Weak rabi prospects cloud Bayer CropScience outlook

As of 20 November, rabi crop sowing is 12% less than the year-ago period. Photo: Hindustan Times

Compared with a 4% loss in the S&P BSE 500 index, Bayer CropScience Ltd has lost 11% since its September quarter results announcement. Revenue fell 5% due to weak demand in India and abroad. Though revenue increased 5% in the first half of the current fiscal year, the growth is far slower than the 20% rise the company reported last year. It’s true that helped by new launches, the company’s crop protection business did better than the industry. But the 17% drop in export sales weighed on performance.

What’s more, the performance may remain subdued in the second half of the fiscal year too. At a recent analysts’ meet, the company warned sales may remain weak for the rest of the year due to low reservoir levels, low commodity prices and delay in sowing of the winter crops. As of 20 November, winter (rabi) crop sowing is 12% less than the year-ago period. Storage at 91 reservoirs monitored by the Central Water Commission is three-fourths, or 74%, of the average availability in the decade.

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Liquidity at the distributors and farmers levels continues to remain tight. Moreover, because of the failed monsoon season, inventories are high, leaving limited room for growth in the second half of the year.

“As a result, channel inventory remains high, which will put pressure on H2FY16 growth. Also, softness in global commodity prices to have adverse impact on exports,” Emkay Global Financial Services Ltd said in a note.

Tracking the weak commentary, some analysts have reduced their earnings estimates for Bayer. Edelweiss Securities Ltd lowered its profit and earnings per share estimate for the current fiscal year by one-fourth. Compared with 15% growth in the last fiscal year, the brokerage firm estimates Bayer will grow its revenues by just 4% in 2015-16.

That said, all is not lost. Many analysts remain sanguine about the prospects in the long run thanks to strong brand recall and the company’s product pipeline. Bayer launched three new agrochemical products in the first half of the fiscal year. According to analysts, the products received good response from farmers. With the company preparing to launch 4-5 more products in 2016-17, analysts expect sales to recover next year, given a good monsoon.

Also, analysts say the company is inclined to continue the buyback programme in future, which may provide support to the stock. While these two factors—share buyback and sales recovery—will keep hopes running, much depends on how rains pan out next year.
[“source -financialexpress”]

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