Seeds: The new investment story in Indian agriculture

At his plush Banjara Hills office in Hyderabad, India's seed-industry capital, M Prabhakar Rao, chairman and managing director of Nuziveedu Seeds , is drawing up plans for an IPO next year. Whatever the timing, he knows it will be a cinch. "It's a recession-proof business," he says with the quiet confidence of a CEO who found private equity firm Blackstone on his doorstep with Rs 200 crore in 2008.

In nearby Jubilee Hills, Dr Paresh Verma, director of research at Shriram Bioseed , has signed off his company's 2010-11 numbers with a 44% jump in turnover, to Rs 292 crore. His target this year is 42%. "We will see similar growth for the next four years," he says. A 20% growth rate and a 50% gross margin have become routine because of the opportunity, says M Harish Reddy, the dapper managing director of Ganga Kaveri Seeds , who chose this over his family's other business of bottling Budweiser beer.

There's an unmistakable buzz in and around the $1.5 billion Indian seed industry. "It has the potential to grow to $2.5 billion in the next five years," says Adityendra Kumar , analyst at Rabobank India . The last two-and-a-half years have seen six equity deals worth $153 million being signed. "For us, it's a play for the next 20 years, not the usual five," adds Manish Jain , whose private equity fund Axis Holdings has invested $5 million in Kaveri Seeds and is preparing to sew up two more deals.

Multinationals are hunting for Indian players with research skills in cash crops like cotton, corn and vegetables. As are cash-rich homegrown companies like the Rs 900 crore Nuziveedu, India's largest seed company. Also, fertiliser and agro-chemical companies, like Rallis India of the Tata Group , are diversifying here. "Acquirers have paid high premiums," says Kumar. Investors and companies are buying the macro story: the growing demand to feed a billion mouths, millions of whom transit to a superior diet every year; rising food prices; the world's second-largest arable area; and the $150 billion Indian agriculture sector.

But that's not all they are buying into. If so, any agricultural business would pass muster. But most in India don't because they are either out of bounds, or are plagued by government subsidies or weather vagaries. By comparison, seeds is a free market for all practical purposes; it is breaking new ground in adoption and innovation; and, no matter what the weather, a farmer will sow.