Q3FY18 results
Key positives: Increase in gross margins.
Key negatives: Decline in revenues and profitability
Impact on financials: FY18/19E EPS cut by 9.8%/21.3%. We introduce FY20e EPS of Rs128/sh
Valuations & view
Bayer’s performance in Q3FY18 was adversely impacted due to erratic rainfall in the month of October (especially in South India which accounts for 65% of its revenues). Overall performance during 9MFY18 was adversely impacted by destocking at dealer level due to GST implementation and uneven distribution of rainfall. We believe, market share loss in hybrid rice sales in seed business (~15% of revenue) and reduced off-take by the parent company in exports business (~15% of revenue) will be the key challenges faced by the company. In the long term, Bayer is one of the few companies to have strong product pipeline (~20 in 2017-2021E), which should boost growth. Bayer is banking upon its strong product pipeline and established distribution reach in domestic pesticides business to overcome the challenges faced in exports and seeds business. Government has recently constituted committee to formulate policy to impose price control over generic pesticides products. With Bayer pricing the generic products that it sell at 20-30% premium over other players, any price control will adversely impact the profitability of the company. Maintain Neutral, with the revised target price of Rs3839.
Co. is engaged in the manufacture, sale, and export of the following products: herbicides and fungicides; insect control sprays and related devices; rubber and plastic goods; health care related medications for humans and animals; diagnostic equipment sales and installation; and organic chemicals such as dyes, dyes intermediaries, and flavor additives.
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