Bayer Cropscience: Corn portfolio to offset pressure on glyphosate

Recommendation: Add

Target Price: Rs. 4,590

Bayer is confident of maintaining growth, despite building headwinds in domestic market. FY24 will witness ramp-up of new products such as Vayego, Council Active; along with further scale-up in corn based portfolio. Roundup (glyphosate) sales are seen to remain stable, as Bayer still has headroom for volumes to offset pricing pressure. Analysts at IIFL Capital Services have cut their 1 year forward P/E multiple from 28x to 25x, considering cyclical challenges in domestic Agchem market.

Decent performance in FY23

With decent volume growth and improved product mix, Bayer delivered 9% revenue growth in FY23. Corn seeds business achieved record sales volume and constituted 13% of FY23 revenues (11% in FY22). Within domestic Crop Protection, Vayego, Laudis and Council Active were top contributors during FY23. Surprisingly, Roundup (glyphosate) revenues fell merely 2% YoY, despite a sharp price decline in global markets.

Confident on scaling up Corn portfolio

Management highlighted rising prominence of corn in recent years versus paddy and wheat. Corn is becoming an increasingly important product in India, as it caters to animal feed and links to ethanol production. Besides, rising profitability of corn for farmers will replace paddy acreages in certain regions. This augurs well for Bayer as it offers dual crop solutions in the form of Laudis and Dekalb.

Earnings visibility for FY24 fairly better than peers

Contribution from new products (Vayego, Council Active and Dekalb hybrids) is in high-single digits and gradually ramping up. There are 29 new label expansions and 4 new pipeline launches expected in FY24. Exposure to corn amidst remunerative crop prices augurs well for Bayer’s highly concentrated Corn-solutions portfolio. Impact of steep price correction in Roundup is likely to be curtailed by higher volumes.