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INSTITUTIONAL EQUITY RESEARCH

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Monsanto India (MCHM IN)

Amaiz(e)ing investment opportunity! INDIA | AGRI INPUTS | Initiating Coverage

15 April 2015

Monsanto India (Monsanto) is the only listed company outside the USA in Monsanto group. Monsanto is in India since 1949 and has a strong connect with farmers. Monsanto’s business in India comprises of high‐yielding hybrid maize (corn) seeds (62% of revenues), marketed as brand Dekalb and crop protection herbicide brand Roundup (38% of revenues). Both the key businesses are ably supported by Monsanto’s farm agvisory services (MFAS) aimed at helping farmers to improve agronomic practices. While the mainstay (extant businesses) would drive earnings by 16% during FY15‐17E, the real game changer on the horizon is approval for genetically modified (GM) food crops in India. At present Monsanto is in the final leg of submitting its field trial research data on GM corn (Insect resistant and Herbicide tolerant) to the Indian government. On key approvals, it should take about 3‐4 years for Monsanto to commercialise its product, the present value of the unfolding opportunity works Rs 3644/sh. Further any approval for HT (herbicide tolerant trait) in crops such as cotton and corn, would also drive demand for its glyphosate herbicide (present value of the opportunity Rs 115/sh). Monsanto’s sustainable competitive advantage is derived from its technological superiority and market reach, making it a promising long term investment opportunity. We initiate coverage with a Buy rating and PT of Rs 4500/sh (+54% upside from current levels). Raising productivity levels from ‘Dekalb’ corn hybrids: Rice is the most important food crop while corn is the most important feed crop in the world. India’s corn consumption has compounded by 3.6% during FY05‐14 and exports by about 25% during the same period. The demand for corn is continuously growing due to population growth and growing demand for poultry products – corn is the most important feed for the poultry industry. Indian poultry consumption has had a record growth of 20% over the past 2 decades. Domestic demand thus is forecast to grow by 36%, thereby leading to demand outstripping supply over the next 5 years. Farmers choosing corn hybrid seeds have almost doubled corn production in the past 11 years, and yet, India’s corn yields continue to trail the world’s average yields by half. The corn hybrid market in India is about Rs 15 bn and the penetration is still low at about 60%. Higher area under corn, increased hybrid reach and premium‐isation (move from double cross to single cross technology) to compound corn industry size by 20% to Rs 22 bn by FY17E. Monsanto with 25% market share is expected to benefit from improving opportunity. Besides, Monsanto is also in the final leg of submitting its field trial research data on GM corn (Insect resistant and Herbicide tolerant) to the Indian government (most likely by December’15 and key regulatory approvals should take about a year from then). Any approval for GM corn would be viewed as a significant positive, we work the present value of the unfolding opportunity at Rs 3644/sh. Protecting crop yields through “Round up” herbicides: Weeds are a constant problem for farmers they not only compete with crops for water, nutrients, sunlight, and space but also harbor insect and disease pests thereby lowering yields significantly. Labor shortage, rising wages on NREGA implementation (15% wage CAGR) have accelerated demand for herbicides. Herbicides market in India is highly underpenetrated with its overall share in agro‐chemicals standing at 20% as against 48% globally. Glyphosate is a safe herbicide and accounts for 70% of Indian herbicide sales. Monsanto enjoys a good standing and markets its glyphosate under the ‘Roundup’ brand. It commands 25% market share (8 mn ltrs) and clocked revenues of Rs 2.36 bn (38% of total) in FY14. Glyphosate is a very volatile commodity and lately prices have come off by 35% yoy following over capacity in China and intensified competition; however prices are expected to revive as sowing season approach. It commands 25% market share (8 mn ltrs) in glyphosate (Rs 2.36 bn – 40% of overall rev in FY14) and enjoys a good standing for its Rounup brands. However competition is intensified by inexpensive Chinese imports and other locals (Excel cropcare, Coromandel, UPL). Since, Monsanto India earns 60‐70% of its glyphosate revenues in H1, we see consensus downgrading FY16E EPS but cut to price targets would unlikely be significant as extant glyphosate business forms just about 20% to overall consensus PT.

BUY CMP Rs 2,916 TARGET Rs 4,500 (+54%) COMPANY DATA O/S SHARES (MN) : 17MARKET CAP (RSBN) : 52MARKET CAP (USDMN) : 83152 ‐ WK HI/LO (RS) : 3756 / 1300LIQUIDITY 3M (USDMN) : 2.3PAR VALUE (RS) : 10 SHARE HOLDING PATTERN, % PROMOTERS : 72.1FII / NRI : 3.3FI / MF : 2.5NON PROMOTER CORP. HOLDINGS : 5.0PUBLIC & OTHERS : 17.1 PRICE PERFORMANCE, %

1MTH 3MTH 1YRABS ‐8.6 1.8 93.5REL TO BSE ‐10.5 ‐4.1 65.1 PRICE VS. SENSEX

Source: Phillip Capital India Research KEY FINANCIALS Rs mn FY15E FY16E FY17ENet Sales 5,559 6,601 8,153EBIDTA 1,273 1,452 1,697Net Profit 1,205 1,363 1,616EPS, Rs 69.8 79.0 93.6PER, x 41.8 36.9 31.1EV/EBIDTA, x 39.0 34.1 29.2P/BV, x 13.8 14.9 15.8ROE, % 33.1 40.2 50.7

Source: PhillipCapital India Research Est. Gauri Anand (+ 9122 6667 9943) [email protected]

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MONSANTO INDIA INITIATING COVERAGE

Table of Contents

Story in charts: Evolution and success of BT cotton ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 3

Maize story in Charts: Macro opportunity in corn is huge ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 5

Approval for GM crops – game changer on the horizon ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 8

Investment view discussion ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 10

Key assumptions and risk ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 11

About Monsanto India ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 12

Financial Analysis ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 15

India on threshold of maize revolution ‐ macro opportunity for corn is huge ∙∙∙∙∙∙∙∙∙ 16

Global status of commercialized Biotech/GM crops ‐19th year of commercialization,

yet no real negative trace on human health ∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙∙ 21



Story in charts: Evolution and success of BT cotton Summary of 14 years of adoption and commercial release of BT Cotton in India, 2002‐14

Year No.of

hybrids

No.of co., selling BT Cotton

Adoption of BT Cotton (Mn ha)

Total Cotton Area (Mn ha)

Bt Cotton Area %

No.of Bt Cotton

Farmers (Mn)

Cotton production (Mn bales of 170 kg)

Cotton yield (kg/ha)

Total insecticides to control bollworms

(mt tons)FY03 3 1 0.05 7.70 1 0.05 13.60 302 4,470FY04 3 1 0.10 7.60 1 0.08 17.90 399 6,599FY05 4 1 0.50 8.90 6 0.30 24.30 463 6,454FY06 30 3 1.30 8.90 15 1.00 24.40 467 2,923FY07 62 15 3.80 9.20 42 2.30 28.00 521 1,874FY08 131 24 6.20 9.40 66 3.80 31.50 567 1,201FY09 274 30 7.60 9.40 81 5.00 29.00 525 652FY10 522 35 8.40 10.30 81 5.60 30.50 503 500FY11 780 35 9.40 11.14 85 6.20 33.90 517 249FY12 884 40 10.72 12.18 88 7.00 35.30 493 222FY13 1,097 44 11.14 11.98 93 7.20 36.50 518 ‐FY14 1,167 44 10.98 11.55 95 7.22 37.50 552 ‐

Source: Cotton Advisory Board, ISAAA, PhillipCapital India Research The phenomenal rise in cotton production among other things is attributed to wide scale adoption of Bt cotton (single gene from FY03‐FY06) and dual gene (from FY06 onwards). The single gene has now been completely phased out and India awaits approval to adopt the first stacked trait (IR & HT) BG II RRF. As per Brookes and Barfoot India farm income from Bt cotton has enhanced to US$ 16.7 bn from US$ 2.1 bn during FY02‐13. Remains of cotton seed (crushed oil and cattle meal) is now a India overtakes China to become number one cotton healthy revenue stream producer in the world

Cotton seed industry size Source: Bloomberg, Industry reports, PhillipCapital India Research

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FY03 No. of packets

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Cotton seed market Rs 1.7bn

FY15 No. of packets 47mn

Cotton seed market Rs 46bn



India hybrid seed market Seed Ind size Rs bn Mn Hectare Hybrid % Players

Cotton 42 11.55 95 Nuziveedu (~20%);Kaveri (~19%),Ajeeth (12%),MM (9%),BioSeed (8%) Paddy 6 42 6 Bayer Crop Science (~40%); Pioneer (15‐20%); Kaveri (7%); Rallis; Nuziveedu Corn 15 9.4 60 Monsanto (25%); Du Pont (23%); Syngenta (23%);Kaveri (14%); Nuziv (12%) Groundnut 9 4 75 Soya 8 12 75 Vegetables 20 8 82 Nunhems (subs of Bayer), Kaveri, Nuziveedu, JK Agri, Namdhari Others 2 83.05 30 Total 102 170

Source: Industry, PhillipCapital India Research India’s rising edible oil import bill

Source: *Data as of Feb’2015, RBI and PhillipCapital India Research

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Maize story in Charts: Macro opportunity in corn is huge India’s protein consumption outstrips population growth

2008‐09 2012‐13 CAGR%Milk (mmt) 112.2 132.4 4.2Egg (bn) 55.6 69.7 5.8Meat (mmt) 4.3 5.9 8.2India population (mn) 1154.0 1212.0 1.2 Corn crop area growth healthier than most cereals – due to higher demand and remunerative MSP CAGR (FY05 through FY14) Area Production YieldBarley 0.40% 3.30% 2.90%Corn 2.50% 5.50% 2.80%Millet ‐1.10% 0.70% 1.70%Sorghum ‐4.50% ‐3% 1.60%Wheat 1.20% 2.90% 1.70%Rice 0.30% 2.60% 2.30% Corn: India’s production, yield, area improved Corn: India’s consumption grew 3.6%; however exports by 6.2/3.5/2.5 during FY05‐15E leaped 25% during FY05‐15E

*Second advance estimate, Directorate of Economics & Statistics Corn: India’s corn yields half that of world average (mt/hect) Corn: Rise in MSP’s highest in FY08‐14 to encourage farmers to grow corn

Source: CACP, Ministry of Agriculture, FAO, FICCI, Bloomberg, PhillipCapital India Research

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India corn consumption mix ~ 70% of India’s corn Global corn consumption mix is consumed by cattle feed and poultry

MSP and Mandi realizations is almost aligned

State Wise area under corn crop ‐ higher reach of hybrids drive productivity Indian corn yield (mt/hect) Yield Production Corn Acreage Area under hybrid Hybrid Acreage % of overall

(mt/hect) ('000 mt) ('000 hect) % ('000 hect) Hybrid areaKarnataka 3.01 4,325 1,435 100 1,435 24.3Rajasthan 1.34 1,602 1,195 25 299 5.1Maharashtra 2.86 2,685 940 100 940 15.9Madhya Pradesh 1.60 1,480 925 16 148 2.5Andhra Pradesh 4.96 4,515 910 100 910 15.4Others 1.93 1,723 895 60 537 9.1Uttar Pradesh 1.53 1,220 800 21 168 2.8Bihar 2.26 1,590 705 80 564 9.6Gujarat 1.21 718 595 21 125 2.1Jammu & Kashmir 1.62 559 345 60 207 3.5Himachal Pradesh 2.40 768 320 60 192 3.3Tamil Nadu 6.06 1,789 295 100 295 5.0Punjab 3.75 525 140 60 84 1.4Total/Average* *2.66 23,499 9,500 *61.77 5,904

Food processing, B

ewry, 7Cattle feed, 14

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Industrial purpose, 22

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Global corn: Corn global production has been on the rise Research driven improvements in Seeds: Increase in yield through seed technology

Corn a more profitable crop, also corn consumes a 5th of water consumed by paddy

Projected cost Profit Yield ProfitsRs/Qtl MSP A2+ FL C2 Rs/qtl mt/hect Rs/hectPaddy 1,360 978 1,266 94 2.4 22,493 Corn 1,310 914 1,165 145 2.5 36,325 Return on Corn betters Paddy 61%

The workings are on MSP, however farmer realisations are generally lower than MSP. Also this excludes cost of

transportation and crop insurance, if any.

Source: CACP, Ministry of Agriculture, FAO, Bloomberg, PhillipCapital India Research Corn Industry size compounded by 11% during FY03‐14 Source: Industry reports, PhillipCapital India Research

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PaddyMaize

FY03 Vol

95000 mt Area: 7 mn hect Hybrid corn seed market Rs 5 bn

FY14 Vol’s ~ 1,18,000 mt Area: 9.4 mn hect

Corn seed market Rs 15.52 bn



Approval for GM crops – game changer on the horizon In the last 13 years, India has tripled cotton production from 13 to ~ 40 mn bales in 2014, accounting for a quarter of world’s production. Among other things, the broad scale adoption of BT technology and hybridization has helped this excellent growth. The profound acceptance of BT cotton and its tangible economic impact should lead the way for other crops such as BT brinjal and BT corn. India is now bracing for adoption of the next generation technology BG II RRF (IR + HT) and this would make cotton crop tolerant to herbicide application. It is awaiting the final go from GEAC for commercial release. Softening opposition for GM crops: Recently the govt has suspended the FCRA registration of NGO, Greenpeace India and ordered freezing of its bank accounts on the allegations of repeated incorrect and under‐reporting of foreign donations. Greenpeace is one of the activists that has been lobbying against adoption of GM crops in India. While within the government there are still diverse views on approval of GM technology for food crops, the opposition is softening lately. We would like to highlight that Swadeshi Jagran Manch had recently for the first time said they would ‘review’ their stand on GM technology if there was concrete evidence on safety. Also lately there are significant efforts underway to address the concerns and raise awareness about the potential benefits of GM crops (particularly Bt brinjal) to farmers and consumers in the country. These news bits and governments piecemeal pro GM approach in our view is sentimentally positive for the sector. Green shoots: Since the new government assuming office, India has made significant strides on regulatory front that was stalled post the moratorium on Bt brinjal in Feb’2010. In 2014, the GEAC resumed meetings regularly and has approved field trials of GM mustard, Bt chickpea, NUE rice and Bt cotton and brinjal in August and September. The second most significant event for this government would be to revisit its decision on imposing moratorium on Bt Brinal (imposed on 9th Feb 2010). The Bt Brinjal EE‐1 is indigenously developed by Mahyco in collaboration with Dharwad, TN and Varanasi University of Agri sciences. It has cleared all field trails and awaits a go for the commercial release. Brinjal is a very pest‐prone crop and normally requires up to 30 sprays of insecticides. It is estimated that insecticide consumption in brinjal can fall by 70% and improve yields almost 2x if BT brinjal is used. The approval for BT brinjal in India is still pending. Bangladesh has already approved BT in Brinjal in 2013. Ankur Seeds, Rasi Seeds, Bejo Sheetal, and Mahyco are some of the companies that have applied for field trials in BT brinjal. GM crops and India’s edible oil sector: India consumes annually 18 mmt of edible oil of which about 60% (i.e 11 mmt) is imported. India’s edible oil import bill has almost doubled to US$ 10 bn in the last 5 years. Of the total imports a significant portion is from genetically modified seeds. Further, in 2014, the GEAC has approved import of GM soybean oil. In addition to this, India also consumes 1.5 mmt of indigenous cotton seed oil (pressed from GM cotton seeds, which is sown on 95% area) along with ground, mustard and other oil. By some estimates, India has been consuming about 2.5 mmt of oil (~15% of total edible oil) from GM seeds. The Bt cotton seeds remains (after crushed to get oil) forms a third of the cattle feed market. As there are no reported health issues, even after years of use, and considering its immense benefit and import dependence India could well consider GM mustard and soybean in times to come. GM mustard has been indigenously developed by Delhi University and awaits the final approval for commercial release.



Import approval of soybean events for food and feed in India, 2010 to 2014 Crop Event Developer Year of approval by GEAC Soybean MON89788 (RR2Y) Monsanto India 12th May 2010 Soybean MON87701*MON89788 (Genuity Insect protected Roundup ready 2 yeild BtRR2Y) Monsanto India 18th July 2014 Soybean A5547‐127 (Liberty link) Bayer Biosciences 18th July 2014 Soybean A2704‐14 (Liberty link) Bayer Biosciences 18th July 2014 Soybean BPS‐CV‐127‐9(CV127) BASF India 18th July 2014

Source: ISAAA, GEAC Approval for GM corn, game changer event for Monsanto India: As per the company it is in the final leg of submitting its GM corn research trial data to the Indian government and should conclude this by Dec’14. The GM corn opportunity in India could well be the size of Bt Cotton market over next 10 years (~Rs 50 bn i.e 15% CAGR). With annual earning of Rs 1‐1.25 bn, this could meaningfully change the profile of earnings for Monsanto India to about Rs 5 bn over next 5‐7 years. Any approval for adoption of BG II RRF technology for cotton and GM corn (or GM mustard and soya); would allow additional sprays of glyphoshate herbicides (Monsanto’s Round up herbicide brand commands 25% market share locally and 60% globally) on these crops. Today these crops are not tolerant to herbicide application and thus glyphosate is largely sprayed on plantation crops and selectively over the top on these crops. Monsanto retails 8 mn ltrs of glyphosate and this opportunity can improve by about 50% over the next 5‐years. We value the Status of Biotech/GM crops pending approval for field trials and commercial release in India, 2014‐2015 Crop Organisation Gene/trait Pending status Cotton Mahyco/Monsanto cry1Ac and cry2Ab/IR & HT pending commercial approval Brinjal Mahyco Cry1Ac under moratorium Mustard Delhi University bar,barnase,barstar/AP final stage Brinjal Bejo Sheetal/IARI cry1Aabc/IR BRL‐II stage Chickpea Sungro seeds Bt BRL‐I stage Rice Mahyco NUE BRL‐I stage Corn Monsanto BTHT Expected to submit dossier to GEAC in 2014; commercial release expected a year after

government approvals

Source: Company, PhillipCapital India Research Seed Industry Comparative Metrics

CMP Mcap ____PER (x) ____ ____EPS (Rs) ____ EPS CAGR PER EV/Ebitda RoE RoCE Div. payout Rs Rs mn FY15E FY16E FY15E FY16E (14‐16E)% FY16E FY16E (%) (%) (%)

Advanta India 559 47,147 79 68 7 8 25 68 172 9 12 NilBayer Cropscience 3,945 144,478 40 33 100 119 26 33 12 16 16 8%DCM Shriram 136 22,032 6 5 22 26 33 5 4 18 18 11%JK Agri 460 1,658 9 7 52 62 17 7 NA 29 23 8%Kaveri Seeds 1,041 71,690 24 20 44 51 29 20 19 49 50 18%Monsanto 2,904 50,133 39 29 75 100 18 29 16 33 32 166%Rallis 228 44,242 27 22 8 10 18 22 13 22 36 36%Average Average 32 26 44 54 24 26 39 25 27 41%

Source: Bloomberg, PhillipCapital India Research



Investment view discussion Monsanto is selling hybrid corn seeds (60% of revenues) and glyphosate herbicide (40%) under the Round up brand. While there is pressure on glyphosate business following intensified competition and therefore lower prices/margins, the corn hybrid business outlook is promising. Our below consensus estimates, see earning compounding by 16% during FY15‐17E largely helped by higher corn revenues and improved realization for glyphosate. But the real game changer on the horizon is approval for GM Corn. Monsanto is in the final leg of submitting its field trial research data on GM corn (Insect resistant and herbicide tolerant) to the Indian government. The present value of the unfolding opportunity works Rs 3644/sh. Further any approval for HT (herbicide tolerant trait) in crops such as cotton and corn, would also drive demand for its glyphosate herbicide (present value of the opportunity Rs226/sh). We assign a 30% discount to our derived PT and value Monsanto at Rs 4500/sh and initiate coverage with a Buy. Sum of parts working of the Target Price

PAT/Ebitda

Rsmn EV

Rs mn Rs/sh PC Comments Extant business 1,616 48,490 2,803 FY17E PAT (assign 30x multiple) Approval for BT maize ‐ PV of 5th yr PAT (A) 2,101 63,039 3,644 discounted @ 14%, PAT over next 5 years Glyphosate opportunity on intro of BT traits (B) 132 1,986 115 Assign a 15x Ebitda multiple, PV of additional glyphosate

spraying on corn/cotton Derived price target 3,850 113,515 6,562

PhillipCapital one year PT 4,500 assuming a 30% discount to derived PT

CMP 2,916 % Upside 54

Approval opportunity for GM corn Rs/acre Hybrids BT variant PC Comments Yield: Quintals/Acre 33 36 10% higher yield on move to BT (assumed for Rabi season) Realisations: Rs/Kg 10 10 Realisation would vary depending on season Revenue per Acre 33,000 36,300 Total costs (Rs/acre) 21,110 19,730 Total Profit (Rs/acre) 11,890 16,570 Improved farm profitability (Rs/acre) 4,680 Improved profit over hybrid Royalty fee for Monsanto India 468 just 10% of improved profitability (Globally Monsanto earns Rs 2089/acre in royalty) Area under BT Maize (mn acres) 12 Area under BT corn over next 5 yrs (presently 24 mn acres) Future Value of potential revenues 5,780 FV at the end of 5th year Present Value of Potential revenues 3,002 PV (14% cost of eq on 5th year PAT) Present Value of Net Profit 2,101 post tax (assumed 30% tax) Glyphosate opportunity on adoption of BG II RRF technology for cotton and GM corn Glyphosate spraying opportunity to improve on introduction of more BT traits figs PC CommentsArea under corn/cotton 20 mn hectGlyphosate spraying opportunity (assume 0.5 lt/hect) 10 mn ltrsMonsanto's share 3 30% market shareGlyphosate realisation 280 Rs/ltrFV of revenues from glyphosate over next 10 years 850 Rs mnPV Revenues (discounted to FY16E) 441 Rs mnPV Ebitda (assume 30% margins) 132

Source: PhillipCapital India Research



Key Assumptions

FY14 FY15E FY16E FY17ESeeds Volume (MT) 29,313 27,847 30,632 34,308 Realisation Rs/kg 132 142 152 164 Gross margins % 59.1 57.0 60.0 65.0 Agrochemicals Volume (MT) 8,341 7,924 8,716 9,762 Realisation Rs/kg 283 232 255 294 Gross margins % 50.6 46.6 50.4 52.6

Source: PhillipCapital India Research

Investment risks Investing in biotech firms such as Monsanto is risky. The sector comprises companies that have an 85% to 95% failure rate on everything they attempt to invent. Even to achieve success takes about 10 to 12 years, and most biotech businesses do not have any measurable revenue for a long period of time. However, this volatility can turn otherwise, should they succeed in a single product launch. About 40% of our PT is derived from the opportunity that could unfold on approvals to introduction of GM corn in India. Our rating and PT is at significant risk should the Indian government delay or disallow key approvals. Weather is an inherent risk to seeds/agri‐input business. Our earnings and PT are at risk should the weather turn unfavourable, soft commodity (maize/glyphosphate) prices or volatile currency. The WHO’s cancer research arm has classified glyphosate as ‘probably carcinogenic’ to humans, however a detailed read suggests they have limited evidence to establish this and thus have termed ‘probably’. As per officials at Monsanto India, they strongly disagree with WHO’s conclusions and argue that an overwhelming number of countries (> 100) and their regulatory bodies have periodically tested glyphosate’s use, efficacy over last 40 years. The company is unlikely to contest WHO’s conclusion but however would work closely with all its stakeholders on educating its product better. While this is assuring any incremental firm negative finding would adversely impact our earnings and PT, however its unlikely to have significant impact on our ratings (forms 15% of our PT).



About Monsanto India Monsanto India Ltd (Monsanto) is 72.14% subsidiary of Monsanto Company, (USA) which is entirely focused on agri inputs business. The two broad revenues lines are: ‐ Hybrid seeds for Maize and Agrochemicals. It has been India’s leading producer of hybrid seeds for Maize (under the “Dekalb” brand) which has a strong brand recall and commands 25% market share. Hybrid seeds business dominates the sales (60% of FY14 revenues), whereas Agrochemicals accounts for the rest. Given the rising farm wages (15% CAGR in the last 5 years) and shortage of labour, its herbicide brand “Roundup” (a Glyphosate based product) has gained good acceptance and as per the company commands 25% market share. Hybrid seeds macro opportunity is huge: Even today, almost 70‐75% of crop area is still under varietal seeds (re‐used old seeds) and thus the macro opportunity is very huge. As per our workings, the domestic seed industry should grow to US$ 3bn over the next five years, a CAGR of 8.7%. Rising population, shrinking per capita land availability, low crop yields, and low penetration of hybrid seeds will drive this growth. The chief crop drivers would remain cotton, corn, rice and vegetables. However, any earlier approval for BT brinjal or corn would mean an added opportunity of Rs 60bn, leading to an impressive CAGR of 17% of the seed market. India has to produce more, not only to eat but also to feed: The demand for corn is continuously growing due to population growth and growing demand for poultry products – corn is the most important feed for the poultry industry. As per estimates, India will require 40‐45mt of corn in next 15‐20 years. This growth demand is led by rising incomes, dietary shifts, and increasing mouths to feed. Indian poultry consumption has increased by >10% over the last two decades. Corn is the major feed (60% of total feed industry) for poultry. Corn hybrid seeds cover about 60% of the total area sown of around 9mn hectares. The major corn‐producing states are AP, Bihar, Gujarat, Maharashtra, Rajasthan, Tamil Nadu, and UP. Unlike cottonseeds, where price is set by the state in concurrence with the centre, maize seeds have no price controls. Monsanto with 25% market share in hybrid maize is expected to benefit from this rising opportunity. Monsanto is renowned for its rich and diverse germplasm pool, breeding excellence and high productivity. Monsanto offers a wide portfolio of hybrid maise seeds under its flagship brand Dekalb, developed through extensive research and suiting India’s diverse agronomic conditions. It has launched three new customized high yielding hybrid seeds to cater to different seasons and agronomic variations. CAGR % FY01‐04 FY05‐08 FY09‐12 FY13‐16ECorn hybrid Vol 38.1 ‐1.0 8.6 4.8Realization ‐3.4 3.9 ‐3.0 10.7Hybrid Seeds Gross margin 0.2 16.8 13.7Overall Profit 53.3 9.3 ‐12.1 23.3

Source: Company, PhillipCapital India Research Monsanto’s biotech maize is being developed for India through specific hybrids, is an efficient option against insects and weed. It is expected to have two unique Bt proteins that provide in‐built protection against insects and elements that help in weed management and tolerance to nonselective herbicide. Some states already support field trials for GM crops, while states like Bihar and Tamil Nadu oppose. Monsanto India, Pioneer/Dupont, Dow Agri Sciences, Pioneer Overseas, and Syngenta Biosciences have applied for GM biosafety field trials with the GEAC. Of them, Monsanto is in the final leg of getting approval – while this will take about 3‐4 years to be commercially launched (on approvals), it is said it can improve yields by 15‐20%.



Protecting crop yields through “Round up” herbicides: Glyphosate is the most significant herbicide product and is preferred by farmers because it is relatively `safe' and very effective. This market in India is extremely competitive with 150+ manufacturers and many more brands being available. Most of these players import their requirement of the intermediate product from countries such as China. Given excess glyphosate capacity in China (China produces > 40% and exports ~ 35% of the world supply), lately prices have been falling and have come off by 40% yoy and this trend is expected to persists over the medium term. Monsanto enjoys a good standing and markets its glyphosate under the ‘Roundup’ brand. It commands 25% market share (8 mn ltrs) in glyphosate (Rs 2.36 bn – 38% of overall rev in FY14), where competition is intensified by inexpensive Chinese imports and other locals (Excel cropcare, Coromandel, UPL). Glyphosate is a very volatile commodity and lately prices have come off by 25‐30% yoy following over capacity in China and intensified competition; however prices are expected to revive as sowing season approach. This has impacted revenues and margins for Monsanto significantly in the past 12 months. Since, Monsanto India earns 60‐70% of its glyphosate revenues in H1, we see consensus downgrading FY16E EPS but cut to price targets would unlikely be significant as extant glyphosate business forms just about 20% to overall consensus PT. However going by the labor shortage, rising wages on NREGA implementation (15% wage CAGR) and given low penetration of herbicides market in India is highly (overall share in agro‐chemicals standing at 20% as against 48% globally), we expect demand for herbicides to accelerate.

Falling glyphosate price trend – glyphosate has come off by 25‐30% in FY15

Global crop protection market, 2014: India still an insecticide market, share of herbicides low % Herbicides Insecticides Fungicides Others Biotech Crop chem. ($ mn) 24,576 14,350 14,796 2,560 16,063

World 34.0 19.8 20.5 3.5 22.2 Industrial countries 36.3 14.3 17.7 3.8 27.9 Developing countries 30.8 27.5 24.3 3.1 14.3 RoW 21.5 43.3 18.9 2.5 13.9 India 20.0 62.0 16.0 2.0

Source: Dhanuka Agritech, ISAAA, Bloomberg, Industry

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Improving agronomy practices through MFAS: Monsanto has widened its reach and farmers connect through Monsanto Farm AgVisory Service (MFAS) and Dr. Dekalb Farm Care (DDFC). With mobile technology, these services allow farmers to receive timely crop related advice thereby enhancing productivity and farm profits. MFAS provides holistic and all round support to farmers from sowing to harvest and as per a research by AC Nielsen, about 85% of farmers who implemented the recommendations have reaped benefits ranging from Rs 1000‐5000/acre. A team of 45 advisors on the call centre and about 1500 field staff for 3 distinct services: Dr. Dekalb farm care (for corn farmers), Dr. Paras farm care (for cotton farmers) and Seminis Gurukulam farm care (for vegetable farmers). MFAS has received nearly 0.4 mn farmer queries and made more than 150 mn connects (13% overall farmers) so far. These initiatives would help Monsanto maintain and grow its leadership in its maize seeds and crop protection segment. Monsanto’s numerous initiatives to connect with farmers and help them improve economics is expected to yield good returns in future. Gross margin mix: Share of seeds to improve, given volatile glyphosate margins

Source: Company, PhillipCapital India Research

Maize , 65.72

Cropchem, 34.28

FY14

Maize , 70.77

Cropchem, 29.23

FY17E



Financial Analysis We see corn acreages improving in India on the back of higher demand and better corn economics over competing crops. Therefore, we model seed revenue CAGR of 13% during FY14‐17E to Rs 4.64/5.61 bn in FY16/17E. For want of limited competing chemistries and given the higher demand around sowing season, we see revenues compounding by 6.8% (to Rs 2.2/2.87 bn in FY16/17E) largely led by volume growth. As we assume a step up in R&D and other costs and limited realization growth, we see ebitda margins to contract by 200 bps to 22% in FY16E. Net‐Net, overall revenues are expected to compound 21% during FY15‐17E to Rs 6.6/8.2 bn in FY16/17E respt. We see core Ebitda/Pat compounding by 16% to Rs 1.36/1.62 bn during the same period. We assume net working capital days to remain unchanged at 31 days. An improvement in asset turns, should translate to higher ROE/ROCE up 200 bps to 40/28% in FY16E respectively.


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India on threshold of Maize revolution ‐ Food, feed and fibre needs of a growing population, but productivity still low Maize or Indian corn production has nearly doubled to around 24 mmt today over the last decade; the remarkable production growth has been largely driven by adoption of hybrid seeds (particularly single cross variety that covers 30% of the area) and continuous demand in domestic and export market. The increasing use of corn as feed, increasing interest of the consumers in nutritionally enriched products and rising demand for corn seed are the core driving forces behind emerging importance of corn crop in India. However, despite the production strength, Indian corn yields are significantly below the yields in major corn producing countries. There is immense scope for an increase in India’s corn production by increasing area under hybrids (presently at 60%), adoption of better genetics and improved agronomic practices. The corn demand is expected to rise to 30/44 mmt in FY17/2022 marking over a 36% jump. It thus follows; India is on the threshold of corn revolution. Increase in corn acreage, higher hybrid reach or higher adoption of single cross technology and adoption of genetically modified crops would alone help meet the increasing demand. India produced 24.3 mmt of Corn in FY14, however due to lower corn prices and insufficient monsoon the corn acreage and production is expected to decline in FY15E by about 6%. Between FY03‐FY14, corn production have little over doubled due to adoption of corn hybrid seeds among other things. However despite, the jump in production and about 60% hybrid adoption, India’s corn yields continue to trail below the world’s average yields by half. Farmers choosing corn hybrid seeds have almost doubled corn production in the past 11 years, and yet, India’s corn yields continue to trail the world’s average yields by half. The good news is that, the tools to take the next leap forward in productivity, whether it is technology or techniques, are all at hand. Innovation, not only in the field, but in the very way India tackles agricultural issues, is the need of the hour. For India to cater to the food, feed and fibre needs of a growing population, modernization of the agricultural sector is imperative. Consumption of corn has compounded by 3.6% during FY05‐14, however during the same period exports have compounded 25%. Domestic demand is forecast to grow by 36%, thereby leading to demand outstripping supply over the next 5 years. Corn: India’s production, yield, area improved Corn: India’s consumption grew 3.6%; however exports by 6.2/3.5/2.5 during FY05‐15E leaped 25% during FY05‐15E


*Second advance estimate, Directorate of Economics & Statistics

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Corn is grown throughout the year in India. It is predominantly a Kharif crop with 85% of the area under cultivation in the season. Corn is the third most important cereal crop in India after rice and wheat. It accounts for ~9% of total food grain production in the country. The area under corn cultivation in the period has increased at a CAGR of 2.5% from 7.5 mn hectare to 9.4 mn hectare (in FY05‐14), while the production during the same period has compounded by 5.5% (24.3 mmt in FY14), thus it follows that the remaining increase in production is due to increase in yield. Factors such as adaptability to diverse agro‐climatic conditions, lower labour costs and lowering of water table in the rice belt of India have contributed to the increase in corn acreage. Productivity of corn (yield) has increased at a CAGR of 2.9% from 1.9 MT/hectare in FY05 to 2.5 MT/hectare in FY14. Introduction of Single cross hybrid (SCH) seeds coupled with adequate rainfall in FY08 contributed to 20% increase in yield. Corn is the basic raw material required for manufacturing starch and constitutes 60‐70% of the total operating costs. Corn has 60‐65% starch content, hence cannot be easily substituted by other commodities. Corn: India’s corn yields half that of world average (mt/hect)

Source: Company, PhillipCapital India Research In India, the yield is half of the global average. Constraints for low productivity include: • Climatic conditions resulting in drought/excess water associated with increased

pressure of diseases/pests • Cultivation in Kharif is mainly under rain‐fed conditions on marginal lands with

inadequacy in irrigation • Only about 30 %of the area is under SCH. Lack of development of single cross

hybrid technology, which is a key to higher productivity gains like USA, China and other countries

• Limited adoption of improved production‐protection technology • Deficiencies in the production and distribution system of quality seed • Small farm holdings and limited resource availability with farmers Historically corn was used more for local consumption and less for commercial use. Corn utilized for direct human consumption has reduced over the years and is expected to further reduce due to rising income levels which has made preferred cereals like wheat and rice more affordable, increasing commercial demand from poultry and starch industries leading to higher farmer realization.

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Developed countries like USA and European nations have a very low ratio of corn going towards direct corn consumption as most of the corn goes toward production of feed, starch and ethanol. Corn is consumed directly as food primarily in developing countries of Africa and Central America. Economic development in the country is expected to shift India’s corn consumption pattern to that of developed countries and result in a further drop in direct consumption of corn. Corn consumption in India has compounded by ~4% over the last ten years from 14 mmt in to 19 mmt in 2013‐14. Most of the corn in India is used in the poultry feed industry. Poultry industry is heavily dependent on corn as it forms 50‐60% of the input required for broiler feed and 25‐35% of the input required for layer feed. Corn is the preferred source of energy in feed when compared with other substitutes due to availability, higher energy and price economics. Poultry feed’s share has remained around 45‐50% of the total demand for corn in the country over the past 4‐5 years.

India corn consumption mix v/s Global: ~ 70% of India’s corn is consumed by cattle feed and poultry

Source: Company, PhillipCapital India Research USA has the highest productivity when compared with the global average of 5.5 MT/hectare due to 85% of the area under BT‐SCH and remaining 15% under SCH seeds backed by temperate climate and long duration crop. The yield in EU nations is as high as 6.6 MT/hectare due to 100% area under SCH, temperate climatic conditions and long duration crop. The yield in China is low when compared to EU nations due to sub‐tropical climate and medium duration crop. Brazil has lower yield due to dependence on rainfall and tropical climatic conditions. The difference in yield across the globe is mainly due to environmental, technological, economic and organizational factors. In most developed countries the climate is temperate; likewise they use sufficient inputs and a well mechanized system for the corn production. Corn crop area growth healthier than most cereals – due to higher demand and remunerative MSP CAGR (FY05 through FY14) Area Production YieldBarley 0.40% 3.30% 2.90%Corn 2.50% 5.50% 2.80%Millet ‐1.10% 0.70% 1.70%Sorghum ‐4.50% ‐3% 1.60%Wheat 1.20% 2.90% 1.70%Rice 0.30% 2.60% 2.30%


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India corn consumption mix ~ 70% of India’s corn Global corn consumption mix is consumed by cattle feed and poultry

Source: Company, PhillipCapital India Research India has witnessed a jump in corn exports from 2007‐08. The increase in export volumes is a result of increased production, higher realization and demand for corn from international markets. Corn currently accounts for 22% of total cereal exports from the country. Declining exports from USA and price parity offered by Indian corn provides an opportunity to supply corn to importing countries within Asia. Amongst the top importing countries, Japan, Korea and China are both much closer to India than USA, Brazil and Argentina (top exporting countries). India could have a cost advantage due to lower shipping costs. Malaysia, Vietnam, Philippines, Indonesia are the other Asian countries which import corn and the high demand in these countries is expected to increase their corn import quantity. India Exports almost 13% of its corn production and is the 5th largest exporter Top producers Exporters Importers US 37 US 35 Japan 14China 22 Brazil 17 Mexico 6Brazil 7 Ukraine 16 EU 11EU 7 Agrentina 3 South Korea 9Ukraine 3 India 14 Egypt 6Agrentina 3 China 5India 2 Mexico 2 Others 17 Others 15 Others 49

Source: Company, PhillipCapital India Research Government has been providing price support mechanism to encourage farmers to grow corn as it has ready use in starch and feed meal industries. Corn MSP over the years is almost at par with common paddy, this is only to encourage farmers to plant more corn replacing paddy. Corn has also seen the highest CAGR of 13.3 %in MSP over the last years as compared to others crops. Paddy more profitable over Corn, corn also consumes a 5th of water reqd by paddy

Projected cost Profit Yield ProfitsRs/Qtl MSP A2+ FL C2 Rs/qtl mt/hect Rs/hectPaddy 1,360 978 1,266 94 2.4 22,493 Corn 1,310 914 1,165 145 2.5 36,325 Return on Corn betters Paddy 61%

The workings are on MSP, however farmer realisations are generally lower than MSP. Also this excludes cost of

transportation and crop insurance, if any.

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Corn: Rise in MSP’s highest in FY08‐14 to encourage farmers to grow corn

MSP and Mandi realizations is almost aligned

Source: Company, PhillipCapital India Research Groundwater tables can be greatly enhanced if corn cultivation is promoted in place of paddy as it requires just One fifth of the total water required to grow paddy and gives much higher returns to the farmers. The crop has been included in the government’s Rs 5 bn crop diversification strategy for North Indian states of Punjab, Haryana and western Uttar Pradesh. Annual corn prices have been following the MSP declared by the Government, as can be seen from the graph below. State Wise area under Corn crop ‐ higher reaches of hybrids drive productivity Indian corn yield (mt/hect)

Yield (mt/hect)

Production('000 mt)

Corn Acreage('000 hect)

Area under hybrid (%)

Hybrid Acreage ('000 hect)

% of overallHybrid area

Karnataka 3.01 4,325 1,435 100 1,435 24.3Rajasthan 1.34 1,602 1,195 25 299 5.1Maharashtra 2.86 2,685 940 100 940 15.9Madhya Pradesh 1.60 1,480 925 16 148 2.5Andhra Pradesh 4.96 4,515 910 100 910 15.4Others 1.93 1,723 895 60 537 9.1Uttar Pradesh 1.53 1,220 800 21 168 2.8Bihar 2.26 1,590 705 80 564 9.6Gujarat 1.21 718 595 21 125 2.1Jammu & Kashmir 1.62 559 345 60 207 3.5Himachal Pradesh 2.40 768 320 60 192 3.3Tamil Nadu 6.06 1,789 295 100 295 5.0Punjab 3.75 525 140 60 84 1.4Total/Average* *2.66 23,499 9,500 *61.77 5,904


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Global status of commercialized Biotech/GM crops ‐19th year of commercialization, yet no real negative trace on human health Biotech crops increase in 2014 in their 19th consecutive year of commercialization: A record 181 mn hectares of biotech crops were grown globally in 2014, a 3‐4% growth over 2012 by 28 countries. Since the first plantings in 1996 on a 1.8 bn hectare land mass, the journey to date marks a 100‐fold increase in biotech plantings – makes biotech crops the fastest adopted crop technology. One of the important indicators that reflect farmers’ confidence in any new technology is the extent of repeat planting in the following season. Repeat biotech plantings are virtually 100% ‐ an acid‐test or testimony to the improving benefits over conventional planting. Reports indicate on an average GM technology adoption has reduced chemical pesticide use by 37%, increased crop yields by 22% and increased farmer profits by 68%. Yield gains and pesticide reductions are larger for insect‐resistant crops than for herbicide‐tolerant crops. Yield and profit gains are higher in developing countries than in developed countries. Global area under Biotech crops and seed market Global biotech seed market value cropwise

Globally planted 4 major biotech crops chart

Source: number at the centre points to no.of countries that adopt biotech technology, darker shade implies % of

biotech area v/s the overall sown area, ISAAA, PhillipCapital India Research Countries growing biotech crops have quadrupled since inception: Number of biotech crop growing countries has more than quadrupled to 28 in 2014 from 6 in 1996. US (40% of global biotech crop area), followed by Brazil, Argentina, India and Canada are top 5 countries that grow biotech crops. Recently three Asian countries approved use of biotech crops – Bangladesh approved Bt brinjal for plantings in 2014, whilst Vietnam and Indonesia have approved commercial planting of Bt Corn and Bt Sugarcane for food use respectively in 2015. In 2013‐14 US approved Bt potato and drought tolerant corn which had a 5 fold jump in acreage in the last planting season.

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Global biotech market Rank Major Countries Area (mn hect) Biotech crops 1 USA 73.1 Corn, soybean, cotton, canola, sugar beet, alfaalfa, papaya, squash, (recently approved potato and drought

tolerant corn) 2 Brazil 42.2 Soybean, corn, cotton 3 Argentina 24.3 Soybean, corn, cotton 4 India 11.6 Cotton 5 Canada 11.6 Canola, corn, soybean, sugar beet 6 China 3.9 Cotton, papaya, poplar, tomato, sweet pepper 7 Paraguay 3.9 Soybean, corn, cotton 8 Pakistan 2.9 Cotton 9 South Africa 2.7 Corn, soybean, cotton 10 Uruguay 1.6 Soybean, corn

Others 3.7 Total 181.5

The six principal countries that have gained the most economically from biotech crops, during the first 18 years of commercialization (figures in US$ bn ‐ in descending order) is worth US$ 130 bn. The rapid adoption of biotech crops world over, in the initial years is in itself a testimony to BT crops as safe for human health. It also confirms the economic and health benefits to the farmers and society. As cotton/corn is widely adopted in 15/17 countries, respectively, it is logical to expect that India will also adopt corn technology at some point in the future. Economic benefits of biotech crops

US$ bnUSA 58.4Argentina 17.5China 16.2India 16.7Brazil 11.8Canada 5.6Others 6Total 132.2

Source: ISAAA, PhillipCapital India Research



Financials Income Statement Y/E Mar, Rs mn FY14 FY15e FY16e FY17eNet sales 5,818 5,559 6,601 8,153Growth, % 32 ‐4 19 24Other income 0 0 0 0Total income 5,818 5,559 6,601 8,153Raw material expenses ‐2,443 ‐2,279 ‐2,693 ‐3,326Employee expenses ‐552 ‐611 ‐726 ‐897Other Operating expenses ‐1,357 ‐1,396 ‐1,730 ‐2,232EBITDA (Core) 1,466 1,273 1,452 1,697Growth, % 103.3 (13.2) 14.0 16.9Margin, % 25.2 22.9 22.0 20.8Depreciation ‐119 ‐131 ‐145 ‐160EBIT 1,347 1,142 1,306 1,537Growth, % 120.0 (15.2) 14.3 17.7Margin, % 23.2 20.5 19.8 18.9Interest paid ‐5 0 0 0Other Non‐Operating Income 129 217 231 285Non‐recurring Items 0 0 0 0Pre‐tax profit 1,472 1,359 1,537 1,822Tax provided ‐159 ‐154 ‐174 ‐206Profit after tax 1,313 1,205 1,363 1,616Others (Minorities, Associates) 0 0 0 0Net Profit 1,313 1,205 1,363 1,616Growth, % 88.1 (8.2) 13.1 18.5Net Profit (adjusted) 1,313 1,205 1,363 1,616Unadj. shares (m) 17 17 17 17Wtd avg shares (m) 17 17 17 17 Balance Sheet Y/E Mar, Rs mn FY14 FY15e FY16e FY17eCash & bank 85 663 895 748Marketable securities at cost 0 0 0 0Debtors 330 315 375 463Inventory 1,692 1,579 1,866 2,304Loans & advances 416 397 472 582Total current assets 2,523 2,954 3,607 4,097Investments 2,667 2,667 2,667 2,667Gross fixed assets 1,656 1,856 2,056 2,256Less: Depreciation ‐773 ‐903 ‐1,049 ‐1,209Add: Capital WIP 2 2 2 3Net fixed assets 885 954 1,009 1,049Total assets 6,076 6,576 7,283 7,814Current liabilities 1,934 1,816 2,150 2,655Provisions 735 1,166 1,803 2,042Total current liabilities 2,668 2,982 3,952 4,697Non‐current liabilities ‐38 ‐47 ‐58 ‐71Total liabilities 2,631 2,935 3,894 4,626Paid‐up capital 173 173 173 173Reserves & surplus 3,272 3,468 3,216 3,015Shareholders’ equity 3,445 3,641 3,389 3,188Total equity & liabilities 6,076 6,576 7,283 7,814 Source: Company, PhillipCapital India Research Estimates

Cash Flow FY14 FY15e FY16e FY17e

Pre‐tax profit 1,472 1,359 1,537 1,822Depreciation 119 131 145 160Chg in working capital 664 461 550 107Total tax paid ‐160 ‐163 ‐184 ‐219Cash flow from operating activities 2,094 1,787 2,048 1,871Capital expenditure ‐112 ‐200 ‐200 ‐200Chg in investments ‐158 0 0 0Cash flow from investing activities ‐270 ‐200 ‐200 ‐200Free cash flow 1,824 1,587 1,847 1,671Dividend (incl. tax) ‐1,858 ‐1,010 ‐1,615 ‐1,817Cash flow from financing activities ‐1,858 ‐1,010 ‐1,615 ‐1,817Net chg in cash ‐34 578 232 ‐147 Valuation Ratios

FY14 FY15e FY16e FY17ePer Share data EPS (INR) 76.1 69.8 79.0 93.6Growth, % 88.1 (8.2) 13.1 18.5Book NAV/share (INR) 199.6 210.9 196.3 184.7FDEPS (INR) 76.1 69.8 79.0 93.6CEPS (INR) 83.0 77.4 87.4 102.9CFPS (INR) 113.9 91.0 105.3 91.9DPS (INR) 92.0 50.0 80.0 90.0Return ratios Return on assets (%) 22.0 19.1 19.7 21.4Return on equity (%) 38.1 33.1 40.2 50.7Return on capital employed (%) 30.6 27.1 27.6 31.4Turnover ratios Asset turnover (x) 3.7 3.9 4.4 4.9Sales/Total assets (x) 1.0 0.9 1.0 1.1Sales/Net FA (x) 6.6 6.0 6.7 7.9Working capital/Sales (x) 0.1 0.1 0.1 0.1Receivable days 20.7 20.7 20.7 20.7Inventory days 106.2 103.7 103.1 103.1Payable days 115.7 109.6 107.8 106.2Working capital days 31.6 31.2 31.1 31.1Liquidity ratios Current ratio (x) 1.3 1.6 1.7 1.5Quick ratio (x) 0.4 0.8 0.8 0.7Dividend cover (x) 0.8 1.4 1.0 1.0Net debt/Equity (%) (2.5) (18.2) (26.4) (23.5)Valuation PER (x) 38.3 41.8 36.9 31.1PEG (x) ‐ y‐o‐y growth 0.4 (5.1) 2.8 1.7Price/Book (x) 14.6 13.8 14.9 15.8Yield (%) 3.2 1.7 2.7 3.1EV/Net sales (x) 8.6 8.9 7.5 6.1EV/EBITDA (x) 34.3 39.0 34.1 29.2EV/EBIT (x) 37.3 43.5 37.8 32.3



Contact Information (Regional Member Companies)

SINGAPORE Phillip Securities Pte Ltd

250 North Bridge Road, #06‐00 Raffles City Tower, Singapore 179101

Tel : (65) 6533 6001 Fax: (65) 6535 3834 www.phillip.com.sg

MALAYSIA Phillip Capital Management Sdn Bhd B‐3‐6 Block B Level 3, Megan Avenue II,

No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur Tel (60) 3 2162 8841 Fax (60) 3 2166 5099

www.poems.com.my

HONG KONG Phillip Securities (HK) Ltd

11/F United Centre 95 Queensway Hong Kong Tel (852) 2277 6600 Fax: (852) 2868 5307

www.phillip.com.hk

JAPAN Phillip Securities Japan, Ltd

4‐2 Nihonbashi Kabutocho, Chuo‐ku Tokyo 103‐0026

Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141 www.phillip.co.jp

INDONESIA PT Phillip Securities Indonesia

ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A, Jakarta 10220, Indonesia

Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809 www.phillip.co.id

CHINA Phillip Financial Advisory (Shanghai) Co. Ltd.

No 550 Yan An East Road, Ocean Tower Unit 2318 Shanghai 200 001

Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940 www.phillip.com.cn

THAILAND Phillip Securities (Thailand) Public Co. Ltd.

15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak, Bangkok 10500 Thailand

Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921 www.phillip.co.th

FRANCE King & Shaxson Capital Ltd.

3rd Floor, 35 Rue de la Bienfaisance 75008 Paris France

Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017 www.kingandshaxson.com

UNITED KINGDOM King & Shaxson Ltd.

6th Floor, Candlewick House, 120 Cannon Street London, EC4N 6AS

Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835 www.kingandshaxson.com

UNITED STATES Phillip Futures Inc.

141 W Jackson Blvd Ste 3050 The Chicago Board of Trade Building

Chicago, IL 60604 USA Tel (1) 312 356 9000 Fax: (1) 312 356 9005

AUSTRALIA PhillipCapital Australia

Level 37, 530 Collins Street Melbourne, Victoria 3000, Australia

Tel: (61) 3 9629 8380 Fax: (61) 3 9614 8309 www.phillipcapital.com.au

SRI LANKA Asha Phillip Securities Limited

Level 4, Millennium House, 46/58 Navam Mawatha, Colombo 2, Sri Lanka

Tel: (94) 11 2429 100 Fax: (94) 11 2429 199 www.ashaphillip.net/home.htm

INDIA PhillipCapital (India) Private Limited

No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013 Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in

Management (91 22) 2300 2999

Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6667 9946(91 22) 6667 9735

Research Economics Retail, Real Estate

Dhawal Doshi (9122) 6667 9769 Anjali Verma (9122) 6667 9969 Abhishek Ranganathan, CFA (9122) 6667 9952Priya Ranjan (9122) 6667 9965 Rohit Shroff (9122) 6667 9756

Infrastructure & IT ServicesVibhor Singhal (9122) 6667 9949 Portfolio Strategy

Manish Agarwalla (9122) 6667 9962 Deepan Kapadia (9122) 6667 9992 Anindya Bhowmik (9122) 6667 9764Pradeep Agrawal (9122) 6667 9953Paresh Jain (9122) 6667 9948 Midcap Technicals

Vikram Suryavanshi (9122) 6667 9951 Subodh Gupta, CMT (9122) 6667 9762Consumer, Media, TelecomNaveen Kulkarni, CFA, FRM (9122) 6667 9947 Metals Production ManagerJubil Jain (9122) 6667 9766 Dhawal Doshi (9122) 6667 9769 Ganesh Deorukhkar (9122) 6667 9966Manoj Behera (9122) 6667 9973 Ankit Gor (9122) 6667 9987

Database ManagerCement Oil&Gas, Agri Inputs Deepak Agarwal (9122) 6667 9944Vaibhav Agarwal (9122) 6667 9967 Gauri Anand (9122) 6667 9943

Deepak Pareek (9122) 6667 9950 Sr. Manager – Equities SupportEngineering, Capital Goods Rosie Ferns (9122) 6667 9971Ankur Sharma (9122) 6667 9759 PharmaHrishikesh Bhagat (9122) 6667 9986 Surya Patra (9122) 6667 9768

Mehul Sheth (9122) 6667 9996

Sales & Distribution Ashvin Patil (9122) 6667 9991 Sales Trader Zarine Damania (9122) 6667 9976Shubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747 Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745Sidharth Agrawal (9122) 6667 9934 ExecutionBhavin Shah (9122) 6667 9974 Mayur Shah (9122) 6667 9945

Corporate Communications

Vineet Bhatnagar (Managing Director)

Jignesh Shah (Head – Equity Derivatives)

Automobiles

Banking, NBFCs



Disclosures and Disclaimers In this report we don’t advocate whether GM is safe or not, it cannot be decided by departments or individuals, it should be decided by scientists and the government following strict standards and procedures. It only talks about the opportunity that would unfold for Monsanto India, if and when GM corn is approved in India. PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may or may not match or may be contrary at times with the views, estimates, rating, target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd. This report is issued by PhillipCapital (India) Pvt. Ltd. which is regulated by SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. 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