Friday, June 13, 2014

Nath Bio-Genes (India) Ltd - Seeding A Bright Future

Nath Bio-Genes (India) Ltd is a mid-sized Indian seed company, based in Aurangabad, Maharashtra.

The company was incorporated in 1993, under the name “Shivnath Farms Pvt Ltd” and the name was changed to Nath Bio-Genes (India) Ltd in 2001, at which time the seeds business of the listed group company Nath Seeds Ltd was transferred & vested in Nath Bio-Genes (India) Ltd ("NBGIL") as per the Scheme Of Arrangement between the 2 companies. NBGIL listed on the bourses in Jan 2014 .

NBGIL has an strong R&D set-up with research labs, irrigated land, testing facilities & farms all over India. As per the latest annual report, multi-location testing & breeding stations have now increased to 16 locations across the country.

NGBIL’s research focus is based on conventional breeding, genetic engineering technologies, as well as molecular added selection systems in order to develop seeds endowed with multiple traits. This is necessary as the farmer today is looking out not just for high yielding hybrids but hybrids carrying additional value-added traits.

NBGIL is present across the seeds spectrum : Besides cotton, the company’s product portfolio includes food crops of national importance namely, paddy, wheat, corn, bajra and jowar. Amongst oil crops, the company has a substantial presence in Mustard seeds. Since past few years, NBGIL has also  increased its focus on vegetable seeds and plant nutrition supplements. Amongst vegetable crops, NBGIL is concentrating mainly on okra, tomatoes, chillies, brinjals and all types of gourds.

The 2013-14 Annual Report gives the following update about their R&D activities & presence in various categories :
“In order to provide choice of technology to cotton growing farmers, we have intensified breeding programs for generation of novel BG-II Bt-cotton hybrids with simultaneous incorporation of multiple high value traits, such as genetic male sterility, enhanced tolerance to drought, high level resistance to major sucking pests and enhanced yield potential. Already, the new hybrids NBC-10, NBC-11, NBC-101 and NBC-102 have out-performed best checks in trials conducted in State agricultural universities of Andhra Pradesh, Maharashtra, Gujarat and Karnataka, during 2013-14.

Similarly, new Maize hybrids such as NMH-1600, NMH-1605, NMH-1008 and NMH-1591 have shown highly encouraging performance, whether in the Full-Season maturity segment (NMH-1008, NMH-1600, NMH-1605) or in the medium-maturity and early maturity categories.

After the gallant success of our Big-B (NBH-1188) in Bajra, two new hybrids in the tall and medium-tall segments, especially NBH-20 and NBH-21 are poised to be among the top Bajra hybrids in their respective markets. NBH-5151 has further consolidated its position as a leading product in the semi-dwarf Bajra segment, especially in parts of Western UP, Madhya Pradesh, Maharashtra, etc.

Introduction of new rice hybrid Tahelka has met with outstanding success. Acceptance of this hybrid has extended to Bihar, MP, Gujarat and parts of Eastern UP. Several new Rice Hybrids are being tested during Boro season (2014) in Eastern India, as promising new products for that season.

Besides, several new pipeline products of Mustard and Wheat are being tested at our especially chosen location at Alwar in Rajasthan, for these important Rabi crops in North India. We are on course for introduction of new Wheat and Mustard varieties (and even a hybrid in Mustard), during Rabi 2014 and 2015.”

Commercialization of Fusion-Bt Cotton technology in Philippines :  
NBGIL, jointly with its sister concern Global Transgenes Ltd ("GTL")have signed an agreement for R & D collaboration and commercialization thereof of Fusion-Bt Cotton technology in Philippines.

The Annual report goes on to update :
“Based on the impressive results of trials, the Bio-safety Authority of the Philippines has granted permission for large scale trials to be conducted in the current year in Phillipines. Your company hopes to receive permission for commercial sales of its BT Fusion cotton hybrids during the current year.”

This could lead to a fillip in Bt Cotton hybrid sales, as NBGIL will enjoy a first mover advantage in the Phillipines Bt Cotton Hybrid Seeds market.

Valuations :-
Nath Bio-Genes (I) Ltd
Bse Code : 537291, NSE Code : NATHBIOGEN
Equity : 16 Cr
CMP : Rs 78.55 (closing, BSE, 12th June, 2014)
MCap : 126 Cr

Table - A
Year Ended 31st March ..
Sales (Rs Cr)
PAT (Rs Cr)
Diluted EPS
Book Value
P/E Ratio
Total Debt (Rs Cr) *
Equity+Reserves (Rs Cr)
D/E Ratio
* Long Term Borrowings + Short Term Borrowings, as per latest annual report for year ended 31.3.2014; excluding provisions, other liabilities & trade payables.

A brief comparison with couple of other Indian non-MNC seed companies seems to suggest that NBGIL is available at decent valuations (readers are requested kindly cross check the figures for themselves) :
Table - B
Kaveri Seed Co
JK Agrigenetics
Nath Bio-Genes
CMP - closing rate on BSE, 12th June, 2014

Conclusion & Recommendation
The prospects of the seed industry do not need explaining. Given the same (or even falling) land under cultivation , and yet needing to feed an ever growing population, better seeds - with higher yield as well as enhanced traits such as pest resistance etc - will be critical. For entrenched seed players, with strong R&D set-up, the future thus looks very bright.

NBGIL has a 30-years track record in the seeds industry (going back from the time when the seeds division was part of Nath Seeds). While it has some faced difficult moments in the last decade - in fact at one point of time the company had to enter into a scheme of  Compromise & Arrangement with it's lenders - NBGIL has made a stunning comeback over time. Looking at the company's excellent progress over the last few years (see Table-A above), it's balanced portfolio of products which make it less dependent on any single crop,  and looking at comparative valuations vis-a-vis some local peers (table-B above), the author feels that the company merits serious consideration from investors.

The company also seems resolved to focus solely on it's core business in which it has genuine strengths & has reconsidered it's unrelated foray in to the food park business. Accordingly, it will be expediting the sale/transfer of it's "Paithan Mega Food Park" investment, as mentioned in it's 2013-14 Annual Report. This is to be welcomed.

On the flip side, besides the usual risks inherent in agri-based companies, especially with a bad monsoon projected this year, specific negatives to be considered  in the case of NGBIL are : poor perception of the promoter group in the stock market (the group took a decade to relist it’s companies after the restructuring), recent pledging of shares by promoters, significant related party transactions, increasing debtors to sales ratio, sister concern GTL in the same line of business etc

All things considered, the author recommends readers of this blog to closely study & track this company going forward. Readers may take an appropriate call based on their own conviction in this idea, after proper research.

Author : Bosco Menezes
Recommendation Date : 13.06.2014

Disclaimer/Disclosure :
At the time of writing this article the author has a position in the stock covered by this report. The author or any of his dependent family members may make purchases or sales of the securities mentioned in the report while the report is in circulation. Readers/recipients of this report are strongly advised to do their strict due diligence, and should be aware that the value of investments can go down as well as up. The author shall not be liable for any direct or indirect losses arising from the use of the contents of this report, and readers are therefore cautioned to use the information contained herein at their own risk. In fact, readers would do well to seek the advice of a qualified independent advisor. The author certifies that all of the views expressed in this report accurately reflect his personal views about the subject company at the time of writing this report. Feedback / brickbats may be hurled at the author at