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What
would Jim Rogers and T. Rowe Price be thinking? If you're unfamiliar
with the names, here's a gist of what the investor duo is famous
for. Rogers and Price are masters of investment ideas based on everyday
observation of the world around us. Their favoured method: just
look around at what's happening, and make common sense bets on the
way things are moving.
What you, the lay investor, would surely have
noticed is the heightened attention that policymakers are giving
agriculture these days. Of course, you need to separate the wheat
from the chaff when it comes to the statements coming from Delhi.
Also, talk of taking 'market reforms' to the primary sector may
be slightly premature. But even if overseas market access remains
restricted, the creaky old controls are retained, free price mechanisms
are not allowed to come into play, information on actual demand
and supply remains obscure, and the sector gets no more than a boring
old-fashioned tranche of public investment in the same old things
(as the CMP promises), several agri-sensitive stocks listed in India
seem set for a good run.
So what are Dalal Street's fertile fields for
growth? Several, it turns out, if added spending is to go towards
crop protection, better seeds and irrigation facitilies, to begin
with. There are many companies in the fields of agrochemicals, seeds,
irrigation, pipes, farm management services, pumps and tractors.
"Most of these stocks are not low priced, but not expensive
either," says Jamshed Desai, Head of Research, IL&FS Investmart,
who sees many of these stocks either good opportunities irrespective
of policy-level stimuli. Raamdeo Agarwal, Managing Director, Motilal
Oswal Securities, however, prefers to wait for budget specifics
and other policy clarifications before firming up his picks.
Anyhow, if you want to get into agri-sensitive
stocks ahead of the curve, here are some that could come good, whether
the country adopts market or state-handled tools to boost agriculture.
Syngenta India
A global agri-business company, Syngenta India
was carved out from Novartis four years ago. It boasts of a fairly
strong brand portfolio of agrochemicals and seeds such as Curacron
and Polytrin. Crop protection chemicals, including insecticides,
herbicides, fungicides and rodenticides, make up three-fourths of
revenue (or Rs 332.5 crore), while value-added seeds add Rs 80.9
crore. In all, enhanced effort to minimise crop losses would go
in the company's favour. Its major competitors are Rallis, Bayer
and Excel, and it is in good shape operationally; it expects bottomline
growth to outstrip topline growth.
Monsanto India
Monsanto India, a subsidiary of the US-based
Monsanto in the news for abandoning its hybrid wheat project, has
been at the forefront of the genetically modified (GM) foods movement.
The company, which saw a sharp rise in profit last year, has a bright
future in a country with a pragmatic interest in farm productivity.
Exports are buoyant, and it has struck partnerships with several
seed companies. While its herbicide business is under pressure from
new options and competition from generics, its BT cotton seeds have
taken a firm hold of India's hybrid cotton seeds market. "Monsanto
is a leader in the seeds business," says Rohit Srivatsava,
strategist, SSKI, "and provides a good investment opportunity."
ITC
Who said anything about tobacco? ITC makes
it to the list for its agri-businesses, which account for 17 per
cent of its turnover, and for its 'e-choupal' project to wire up
India's farmland. The latter, with 4,150 installations and counting,
holds enormous potential in delivering live information on prices,
weather conditions, disease outbreaks, special knowhow and much
else to farmers. Says Jigar Shah, Vice President, K.R. Choksey Securities,
"Farm management services are likely to be the biggest beneficiaries."
Similar projects include Tata Chemicals' Tata Kissan Kendras and
EID Parry's initiative.
Jain Irrigation
This company has cornered two-thirds of India's
market for micro-irrigation systems-the precision drip and sprinkler
networks that can be used efficiently to administer plants with
a precalculated mix of water and nutrients. As Indian farming modernises,
expect more and more farms to use irrigation systems of this kind.
However, do bear in mind that this is a business full of unorganised
sector players, since there are few technical barriers to entry.
Jain could still make major gains, however, if it capitalises on
any awareness of modern irrigation techniques generated by the government.
M&M
You've read the papers: in 2003-04, tractor-maker
Mahindra & Mahindra's net profit more than doubled over the
previous year's figure. It's not all because of tractors, admittedly;
its vehicle sales have been strong overall, and its costs have been
tightened. But tractor sales have marked a recovery that looks more
than sustainable. In the quarter ended March 31, 2004, M&M sold
15,066 tractors (in an overall market of 61,401), up from 10,049
the previous year (market: 43,000). Any agricultural boost ought
to energise sales.
PSL Ltd
There's money in steel pipes, and PSL, with
its 70,000-tonne-per-annum capacity at nine pipe mills across India,
is likely to make lots. "If investment in irrigation is to
be stepped up," says Desai of IL&FS Investmart, "then
need for steel pipelines would go up." So while firms such
as Finolex gain from short-distance poly vinyl chloride piping,
PSL gains from big projects. And it's not just irrigation pipes
it makes, but also oil and gas pipes (it currently boasts of projects
from IOC, Gujarat Water Board and GAIL). Entry barriers to the business
are not low either; spiral weld pipes, for example, require quite
some technology to make.
Kirloskar Brothers
Another beneficiary of big irrigation works
could be Kirloskar, which makes and exports water pumps and valves.
The Rs 500-crore company has a truly vast range of pumps on offer,
from 0.375 KW to 10,000 KW. Its expertise goes into some of the
country's biggest water projects: Sardar Sarovar Narmada Nigam Project
and Krishna Water Supply Scheme, to name just two. The company recently
acquired a UK-based company, SPP Pumps, to reinforce its global
strength in its field of business.
Punjab Tractors
India's second largest tractor maker. Though
promoted by Punjab State Industrial Development Corporation (PSIDC),
this agricultural equipment manufacturer has been moving towards
the private sector; CDC Financial Services acquired the Punjab government's
23.5 per cent stake in 2002. The company also make forklifts, castings,
agricultural implements and combine harvesters. Its current stock
valuation may seem absurdly high (a PE ratio of nearly 30), but
remember, the industry is in turnaround mode after three bad years,
and it has been launching new products aggressively.
United Phosphorus
United Phosphorus Limited (UPL), the largest
producer of crop protection products in India, sells fungicides,
insecticides, rodenticides and herbicides. It is an intellectual
property player, too. It is doing well financially, and making global
acquisitions. It has bought a fifth of Cropserve, a company based
in South Africa, and also the registered products lenacil (original
inventor: Du Pont) and chloridazon (original inventor: BASF) from
Agricola for the UK, France and Italy markets.
Indo-Gulf Fertiliser
This A.V. Birla Group company did not do too
well in 2003-04, but increased demand could spell a bounty. It claims
to be cost-competitive and energy-efficient, since it supplies low-cost
urea despite using gas as a raw material, which gets relatively
less subsidy from the government. Lifting the production cap on
Indo-Gulf could prove to be the cheapest way to boost urea supply
to farms. According to Atul Rastogi, analyst, Motilal Oswal Securities,
"A 15 per cent increase in volumes could add 20 per cent to
net profit." Gas prices are still an issue to be tracked, though.
Also, from a long-term perspective, how competitive the company
would be under free market conditions is still open to question.
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