PL Stock Report: Bayer Cropscience (BYRCS IN) - Q2FY24 Result Update – Good set of numbers amid challenging times..!! - ACCUMULATE

Bayer Cropscience (BYRCS IN) - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd.

Rating: ACCUMULATE | CMP: Rs5,193 | TP: Rs5,920

Q2FY24 Result Update – Good set of numbers amid challenging times..!!

Quick Pointers:

§ Better liquidation in crop protection business.

§ Pricing pressure in Round-up (Glyphosate) coupled with high cost inventory provisions have resulted in gross margin contraction of 180bps YoY to 37.6%

We broadly keep our FY24/25E/26E estimates unchanged. BYRCS reported decent set of numbers with revenue growth (up 11% YoY) largely driven by strong CP sales given Laudis, Nativo and Council actively performing well and volume growth in Roundup and corn hybrid seeds offsetting lower prices. We believe strong growth in corn hybrid seeds was largely led by better maize acreages during kharif season (up 4.0% YoY as on 3rd Oct-23) supported by remunerative corn prices (up 7% YoY to Rs2,339/quintal as on Oct’23). High cost inventory provisions in CP segment likely to dent gross margins (down 180bps YoY) to 37.6%. However, lower employee cost coupled with lower opex down 270bps and 160bps YoY has resulted in EBITDA margin expansion of 250bps YoY to 18.9% (Ple 18.5%). We expect Revenue/ EBITDA/PAT CAGR of 10%/13%/13% over FY24-26E (FY18-23 CAGR of 14%/17%/18%). Maintain ‘Accumulate’ rating on the stock with revised TP of Rs5,920 (Rs4,720 earlier) based on 28xFY26 EPS.

§ Decent show despite adverse climatic conditions: BYRCS reported revenue growth of 11% 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 4% YoY till 03rd October’23, primarily led by remunerative corn prices in domestic markets (up 7% YoY as on Oct’23). The company commented that they have proactively managed cost and sustained focus on maintaining optimal channel inventory. This resulted in increased profits during 2QFY24.

§ Gross margins contracted 180bps YoY to 37.6% in 2Q’24: Gross margin contracted by 180bps YoY to 37.6%, 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). However, lower employee cost and other expenses down 270bps and 160bps YoY has in-turn resulted in EBITDA margins expansion of 250bps YoY to 18.9% (PLe 18.5%). Absolute EBITDA was up 28% YoY to Rs3.0bn (PLe Rs3.0bn). Adjusted PAT came at Rs2.2bn up 37% YoY (PLe Rs2.1bn).

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