Nath Bio-Genes is at the “cusp of unprecedented opportunities”: Mudar Patherya
Nath Bio-Genes came into radar for the first time when Mudar Patherya opined that it is at the “cusp of unprecedented opportunities”.
As always, Mudar’s recommendation is backed by solid data and is flawless:
(i) The Government intends to double farm incomes by 2022. This creates unprecedented opportunity for Nath Bio-Genes;
(ii) Hybrid paddy seeds account for only five per cent of all the land under paddy in India, whereas the corresponding coverage is around 70 per cent in China — an index of the vast scope for hybrid seeds in one of the largest agrarian economies of the world.
(iii) The Indian seeds industry has experienced an inflection; the government indicated a maximum retail price for cotton seeds beyond which multinational companies would not be permitted to charge; it moderated the royalty outgo on cotton seeds from Rs 165 per packet of 50 grams to Rs 43; some prominent multinationals froze launches, which created an unprecedented opportunity for research-driven Indian seed companies.
(iv) Nath Bio-Genes appears to be one of them for good reasons.
(v) The company was selected by the Chinese government for a Bt cotton technology transfer in 2006, coupled with Bt technology sourcing from Monsanto, empowering its platform to generate unique cotton hybrids (more genes and traits) that deliver a combination of drought-tolerant, high-yield and ecologically-accommodative crops.
While it would have been easy-marketing low-management seed products in well-irrigated regions, Nath marketed high-management products in vulnerable rain-fed areas, empowering marginalised farmers through champion NBC 1022 cotton seed products to counter droughts, pest attacks (sucking pests), spraying costs, labour intensity and low yields.
(vi) The company selected to focus on specific segments (vegetables, cereals, fibre and oilseeds and nutritional supplements), holding out the largest sustainable opportunity and on select geographies with compacted farm clusters and lower logistic costs.
(vii) The company claims to possess a portfolio of winning products — NBC 102 and 1022 in the area of cotton, Amrapali and Amoli in the okra space, with demonstrated disease resistance; NBC 1894 and 1831 in the tomato category — with demonstrated characteristics considerably superior to competition. The evidence has begun to translate into numbers. Seed returns declined from 39 per cent to 32 per cent in 2016-17; revenues strengthened 4.56 per cent, while profit after tax increased 15 per cent; long-term debt was a mere Rs 22.07 crore as of March 31, 2017.
(viii) The company launched cotton seed products in the Philippines, which comprised fusion gene and hybrids. This should generate international sales starting 2018.
(ix) The company is focused on GMS-induced reduction in cotton seed production costs, coupled with a substantial prospective increase in cotton seed sales — an attractive volume-value play. The company (with associated companies) was awarded 100 acres to develop a mega food park where it owns 20 per cent equity; this business is expected to generate revenues starting 2018.
(xi) The company is packing all its ammunition for 2018 kharif, which should be a breakout in its existence.
Quadrupling of revenues in five years
At the end of the analysis, Mudar has opined that Nath Bio-Genes could quadruple revenues to Rs 1,000 crore in five years (estimated) around existing or superior margins, enhancing respect and stakeholder value.
It is obvious that if there is a quadrupling of revenue in five years, the stock will be at least a 4x multibagger in the same period.
Billionaire Satpal Khattar grabs stake
Satpal Khattar figured out for himself that Nath Bio-Genes is a must-buy quoting at bargain basement prices.
He rushed to Dalal Street in October 2017 and bought a chunk of 2,00,000 shares.
Satpal Khattar is in the distinguished company of Sanjay Dangi’s Mentor Capital, Indgrowth Capital Fund and Aditya Birla Sun Life Pure Value Fund.
Nath Bio Mgmt: Tgting 25-30% YoY growth in revs & profits. see mgn expansion, on back of improved product mix. https://t.co/iYVNF7EfdI
— Ajaya Sharma (@Ajaya_buddy) October 17, 2017
#CorporateView | Certain parts have seen delay in rains & deficient rainfall but things are improving. Doing well in cotton and rice, expectgrowth in range of 20-25% this year, says Nandkishor Kagliwal of Nath Bio-Genes@avannedubash @AyeshaFaridi1 pic.twitter.com/dulOD6Uhwi
— ET NOW (@ETNOWlive) July 16, 2018
|NATH BIO-GENES (INDIA) LTD – KEY FUNDAMENTALS|
|MARKET CAP||(Rs CR)||936|
|EPS – TTM||(Rs)||[*S]||18.62|
|LATEST DIVIDEND DATE||–|
|BOOK VALUE / SHARE||(Rs)||[*S]||246.91|
[*C] Consolidated [*S] Standalone
|NATH BIO-GENES (INDIA) LTD – FINANCIAL RESULTS|
|PARTICULARS (Rs CR)||JUN 2018||JUN 2017||% CHG|
Nath Bio-Genes is at ‘inflection point’ and is a ‘strong buy’: SMIFS
Stewarts & Mackertich alias SMIFS have now jumped into the fray with a buy recommendation.
The logic is quite convincing:
“We initiate coverage on Nath Bio-Genes(I) Ltd (NBL) with a Strong Buy rating. NBL is an R&D driven company engaged in the business of production, processing, and marketing of hybrid and genetically modified (GM) seeds. The company has sowed the seeds of R&D and is now focusing on marketing and distribution to achieve the desired heights. It has also raised INR136 Crore through QIP and has repaid its outstanding loans. We believe these holistic approach would add vigor to the company’s performance and help it grab a decent market share in the Indian seed Industry.”
“Valuation: The company is now at an Inflection Point where it has superior products in its basket and is ready to market it. The company has a strong pipeline in each of the verticals for the next 3-4 years, with this we believe that strong marketing and distribution network will drive revenue. Considering this, we value the company on the basis of weighted average of P/E and EV/EBITDA and arrive at a Price Target of INR759.”
The target price of Rs. 759 forecast by SMIFS is a hefty 55% from the CMP of Rs. 491.
No wonder, the recommendation is a “strong buy”.
Mohnish Pabrai endorses prospects for genetic seeds and buys Kaveri Seed
Prima facie, the logic formulated by Mudar Patherya, Satpal Khattar and SMIFS as regards the prospects of the genetic seeds industry is endorsed by Mohnish Pabrai.
In May 2018, Mohnish bought a chunk of 7.79 lakh shares of Kaveri Seed comprising of 1.2% of its equity capital.
Pabrai Investment Fund II buys 1.2% equity in Kaveri Seed at Rs 487.29 each. pic.twitter.com/LerJE4YxGW
— BloombergQuint (@BloombergQuint) May 23, 2018
Mohnish has already raked in tidy gains from his purchase. He paid a price of 488 per share. At the CMP of Rs. 588, gains of 20% are on the table.
Thereafter, Mohnish has been making secret forays into Dalal Street to buy more of Kaveri Seed.
The holding of his Pabrai Investment Fund as of 30th June 2018 stands at 31,83,860 shares comprising 4.82% of the equity capital.
The investment is worth Rs. 187 crore.
It is obvious that it is mandatory that we should also have one of more genetic seeds stocks in our portfolio. We have to choose between either Kaveri Seed or Nath Bio-Genes or buy both stocks. Both stocks are powerhouses and likely to lead us into prosperity sooner or later!