A rare MNC stock with low valuation and high return on equity

Moneylife Digital Team

Bayer CropScience, the Indian subsidiary of Bayer Germany (a diversified international chemicals and healthcare company), is into crop protection, environmental science and bioscience. The crop protection division produces insecticides, fungicides, herbicides, seed treatment and plant growth regulators. The environmental science business unit markets non-agricultural pest and weed control products. It is engaged in garden products, the green industry and locust control. The bioscience business unit focuses on seeds and plant traits.

Bayer’s competitors include United Phosphorus, Rallis India, Excel Crop Care, Syngenta India, Monsanto India, PI Industries, Meghmani Organics, Insecticides (India), Nagarjuna Agrichem, Sabero Organics and Aries Agro.

Bayer’s net revenues for FY09-10 increased 16.55% to Rs1,624.76 crore from Rs1,394 crore while net profit increased to Rs127.25 crore compared to Rs94.46 crore, an increase of 34.71%. The company’s domestic revenues registered a steady compounded annual growth rate (CAGR) of 19% over 2005-2010. Its export revenues registered a 15% CAGR during the same period. Since November 2009, the stock has consistently outperformed the BSE Sensex. In the September 2010 quarter, Bayer CropScience’s total revenues grew around 28% to Rs650.73 crore from Rs506.95 crore in the September 2009 quarter.



During the same period, its operating profit grew 16% to Rs102 crore from Rs88 crore. In the September 2010 quarter, the company’s profit after tax increased 7% to Rs64 crore from Rs60 crore in the September 2009 quarter. In the December 2010 quarter, total revenues grew around 25% to Rs386 crore from Rs308 crore in the year-ago corresponding period. In the December 2010 quarter, its operating profit shot up 94.1% to Rs39 crore from Rs20 crore.

The company’s average growth in revenues and operating profit over the past five quarters have been 17% and 8%, respectively. Its average operating margin is 11% and return on net worth is 23%. For a multinational, its valuation is low. Its market-cap to revenues is 1.06 times, while its market-cap to operating profit is 6.74 times. The stock has come off 30% from a high of Rs1,164 to its current price of around Rs740. Buy the stock at the current market price.