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Bayer CropScience: Strong Q4, Monsanto India merger drive earnings expectationsqrcode

May. 27, 2020

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May. 27, 2020
>  Sufficient availability of water and favorable sentiment in the farm sector drove sales

>  Steady crop prices should propel upcoming kharif crop season

Bayer CropScience Ltd impressed the Street with strong performance for the March quarter (Q4). The stock gained 11% in Tuesday afternoon trade, hitting new 52-week high.
Revenue jumped 82% from the year ago quarter, helped by favorable base, amalgamation of Monsanto India Ltd, and strong product off-take in the rabi season. Revenues in the year-ago quarter had more than halved. Amalgamation of Monsanto India with Bayer CropScience came into effect in FY20 and previous fiscal’s (FY19) figures had been restated accordingly.
“Bayer CropScience reported better than expected result during 4QFY20," analysts at Antique Stock Broking Ltd said in a note. “It was despite challenges faced on account of covid-19 during March 2020."
Profit before exceptional items and tax for the quarter stood at ₹54.3 crore, compared to a loss in the year ago quarter.
The company benefited from better rabi season. Sufficient availability of water and favorable sentiment in the farm sector drove sales. “This coupled with stable commodity prices, favorable climate and strong portfolio performance in corn and horticulture, helped us achieve strong growth in Q4," D. Narain, chief executive officer and managing director, Bayer CropScience said in a statement.
Indications are the company may keep up the positive earnings momentum.
The FY20 results only partly reflect the synergies from the integration of Monsanto India with Bayer CropScience. The consolidation of employee base, product portfolios and business operations are projected to yield more cost efficiencies and revenue synergies.
“We are building in an Ebitda margin expansion of 210 bps over FY20 to FY22E on the back of better operating leverage and synergy benefits," added analysts at Antique Stock Broking. Ebitda is earnings before interest tax depreciation and amortization. 100 basis points equals one percentage point.
Healthy rabi season and steady crop prices should propel upcoming kharif crop season. Product placements to retailers (from companies) have taken-off, notwithstanding the logistics challenges.
Bayer CropScience with broader product portfolio should benefit. “Bayer CropScience is likely to post strong performance in the ensuing Kharif season on the back of new product launches and merger synergy. We raise our EPS for FY21E by 12% and FY22E by 10.6% to factor in Ebitda margin improvement," Elara Securities (India) Pvt. Ltd said in a note. EPS is earnings per share.
While the stock reflects optimism, the government’s recent proposal to ban certain generic products and phase out glyphosate (Monsanto India’s product), can weigh on earnings expansion.

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