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Sunday, Jun 02, 2002

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Aventis CropScience: Pare exposures

Aarati Krishnan

THE stock price of Aventis CropScience India has appreciated around 80 per cent since September 2001, from around Rs 84 to Rs155.

The recent surge in stock price can be attributed both to improved financial performance and to speculation about a possible open offer by the parent.

Investors who do not have a high appetite for risk, can use this opportunity to trim exposures to the stock as appreciation of this order may be difficult to replicate in the near term.

Aventis CropSciences' fundamentals have seen a quantum improvement in 2001. For the year, the company recorded net sales of Rs 466.44 crore, a 95 per cent improvement over the previous year.

The company reported a net profit of Rs 16.06 crore (before extra ordinary items) for 2001, a turnaround from a net loss of Rs 0.69 crore (before extra-ordinary and prior period items) in 2000. These financials are partly the result of good monsoons and, hence, better agrochemical offtake in the 2001 kharif season.

However, the financials for 2001 are also shown in better light because 2000 was an exceptionally bad year for agrochemical companies, due to two consecutive drought years in northern and western India.

Especially so for Aventis CropScience, which saw sales and profits impacted by Rs 35.68 crore and Rs 9.65 crore respectively in 2000, after an abrupt end to the cotton season resulted in the company calling back stocks.

The financials for 2001 have also been helped by the merger of Aventis CropScience India Private Limited (earlier Rhone Poulenc Agro), which has been given retrospective effect from January 1, 2001.

For the March 2002 quarter, Aventis' performance has been modest, with a net loss of Rs 6 48 crore on a net sales of Rs 45.01 crore.

Aventis attributes the quarter's depressed performance to an institutional bulk order (which did not materialise), the Gujarat riots (which impacted distribution) and to the fact that this is non-peak period of operations.

Fundamentals apart, there is also a theoretical possibility of an open offer for the Aventis CropScience stock.

With Bayer AG close to acquiring a controlling stake in Aventis CropScience from the Aventis group at the global level, a similar consolidation exercise can also be eventually expected at the Indian level. However, there are quite a few `ifs' involved here. With the US anti-trust approval for the takeover still pending, the acquisition is yet to be put through, even at the global level.

It may, therefore, take considerable time for the global takeover to be mirrored at the Indian arms of Bayer and Aventis Cropscience.

Second, even if the global acquisition is reflected in the Indian context, there is no guarantee that there will be an open offer to the public shareholders of Aventis CropScience India.

Of course, there is a possibility that the parent would take advantage of the depressed market conditions to mop up the public holding in Aventis CropScience, but this is purely in the realms of speculation.

In the circumstances, there is considerable uncertainty attached to staying invested in the stock, in expectation of an open offer. Investors can, therefore, lock into the returns available now, by exiting the stock.

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