The pace of new molecule introduction in the global agro chemicals space is slowing down as R&D costs and time required for new molecule introduction increases. This slackening in pace, coupled with the shortening life cycle of molecules, has increased the urgency in the pesticide industry to counter this phenomenon.
Against this backdrop, we think companies with a strong focus on R&D, like Indian subsidiary of Bayer AG — Bayer CropScience, will be best positioned to deliver higher than industry growth. We forecast Bayer CropScience domestic formulation business to grow at 18% CAGR over FY14-17e and this in conjunction with margin expansion should spur 27% CAGR earnings growth over FY14-17e. Reiterate ‘buy’ with new face value of R3,377.
The company should be able to reap the benefit of the parent’s strong focus on R&D. A comparison of Bayer AG’s and Bayer CropScience’s product portfolio indicate that 80% of Bayer AG’s core brands and 64% of Bayer AG’s best-selling products are yet to be launched in India. Our interaction with agro chemicals dealers indicates that Bayer’s product portfolio is not just the widest, it also protects against most pest incidences. In the domestic formulation business this essentially should put Bayer CropScience ahead of its domestic peers.