Logo of Bayer AG is pictured at the Bayer Healthcare subgroup production plant in Wuppertal, Germany
The Bayer CropScience
stock has shed over 22 per cent since the start of FY20 on disappointing March quarter results and uncertain near-term outlook.
The company reported a loss both at the net and operating profit levels due to a sharp 57 per cent decline in revenues over the year-ago period. Weak demand conditions led to channel stocks being recalled by the company. Further, the delay in marketing ramp up of newly launched products also led to muted sales performance.
Analysts at Elara Capital believe that though the company launched 15 products in the crop protection segment over FY16-19, growth remains weak due to below normal monsoon, low pest incidences and slower scale-up of new products.
In addition to the lack of blockbuster products such as Confidor, which act as a pesticide, what has also hurt sales is the negative publicity around herbicide Glyphosate and its ban in a few states which creates short-term uncertainty.
While new product launches are expected to drive growth in FY20, the company indicated that near-term outlook has been challenging.
The company has changed its trade strategy from channel placement driven growth to monitoring liquidation at the retail level before filling the channel to avoid excess stock with the channel and have better control on inventory and receivables. While the near-term growth will depend on the monsoon, the Street will also look at the progress on the merger front between Bayer and Monsanto India.
The merger, to be completed by the end of the year, is expected to generate synergy benefits to the tune of Rs 120 crore over the next couple of years. Analysts expect the merger to be earnings accretive with complementary product portfolio driving the sales growth of the new entity.
Given the near-term worries, most brokerages have trimmed their earnings per share estimates for FY20-21 by about 5-7 per cent. Investors should await a growth pick up and impact of the change in trade strategy before taking an exposure to the stock.