汇丰银行印度农产品行业印度农业投入预计18年会呈现温和增长20171027HSBCIndiaAgro

Disclosures&DisclaimerThisreportmustbereadwiththedisclosuresandtheanalystcertificationsintheDisclosureappendix,andwiththeDisclaimer,whichformspartofit.Issuerofreport:HSBCSecuritiesandCapitalMarkets(India)PrivateLimitedViewHSBCGlobalResearchat:–ResearchIsyouraccessagreed?CONTACTustodayMidwaythrough2Qresultsseason,weretainourexpectationsof10-15%y-o-ysalesgrowthfor2QFY18forouragchemcoverageUPLremainsourpreferredpick;weseeUPLconsistentlyoutperformingglobalpeersWeretainourlargelypositivestanceonIndianagro-inputs,butcutestimatestoaccountfortheweaker1HFY18inIndiaMidwaythroughresults;tiltingmoretowardsmoderategrowthforFY18e.Twocompanieshavereportedresultssofar.Rallis’standalonesalesgrewc11%y-o-yin2QFY18,whilePI’sdomesticbusinessgrewc13%y-o-yin2QFY18despitethepotentiallyweakperformancefromitskeyproductNomineeGold.Domesticsalesgrowthforboththesecompanieswasinlinewithourexpectations.WeexpectBayerandDhanukatoreportsalesgrowthbetween10-15%y-o-ybasedonourdealerchecks,whileweseechancesofUPLreportingsalesgrowthtowardsthehigherendofthisrange.Weexpectindustrysalesgrowthtopickupin2HFY18,aidedbyalowbasein1HFY17,withsalesgrowing9-10%inFY18e.UPLremainsourtoppickwithintheIndianagro-inputsspace.UPLisclearlyoutperformingindustrypeersbothinIndiaandLatAm,twokeyregionswhichcontributemorethan70%tooverallsalesgrowth.BasedonourchecksinIndia,webelieveUPL’snewlaunchesinthepast3-4yearsarepostingencouragingsales,whileagloballyextendedcropdowncycleishelpingUPLtogarnermarketsharefrominnovatorsinLatAm.Webelievethestock’sc10%correctioninthepastthreemonthsprovidesagoodentryopportunity,anditisattractivelyvaluedataFY19ePEofc14x.Retainpositivestanceonthesectorbutcutestimates.WeretainourBuysonUPL,PI,BayerandDhanuka,andReduceonRallis.WecutestimatesforPI,Bayer,DhanukaandRallistoaccountfortheweaker-than-expected1HFY18earnings.PIandRallishavereportedandwenowexpectmoderate1HFY18eforBayerandDhanuka.OurUPLestimatesareunchanged.WeretainapositiveviewontheIndianagro-chemicalsspaceasweseeitasastructuralgrowthstoryoverthenext5-7years.27October2017AlokDeshpande*Analyst,IndiaOil,Gas&Agro-chemicalsHSBCSecuritiesandCapitalMarkets(India)[e-mail][phone]SaurabhJain*AnalystHSBCSecuritiesandCapitalMarkets(India)[e-mail][phone]*Employedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andisnotregistered/qualifiedpursuanttoFINRAregulationsIndiaAgro-inputsEQUITIESAGRICULTURALPRODUCTSIndiaAgri-inputssectorvaluationsummaryTickerCompanyMktcap3-moADTVNewTPOldTPSharepriceUpside/_______PE(x)_________________PB(x)_________ROE(%)(USDm)(USDm)(INR)(INR)Rating(INR)Downside(%)FY18eFY19eFY20eFY18eFY19eFY20eFY19ePIINP.I.Industries1,5942.8822.0880.0Buy756.88.624.820.817.15.34.33.622.9UPLLINUPLLtd.9,48816.8978.0978.0Buy813.020.318.014.412.64.43.52.827.1BYRCSINBayerCropsciences2,0321.04,011.04,975.0Buy3,753.86.939.631.526.15.75.04.417.1DAGRIINDhanukaAgritech5060.3761.0890.0Buy660.415.225.622.019.05.44.63.922.6RALIINRallisIndiaLtd.7441.1193.0190.0Reduce249.7(22.7)23.118.615.73.93.43.019.4Total/average14,3644.426.221.518.14.94.23.521.8Source:Bloomberg,HSBCestimates.Pricesasof26Oct2017.Midwaythrough2Q;expectmoderategrowthforFY18eEQUITIES●AGRICULTURALPRODUCTS27October20172BuildingmarketshareinaglobalagchemdowncycleGlobalpricesofkeycropshavecontinuedtobelowaswecomeclosetotheendofthefifthyearofanextendedglobalcropdowncycle(2013-17).LatestdataandestimatesfromtheUSDepartmentofAgriculturehinttowardsrobustproductionofimportantglobalcropsinthecomingseasoninLatAmandtheUS.Aswehadhighlightedinourearlierresearchnotes,webelievethatcroppriceshavebottomedout,butpredictingthetimingofastructuralreversalinthecropcycleremainsadifficulttask.Inourview,UPL’sproductportfolioandaggressivedistributionstrategieshaveflourishedinthisextendeddownturnasfarmersinLatAmhavecontinuedtoswitchfromthemoreexpensivepatentedorproprietaryproductstostronggenericproducts.WebelievethatthisdownturnhasgivenUPLanextendedtimeframetoestablishitsproductsasfarmershavefocussedonretainingtheirprofitabilitywhichremainslow.ThisisevidentinUPL’sglobalmarketshare,whichhasgrownfrom3.3%in2013to4.7%in2016asperourestimates.Furthermore,wealsobelievethatevenwhenthecropcyclereverses,UPLwillbeabletoholdontothemarketsharethatithasgarneredastheirkeyproducts,suchasUnizeb,haveprovedtobeveryeffective.LatAmandIndiaremainkeytogrowthWeseerobust,better-than-industrygrowthforUPLinLatAmandIndia,whichaccountforc55%ofsalesandnearly75%ofsalesgrowth.WeareespeciallybullishonLatAmforfourreasons.1)Overallplantingareaisexpectedtobehighery-o-yinthe2017-18harvestseason.2)Brazil’scultivatedareacouldexpandby2-3%p.a.inthelongtermasthecountryhashugepasturesthatcouldbeconvertedforagriculturaluse.3)UPL’skeyproductUnizeb(25-30%ofLatAmsales),whichtacklesAsianRustdisease,ispartofaboomingcategory.WeestimateAsianRustisaUSD2bnmarketandhasthepotentialtomorethandoubleinvalueasfarmerscontinuetoseekbettersolutionstoprotectsoybeancrops.4)WeseeopportunitiesforUPLinArgentinaandamongBrazi