial prospective increase in cotton seed sales— an attractive volume-value play. The company (with associated companies) was awarded 100 acres to develop a mega food park where it owns 20 per cent equity; this business is expected to generate revenues starting 2018.

The company is packing all its ammunition for 2018 kharif, which should be a breakout in its existence.

Nath Bio-Genes could quadruple revenues to ~1,000 crore in five years (my estimate) around existing or superior margins, enhancing respect and stakeholder value. The author is a stock market writer, tracking corporate earnings and investor psychology to gauge where markets are not headed