East India Securities has recommended 'Sell' on Bayer CropScience (BCS) with target price of Rs 3,667 in its report.
Commenting on the investment rationale, the stock broker said, ''BCS posted a growth of 16% in total revenue to Rs 13.7 billion during the first quarter of the financial year which is slightly lower than our estimates. Total raw material cost for the quarter grew by 19% against revenue growth of 16%. Gross margin contracted by 170bps to 29.3%. Other Expenses showed a marked increase of 27% as company made a provision of Rs 170 million towards job work charges for estimated shortfall in the committed quantities. This in turn led to 220bps contraction in EBITDA margin. EBITDA margin for the quarter came in at 10.2% against 12.3% Q1FY16.
Depreciation for the quarters came in at Rs 60 million, a decline of 29% yoy, however PAT declined by 1% to Rs 1 billion on back of lower EBITDA margin and higher tax rate (33.6% vs 32.1%).
BCS posted disappointing performance for Q1FY16 on back of beginning poor monsoon, we would wait for Q2 performance and AGM before changing our earnings estimate for FY16 & FY17. We expect BCS to take advantage of its leadership position in Indian agrochemical market and post CAGR of 16% & 19% in Sales and PAT respectively over FY15-17. At Target P/E of 25x and adding surplus cash, we arrive at target price of Rs 3,667 (adjusted for buyback). Hence, we recommend Sell on stock. However stock may remain in limelight on account of buyback announced by company (Rs 4,000).''
