Bayer Cropscience rating – Sell: Good outlook for FY23 is priced in We raise FY2023E/2024E EPS for Bayer CropScience (BCSL) by 5/12% to factor in better-than-expected Q4FY22 earnings as well as a generally positive outlook for FY2023, barring an expected correction in glyphosate prices. However, at a 34X/29X FY2023E/2024 E P/E, positives seem priced in, leaving us hard-pressed to find room for upside even as the business remains vulnerable to climate and crop price risks. We revise our March 2023 Fair Value to Rs 4,700 (25X FY2024E P/E) and retain Sell. Q4FY22 earnings a surprise: At the investor meet, management stated that the sharply improved performance for Q4FY22 was driven by a favourable sales mix toward the high-margin corn hybrid seeds business, which rebounded off a weak base on the back of the launch of the promising new DeKalb 9208 hybrids. Besides, there was early buying from channel partners due to fears of Covid-related supply disruptions as well as rising prices. (3) a generally favourable demand environment for agrochemicals amid crop price inflation. However, key headwinds could be: (1) an expected correction in glyphosate prices in H2CY2022; and (2) an anticipated deficit in monsoon rainfall. Management focused on volume growth: Ever since the change in operating management nearly four years ago, BCSL has adopted a new strategy of driving wider adoption of the company’s products, with a particular focus on smallholder farmers, even at the cost of margins, if necessary. While this remains unchanged (despite some impact on margins), the one significant change we noted from commentary this time is that BCSL is not incentivising early payments by channel partners – this essentially points to lower discounts to the channel, and should support margins, albeit at the cost of increased working capital. Retain Sell: We acknowledge that after two years of lacklustre earnings growth (adjusted EPS was flattish over FY2020-2022), BCSL seems poised for a better year in FY2023, aided by the aforementioned tailwinds. We project 19% EPS growth in the year ahead, and this may well support the stock. However, given the stock’s current valuations, we prefer other faster-growing companies that trade at fairly similar multiples, e.g. Navin Fluorine/PI Industries at 34X/30X FY2024E P/E.
If the current trend continues for a longer period of time, not only oil mills but oilseeds growers will also not be able to get good rates of their produce, says Samir Shah, president of Gujarat State Edible Oils and Oil Seeds Association (GEOA). Shah who is also past president of SOMA says that due to various international factors rates of edible oils had gone up considerably, especially imported oils earlier this year.
“With a view to curb rising prices of edible oil, the Government of India reduced import duty on edible oils. Considering the fact that India is producing hardly 30 percent of its edible oil requirement, the decision was right at that point of time. Now when international prices of edible oils have gone down by 15 percent to 25 percent and high production period has started in edible oil exporting countries, the government should gradually increase import duty to protect local oil mills and oilseeds growers,” said Shah. GEOA has also made representation before Union Minister for Commerce & Consumer Affairs, Piyush Goyal to increase import duty.
In June import duty on edible oils was ranging from 35 to 55 percent, since then the government gradually reduced import duty and at present it is ranging from zero percent to 15 percent on different edible oils, he said.
Just a month back prices of edible oils were through the roof and the government took appropriate measures by reducing import duty in order to protect consumers, says Atul Chaturvedi, president of Solvent Extractors Association of India (SEA). “Prices of edible oils are coming down globally. Kharif sowing has already started across the country. In the interest of local farmers, it is high time to enhance import duty in a phased manner to encourage local edible oil value chain,” opined Chaturvedi.
On Thursday imported Palm oil prices were at around Rs 2100 per 15 kg as against local Rs 2700 and Rs 2550 of groundnut and cottonseed oils. Prices of other local oils including ricebran, coconut, soyabean and mustard remained as high as Rs 2350, Rs 2520, Rs 2500 and Rs 2580 respectively.
India imports around 13-13.5 million tonnes of edible oils, of which around 8-8.5 million tonnes (around 63 per cent) are palm oil. Though the price of other imported Sunflower oil remained at around Rs 2700 per 15 kg, but import quantity of the oil is much lower than that of palm oil.
Overnight, U.S. stocks extended Friday’s bruising sell-off as investors rushed to protect themselves against the prospect of a weakening economy.
Oil prices ticked lower on Tuesday on demand worries as coronavirus lockdowns in China, the top oil importer, continued. Brent crude slipped 0.5% to $105.4 a barrel after falling 5.7% on Monday.