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Shares of Bayer CropScience slumped about 9 per cent on Wednesday, a day after the company posted a sharp drop in net profit for the quarter ended September 30.
The company had on Tuesday posted a 25.13 per cent drop in net profit at ₹142.7 crore for the quarter, against year-ago profits of ₹190.6 crore. Sales declined 10.38 per cent to ₹1,104.10 crore in the quarter, against ₹1,232 crore during the year-ago quarter.
The management attributed the fall in revenue to uneven rainfall in many parts of the country, and hailstorms in some regions, which damaged standing crops, which in turn slowed down the consumption of agrochemicals.
The stock slumped 8.96 per cent to close at ₹3,834.40 on the BSE, after slipping to a day’s low of ₹3,823.
According to Elara Capital, Bayer CropScience’s revenue decline was steeper than the broking firm’s as well as the consensus estimates of 18.5 per cent and 17 per cent respectively.
Despite weak sales growth, the company kept the working capital under control, said Elara. Net working capital reduced to ₹1,700 crore in September this year from ₹1,800 crore in September last year.
Debt build-up
Net working capital days have reduced by 10 days to 160 days in September. However, short-term debt has increased to ₹170 crore this September from ₹110 crore in September 2017 and from zero debt in March this year. “This would result in higher interest expense in the coming quarters,” Elara said, and recommend that its clients ‘reduce’ their holdings in the company on ‘rich valuation’ with a target price of ₹3,491.
Kotal Institutional Research also downgraded the stock to ‘sell’ from ‘reduce’ due to slower growth in revenues, margins that were lower than earlier assumptions and other minor changes. It sets a target price of ₹3,550. Bayer’s parent portfolio may enable the launch of new products in India in the long run, said Kotak report and added, “However, the persisting disappointment in domestic performance over the past few years raises concerns on rising competition from the local players, who are evidently making inroads with expansion of distribution network and likely down-trading by the farmers to low-cost products.”
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