Monsanto (MCHM) reported overall revenue of R6,740 crore in Q4FY15 as against R7,510 crore in Q4FY14, marking a y-o-y degrowth of 10.2%.
Corn acreages declined by ~10% in FY15 on the back of lower corn output prices and delayed monsoons. MCHM outperformed the market and gained market share of ~1% during FY15. Going forward, we expect corn acreages to post 5-7% growth—with MCHM outperforming the market and posting 8% volume growth in FY16. We expect better mix in favour of newly launched hybrids and reducing age profile of seeds sold to result in 8% realisation improvement in FY16, driving 16% revenue growth in the corn business for MCHM in FY16.
We cut our EPS estimates by 5% for FY16 and 7% for FY17 to factor in the impact of uncertain monsoon and lower profitability in the glyphosate division. We believe improving hybrid penetration in corn (from the current 60% to 80% over the next five years), higher contribution from Rabi season (35% currently), and expected revival in corn acreages will drive 19% revenue CAGR and 38% PAT CAGR over FY15-17. Further, approvals on RR Flex and GM corn could provide further upside to our estimates. MCHM trades at 29x FY16E/22x FY17e EPS. Maintain buy, with target price of R3,500.