At a market size of Rs 8,000 crore, the Indian seed industry is just little over the revenue of Tata Consultancy Services (TCS) in the December 2010 quarter — Rs 7,627 crore. Or it equals the combined turnover of Tech Mahindra and Mahindra Satyam. Going by the numbers, one might not see huge potential in the seed sector.
But private equity firms and other investment arms have a different view on this. The fact that they invested Rs 2,050 crore in the Indian seed sector in the last four years shows their enthusiasm. The list of investors includes Blackstone, Summit Partners and Axis Holdings. These investments also included intra-sector investments as the sector gets consolidated.
While Blackstone invested about Rs 200 crore in Nuziveedu Seeds, Summit Partners invested Rs 150 crore in Krishidhan Seeds in April 2010. Rallis too bought 60 per cent stake in Metahelix for Rs 140 crore in December 2010.
“The seed sector is going to witness a similar growth curve the IT industry registered in the last two decades. It has all the ingredients to see a very fast growth,” Mr Manish Jain, Managing Director of Axis Holdings, told Business Line.
Song Investment Advisors India too has set its eyes on agriculture as an attractive investment option. “We have evaluated investment opportunities in a couple of firms and we might invest in one soon,” Mr Vishal Vasishth, Managing Director of Song, said.
Reasons for investment
An increasing demand for food, the shift towards high-yielding hybrids and a likely favourable policy environment are why investors are looking at the agri sector. They firmly believe that a shift in favour of hybrids would result in multi-fold increase in seed sales.
Betting on a strong growth forecast for the sector, Mr P. Bala Subramanyam, Research Head of PCS Securities Ltd, said the sector, at present, lacked visibility as only a handful of agricultural companies were listed. “In the next few years, at least 4-5 big companies are expected to knock on bourses. What we are seeing is just the beginning,” he said.
But this doesn't mean that it is an easy task for seed companies to attract investments. “They need to bring professionalism into operations. They should also develop a strong pipeline of products with diversified portfolio. Strong distribution network and leadership in key crops too would help get investor eyeballs,” Mr Jain said.