Maintain ‘buy’ on Monsanto India with a target price of R3,315. We cut our estimates for FY15 and FY16 by 8% to factor in the impact of poor monsoon and change in cropping patterns by farmers from corn to cotton. However, our core thesis of improving hybrid penetration in corn, higher contribution from Rabi season, making corn a two-season crop, and sharp revival in corn acreages in FY16, remains intact. This makes a strong case for long-term investment in the stock. Average 10-year multiple for Monsanto has been 20x; however with the company gaining market share in the corn segment after a lag of 10 years, we believe it is likely to trade at a premium to long-term average multiples. We roll over our target price to FY17e.
Genetically modified food crops remain a huge opportunity to tap. Monsanto has begun field trials in Maharashtra and Haryana; it is awaiting no objection certificate from other states. GM corn will improve yield by 20-40% over existing hybrids and drive strong profitability improvement for farmers. Monsanto has guided that the first launch of GM corn is likely in FY18-19. Also, it would evaluate options to out-license this technology to other companies in the corn segment, which we believe should command 85-90% margins.