We elevate FY2023E/2024E EPS for Bayer CropScience (BCSL) by 5/12% to consider better-than-expected Q4FY22 earnings in addition to a usually optimistic outlook for FY2023, barring an anticipated correction in glyphosate costs. However, at a 34X/29X FY2023E/2024 E P/E, positives appear priced in, leaving us hard-pressed to seek out room for upside even because the enterprise stays weak to local weather and crop value dangers. We revise our March 2023 Fair Value to Rs 4,700 (25X FY2024E P/E) and retain Sell.
Q4FY22 earnings a shock: At the investor meet, administration said that the sharply improved efficiency for Q4FY22 was pushed by a beneficial gross sales combine towards the high-margin corn hybrid seeds enterprise, which rebounded off a weak base on the again of the launch of the promising new DeKalb 9208 hybrids. Besides, there was early shopping for from channel companions on account of fears of Covid-related provide disruptions in addition to rising costs.
Generally optimistic outlook for FY2023: Possible tailwinds for FY2023 embrace: (1) expectations of a very good 12 months for corn, which ought to profit not solely the high-margin DeKalb corn hybrids enterprise but in addition corn-targeted agrochemicals resembling Laudis; (2) probably ramp-up in gross sales from promising new merchandise; and
(3) a usually beneficial demand setting for agrochemicals amid crop value inflation. However, key headwinds may very well be: (1) an anticipated correction in glyphosate costs in H2CY2022; and (2) an anticipated deficit in monsoon rainfall.
Management centered on quantity development: Ever because the change in working administration almost 4 years in the past, BCSL has adopted a brand new technique of driving wider adoption of the corporate’s merchandise, with a specific give attention to smallholder farmers, even at the price of margins, if needed. While this stays unchanged (regardless of some influence on margins), the one vital change we famous from commentary this time is that BCSL just isn’t incentivising early funds by channel companions – this primarily factors to decrease reductions to the channel, and may help margins, albeit at the price of elevated working capital.
Retain Sell: We acknowledge that after two years of lacklustre earnings development (adjusted EPS was flattish over FY2020-2022), BCSL appears poised for a greater 12 months in FY2023, aided by the aforementioned tailwinds. We challenge 19% EPS development within the 12 months forward, and this will effectively help the inventory. However, given the inventory’s present valuations, we desire different faster-growing corporations that commerce at pretty related multiples, e.g. Navin Fluorine/PI Industries at 34X/30X FY2024E P/E.
Source: www.financialexpress.com”