PL Stock Report: Bayer Cropscience (BYRCS IN) - Q1FY24 Result Update - Cost saving initiatives drives performance - Accumulate

Bayer Cropscience (BYRCS IN) - Himanshu Binani - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: ACCUMULATE | CMP: Rs4,593 | TP: Rs4,720

Q1FY24 Result Update - Cost saving initiatives drives performance

Quick Pointers:

§ Better liquidation in corn seeds business.

§ Pricing pressure in Round-up (Glyphosate) coupled with high cost inventory provisions have resulted into gross margin contraction of 580bps YoY to 42.7%

We broadly keep our FY24/25E estimates unchanged. BYRCS reported decent set of numbers with revenue growth of 4% YoY (adjusted for effect of customer incentive programs growth was 9% YoY), mainly driven by strong sales in Crop Protection (CP) (despite expected moderation in Round-up (Glyphosate) sales due to lower realizations) and strong volume growth in corn hybrid seeds. We believe strong growth witnessed in corn hybrid seeds was largely led by better corn acreages in the ongoing kharif season (up 1% YoY as on 4th August’23) supported by remunerative corn prices (up 8% YoY to Rs2,295/quintal as on July’23). Pricing pressure in Round-up (Glyphosate) coupled with high cost inventory provisions in CP segment likely to have dent gross margins (down 580bps YoY) to 42.7%. However, lower employee cost coupled with lower opex down 220bps and 430bps YoY has resulted into an EBITDA margin expansion of 70bps YoY to 24.4% (Ple 22.8%).

We believe, worst in terms of falling RM cost is largely behind as prices of few RM’s have started to witness uptick. However, near term weather challenges coupled with higher channel inventory in domestic market and pricing pressure in Glyphosate is likely weigh on the stock performance. That said, we maintain ‘Accumulate’ rating on the stock with unchanged TP of Rs4,720 based on 25xFY25 EPS.

§ Decent show, despite adverse climatic conditions: BYRCS reported revenue growth of 4% YoY led by healthy performance from corn hybrid seeds and strong growth in Crop Protection (CP) portfolio (despite price normalization in Round-up (Glyphosate)). Maize acreages during kharif’23 remained up by 1% YoY till 04th August’23, primarily led by remunerative corn prices in domestic markets (up 8% YoY as on July’23) that augur well for the company (largest product portfolio). While, the company commented that they have proactively managed cost and invest in targeted growth opportunities which in turn had resulted into increased profits during 1QFY24.

§ Gross margins contracted 580bps YoY to 42.7% in 1Q’24: Gross margin contracted by 580bps YoY to 42.7%, which we believe was largely on account of pricing pressure in Round-up (Glyphosate) coupled with provisions of high cost inventory despite higher liquidation of corn hybrids seeds (higher margin business). Lower gross margins coupled with lower employee cost and other expenses down 220bps and 430bps YoY has in-turn resulted into an EBITDA margins expansion of 70bps YoY to 24.4% (PLe 22.8%). Absolute EBITDA was up 8% YoY to Rs4.2bn (PLe Rs4.0bn). Adjusted PAT came at Rs3.3bn up 9% YoY (PLe Rs3.0bn).

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