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Sunday, June 18, 2000













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Aventis CropScience: Food for growth

Recommendation: Hold

Anup Menon

Aventis CropScience, one of the better agrochemicals stocks, is a good long-term investment and should form part of a portfolio.

After touching a high of Rs. 623 in the last week of January 2000, the stock of Aventis CropScience (the erstwhile Agrevo India) declined to Rs. 209 and since rebounded to its present levels of around Rs. 294.


The current market price discounts the December 1999 earnings per share 15 times. The company's financial performance for fiscal 2000's first quarter was not very impressive. However, the company's prospects may improve especially after the recent consolidation in the industry. The erstwhile AgrEvo India is to merge with the agrochemicals division of Rhone Poulenc in a strategic alliance. Existing investors can stay invested and wait for the merger to come through before deciding on the stock.

Earnings Performance: The company has changed its accounting year from fiscal 2001. Its performance for the quarter-ended March 2000 has not been impressive. Sales revenues declined 73 per cent to Rs. 10.86 crores compared to the previous corresponding period. In the same time-frame, operating margins also came under pressure. Post-tax earnings declined from profits of Rs. 3.82 crores in March 1999 to a loss of Rs. 1 crore in March 2000. The poor performance can be attributed to both poor offtake and pressure on the price front. The drought appears to have affected the performance.

Background: AgrEvo (India) is a subsidiary of AgrEvo GmbH. It one of the largest players in the domestic agrochemicals market. The company changed its name to Aventis CropScience with effect from March 2000. Close to 92 per cent of the sales turnover was derived from the formulations segment and the rest from basic agrochemicals and others. The company's product profile includes pesticides and environmental health products among others.

The company has numerous generic brands in this segment. The high level of importance attached to the agriculture segment has ensured that potential demand for agrochemicals continues to increase even while the focus is more on the insecticide segment in India. The country's food requirements far outstrips the availability of arable land. Growth rates of around 10-15 per cent for agrochemicals, witnessed in India, is much higher than the world average of around 3-5 per cent. Spotting the opportunity, additional capacities have been coming up in the recent past. But the cyclicality in demand has led to a deterioration in utilisation levels and pressures on the price front.

This segment's performance will depend, to a great extent, on the prospects of the monsoon and yields to farmers. Further, the industry is cyclical by nature and the main season for increased offtake in agrochemicals is from June to November. If initial indications of monsoon in 2001, which look bright, last, the performance may improve in the next couple of quarters.


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The other division which has been gaining importance is the environmental health product segment and exports. The company has turned a net exporter for the nine months ended December 1999. Net foreign exchange receipts exceeded expenses by Rs. 4 crores. The environmental health product segment is likely to be a fast growing segment in the near future.

Prospects: Prospects may improve with the proposed merger with Rhone Poulenc's agrochemicals business. By combining the operations of both the companies and transforming the new entity into a global sourcing base, the merger is likely to help Aventis CropScience from the long-term perspective. The combined market share of the new entity is likely to be around 14 per cent. This development with a good kharif in the current season is likely to strengthen the earnings profile of the company from the long-term perspective. Existing shareholders can stay invested.


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