Bayer cropscience

Business Synopsis:

• Manufacture, sale and distribution of insecticides, fungicides, herbicide and various other agrochemical products and corn seeds.
• Sale and distribution of hybrid seeds.
• Own manufacturing site for agrochemical production at Himatnagar and Silvassa, drying and processing stations at Hyderabad and breeding stations at Bengaluru and Udaipur.
• FY22 Sales Breakup: agrochemicals 82%, corn seeds 11%, export 4%, & traded seeds 3%
• FY22: Top 5 products are Dekalb,Roundup, Nativo, Laudis, and Antracol.
  • DEKALB (Corn Seed): Maize is the third largest cereal crop in India after rice and wheat
  • Roundup (Herbicide, glyphosate-based): Acquired in 2018 from Monsanto.
  • Nativo (Fungicide): Offers not only a disease control but also improves quality and yield of crop.
  • Laudis (Herbicide): For control of broadleaf and grassy weeds in maize.
  • Antracol (contains Propineb, a contact fungicide): Broad spectrum activity against various diseases of rice, chilli, grapes, potato and other vegetables

Opportunity Size: By 2050, India will have 1.7 billion people. The yield per hectare in India needs to increase significantly- Current yield far lower as compared to global averages and declining arable land in India.

Challenges/Risks:

• Reduced acreages due to delayed/excessive monsoon and better prices for alternative commodity
• Erratic Monsoon: South West Monsoon (June to September), the single biggest driver for Indian Agriculture
• Regulatory Hurdles: Delays in product registration and ongoing glyphosate supply chain restrictions by the Indian Government
• Hyper competition from cheaper alternatives (generics) and increase in the raw material Costs. Note: Due to Bayer’s deep and integrated global supply chain, erratic cost might benefit Bayer as the differential between generics and Bayer’s branded products will become smaller.
• Significant compression in gross margins over the last seven quarters: Bad season for corn seed portfolio causes these swings will come in bad corn seasons. It will remain so.
• Sedate overall growth opportunity as business if primarily focused on Indian opportunity.

New business models to achieve a better acre share:

• Better Life Farming centers (1566) as an inclusive model to scale up and help the farmer expand the channel and really collaborate with others.
• 5,000 Sahbhagis: Rural entrepreneurship that significantly increased farmer reach
• Focus on commercial key accounts. These accounts basically work with food value chain partnerships, e-commerce, and differentiated smallholder portfolio.
• Reducing prices to attract a new segment. Gives an opportunity to up sell also in future.

Other Observations:

• Post-merger with Monsanto in 2019, revenue and profit (normalized for exceptional items and tax rate – @25%) grew at ~13%. Dividend payout has significantly increased in the latest 3 years.
• ~60% of sales and ~70% of Operating Profit happen in H1