V A L U E P I C K. Closing 974 Reco: Buy. Expected Value 1130 Nifty Level Bayer Cropscience 23 August 2012

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1 V A L U E P I C K Closing 974 Reco: Buy Bayer is the largest player in the Indian crop protection market Strong Parentage The company is the Indian subsidiary of Bayer Germany which is a diversified international chemical and healthcare company. Promoter holding is 71% for June Well known brand across the categories of its segment The company has the widest rage of high quality of patented products. Strong pipeline ahead Insecticides 1] Betacyfluthrin 9% + Imidacloprid 21% OD (Solomon 300 OD) for control of fruit and shoot borers and sucking pests in Okra and Brinjal, 2] Fipronil + Imidacloprid 80 WG (Lesenta 80 WG) for use in Sugarcane against white grubs besides securing key label extensions in Crop Protection and 3] Imidacloprid 0.5% GR (Quickbayt) for control of Housefly in Environmental Science business. Expected Value 1130 Nifty Level 5415 Key Statistics CMP W H/L 985/673 Industry Agro Chemicals Dividend yield % 0.4 Market cap(cr.) 3831 P/BV 4.8 Free Float (Cr.) 1149 P/E Average Vol (6 mon) 8399 EV/EBITDA 9.5 BSE Code NSE Code BAYERCROP Strong financials Consistent performance Top line has seen a CAGR growth of 27.7% and a bottom line growth of 30% for last 5 years. The company is almost a zero debt company. Last 4 years company has been successful in maintaining ROCE s of more than 20%. Unlocking of Value The Thane land deal has been a trigger for huge cash on books. Partial amount of Rs. 260 crs was already received and the balance amount of ~Rs. 700crs is receivable by Sep2012 end. Attractive Valuations On valuations front the company is trading below its 5 years averages of PE multiples and EV/EBITDA of 19.7x and 11.17x respectively.

2 Company Overview Bayer CropScience is a leader in the areas of crop protection, pest control, seeds and plant biotechnology. The Agri Care business which primarily includes manufacture, sale and distribution of insecticides, fungicides, weedicides and various other agrochemical products. They have their production facilities at Himatnagar and Ankleshwar in Gujarat. Major Brands of the company are Bayer Confidor, Bayer Cencor, Accord plus, Basta, Atlantis, Topstar. Investment Thesis Strong product portfolio Seeds 16% Revenue Break up Others 2% Active Ingrediants 20% Share holding pattern %age Promoters Institutions Foreign 4.83 Other corporates 3.63 Public & Others 9.08 Formulations 62% Herbicides - Atlantis (wheat), Topstar (rice), Whip (rice & Soyabean) - Newly launched - Accord plus. Solitude Non- Selective Herbicides Basta Insecticides Confider targeting key Indian crops like cotton, rice, mango, sugarcane and chilli. Fungicides - Antracol and baycor targeting fruits and vegetables.

3 Seed portfolio Rice hybrid Arize 6444Gold The company has a huge distribution reach of almost 3500 sales managers and field advisors and dealers and over 4 lakh retailers across india. Strong new product pipeline In the new scenario of recent membership of India to the Organisation for Economic Co-operation & Development which will result in Regulatory Data Harmonisation and the move towards Regulatory Data Protection and effective implementation of Patent regime by the Government, in future. Company will be introducing some excellent high technology products in Crop Protection as well as Environmental Science. The year 2012 has an interesting line-up with the expected approval and launch of 2 globally renowned products insecticides viz., Betacyfluthrin 9% + Imidacloprid 21% OD (Solomon 300 OD) for control of fruit and shoot borers and sucking pests in Okra and Brinjal, Fipronil + Imidacloprid 80 WG (Lesenta 80 WG) for use in Sugarcane against white grubs besides securing key label extensions in Crop Protection and Imidacloprid 0.5% GR (Quickbayt) for control of Housefly in Environmental Science business. Industry support The Indian crop protection market has been growing steadily at nearly 14% during the last 4 years. Crop protection is nothing but minimizing of losses of agricultural produce by efficient pesticide usage. However, in , the crop protection season has slowed down to a single digit growth rate, mainly due to the uneven spread of the south west monsoon, relatively less favorable commodity prices and especially critical cropping condition during the recent Rabi season. It is seen that the overall positive market trends in the agricultural sector are fully in place and the agrochemicals industry is well synchronized to match with them. A number of reasons have been attributed to the long-term positive market trend, such as good commodity prices and improved Minimum Support Price levels from the Government of India, that has been helping farmers to choose qualitative inputs as well as increasing awareness amongst farmers about development in cropping patterns. Unlocking of value The sale of 104 acre of land in thane which is in exclusive arrangement with Agile real estate pvt ltd where last year December it has already received and earnest amount of Rs. 260 crs and the

4 remaining amount of around ~Rs.700 crs is due by on or before Sep The outstanding amount for this year is almost 18% of the current market cap. This takes the cash balance on book for the year FY13 to the tune of Rs mn that is Rs. 290 per share value. Strong financials Top line has seen a CAGR growth of 27.7% and a bottom line growth of 30% for last 5 years. Investment Risk Growth of generics will continue to put pressure on companies. This will create a downward pressure on prices and is expected to remain so in the short and medium term. Disruption of monsoon and deteriorating farm economies is a concern for the whole industry. Unlocking of value in the Thane land deal has been a trigger for huge cash on books. This cash could be further used for any expansion plans or dividend payment. The company is almost a zero debt company therefore bottom line is on the improvement trend for going forward. Last 4 years company has been successful in maintaining ROCE s of more than 20%.

5 Financials Statements Income Statement (Rs. In mn) FY11 FY12 FY13E FY14E Revenue from operations (-) Excise duty Revenue from operations (Net) Other Income Total Revenue Total Exp PBIDT Interest PBDT Depreciation PBT Tax exp PAT Other Details No of shares EPS EBITDA Margin % PAT margin % CMP ROE ROCE 22.1% 31.9% 28.2% 33.5% EV EV/EBIDTA Balance Sheet (Rs. In mn) FY11 FY12 FY13E FY14E Sources of Funds Share capital Reserves Networth Total debt Deffered tax liability Total liabilities Application of funds Net Block Other Assets Cash and Bank Current Assets Total Current Liabilities Net Working capital Total Asset Other Details Book value P/BV DE ratio

6 Valuation We expect the company to post a CAGR of ~10% in the time period of FY11-FY14 and a bottom line growth of ~24%. Top line growth is on a conservative side mainly as the sector is more of monsoons dependent. Bottom line is well placed as the company closes to zero debt level. At CMP of Rs 974, Bayer currently trades at 19.8x & 15x of its FY13E & FY14E earnings. EV/EBIDTA multiple which is lower than its 5 year average is trading at around 9.9x and 8.2x for the same period. On P/BV multiple stock trades at 4.42x & 4.4x of its FY13E & FY14E. We recommend to buy the stock for a price target of Rs which is at a PE of 19x for 1 year.

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