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Aarati Krishnan

INVESTORS with an appetite for risk can consider exposures in the Monsanto India stock, at its current price levels of Rs 1,243.

The stock may appear expensive at a valuation of about 15 times its trailing 12-month earnings; but this multiple appears justified in the light of the company's robust growth prospects and consistency of financial performance.

In the near term, the stock may be susceptible to a decline in broad market levels, linked to political uncertainties. However, that should not make a major difference to the company's business prospects, as its business is not very vulnerable to policy-level changes.

With sturdy financial performance over the past four years, the company has shown itself to be capable of weathering business and monsoon-related risks quite well.

Monsanto India derives its revenues from two key product groups — pesticides and hybrid seeds. In pesticides, the company has strong brands in the herbicide segment targeted at wheat, soybean, cotton and other commercial crops.

The company's sharp focus on premium-branded formulations, that too, in the herbicide segment, lends it a degree of protection against the pricing pressures which characterise more widely-available generic pesticides.

The company has kept up a steady stream of product launches over the past few years, thanks to its parent's rich research pipeline. The strengthening of product patent laws, could expand Monsanto India's access to its parent's pipeline and enhance its protection against low-priced versions of its products.

Monsanto is also focussing on stepping up the contribution of the hybrid seeds business to revenues. It now markets a range of sunflower, maize and cotton hybrids, apart from the genetically-modified Bollgard cotton seeds (which is handled through a joint venture with Mahyco). Though yet in the nascent stages, this is a high-margin business.

Despite its dependence on the agricultural economy and the erratic monsoons over this period, Monsanto India's financial performance over the past five years has been quite consistent. Its net profits have grown steadily in every one of the past five years, while net sales have grown in four out of five years.

In the five years to 2002-03, the company's net sales more than doubled from Rs 111 crore to Rs 294 crore, while net profits expanded five-fold from Rs 10.8 crore to Rs 50.6 crore. Robust performance has been sustained in the first nine months of 2003-04, with net profits rising by 36 per cent and net sales by 11 per cent.

The company's per share earnings for the nine-month period stood at Rs 84. Though it had reported a loss in the final quarter of 2002-03, this appears unlikely in the current year.

The good rabi harvest, the firming up of farm product prices and the spill-over effect of this on rural purchases may translate into improved financials for the coming quarters.

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