Hey friends!
In today's article, we will talk about such a
sector that directly/indirectly gives employment to 2/3 people out of the total
population in India. This sector makes a 15% contribution to India's GDP. When
Covid's situation was at the peak all sectors were going through a downturn.
But this sector stood with rigidity and had a great
performance. The name of the sector I am going to talk about is the Agriculture
sector.
The Tractor sales a few months ago (during Covid) had
touched an all-time high. When all sectors were down agriculture sector had a
great performance even then. All things related to the agriculture sector
directly/indirectly showed a great performance.
Following this, we have brought today's article where we
will talk about 5 such stocks that are directly/indirectly linked to the
agriculture sector. Without taking much time let's speedily start today's
article.
Before starting the article if you have not subscribed to
our blog then surely do it so that you don't miss any of our articles.
The article will be divided into two parts.
In the first part, I
will tell you about the Agriculture
sector (key highlights).
These points are quite important for you.
In the second part, I
will discuss 5 such stocks that trade on the share market and
directly/indirectly derive their business through the agriculture sector.
The agriculture sector is considered quite important for the
Indian economy as a lot of people are connected to this. It is considered that
out of India's total food market food processing industry has high growth
potential. About 32% share of the entire food industry is held by the food
processing industry. India's food industry is the world's 5 largest in terms of
production, consumption, and operations(end products).
From here you can understand that the food processing
industry is a huge one in the agriculture sector. The total food grain
production for the 2019-20 crop year was 295 million tonnes. It is predicted
that by next year this number will rise to 298 million tonnes. Milk production
(that is directly linked to the agriculture sector) during FY 20 was 198
million tonnes. It is predicted that by next year this number will rise to 208
million tonnes. There is a 10% growth estimate in the production.
India comes under the top 15 world food product exporters.
The export value from India's agriculture sector is US$ 35 billion. From here
you can understand that under export the food industry has a huge share. The
target set for 2022 for agriculture export is US$ 60 billion. But in the coming
time, we will know how this is taken forward.
The second part of the article.
Now let's move to the second part of the article where we
will talk about 5 such companies whose business is directly or indirectly
related to the Agriculture sector.
Without taking much time let's move to the first company.
First I will talk about the company that was in news in recent days.
Its name is UPL(United phosphorous limited).
UPL business includes manufacturing, marketing, and
distribution of crop protection materials (The things that are used for crop
protection).
UPL's business also includes the manufacturing of
intermediates and speciality chemicals. A unique thing about UPL is that for
expanding itself; it does a lot of takeovers and acquisitions. About 200
entities operate in UPL. An interesting fact about UPL is that it has
registered its name in the top 5 agrochemical companies of the world.
Their revenue is quite diversified. Its 70% revenue comes
from countries like Latin America, Europe. The companies that are associated
with the agriculture sector face the issue of cyclicity. When there is crop
season their sales increase. While at other times their sales decrease. The
companies that diversify themselves in terms of geography do not face much
impact of the cyclicity.
UPL faces less cyclicity impact as it has diversified itself
in different geographies. The share price of UPL is around Rs.469.
Its market capitalization is above Rs.35,000 cr. Last one
year's return (to its investors) of UPL is negative 20%. Recently you might
have heard about its news. If you have not heard about it you can search on the
internet.
After this news, UPL's share price started falling. The P/E
ratio of UPL is around 11. While the industry P/E ratio is around 24. As
compared to this UPL's P/E ratio is quite low. Return on Equity of UPL is
around 16%. The company's last 5 year's CAGR growth in net profit is 10%. This
means that the last 5 years the CAGR growth of its profit is 9.5% (around 10).
Strengths
- The company has shown a good profit growth of 23.46% for the past 3 years.
- The company has significantly decreased its debt by 608 Cr.
- The company has an efficient Cash Conversion Cycle of 40.15 days.
- The company has a good cash flow management; CFO/PAT stands at 2.08.
Limitations
- The company has shown a poor revenue growth of 11.59% for the past 3 years.
- Company has a poor ROE of 5.95% over the past 3 years.
- Tax rate is low at 14.31.
Now let's talk about the second company. Its name is PI industries.
This company also works in agrochemicals. The products of
this company are sold in and outside India. The products of this company
include insecticides, fungicides, and herbicides. Besides this, it also
manufactures speciality fertilizers and hybrid seeds in India.
Its products are sold outside India as well. The key
highlight of this company is its CSM business (Custom-synthesis manufacturing).
The company generates 70% revenue from this business. Besides this PI
industries has diversified itself. The order book of its CSM business is US$
1.5 billion. This can be considered as a remarkable order book.
The share price of PI industries is around Rs.2,250. An
interesting fact is that in the last one year it has given more than 50% return
to its investors. The market capitalization of this company is around Rs.34,000
cr. The P/E ratio of PI industries is 57. As compared to the industry's average
of 24 this company has a double P/E ratio.
Now let's talk about an interesting parameter i.e. net
profit growth in the last 5 years. This number for PI industries is 13%. While
the Return on Equity of PI industries is around 18%. While the debt to equity
ratio is 0.02. This company is almost debt-free.
Strengths
- Company has been maintaining healthy ROCE of 24.35% over the past 3 years.
- Company has a healthy interest coverage ratio of 30.72.
- The Company has been maintaining an effective average operating margins of 21.06% in the last 5 years.
- The company has an efficient Cash Conversion Cycle of 62.21 days.
- The company has a good cash flow management; CFO/PAT stands at 1.04.
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Limitations
- The company has shown a poor profit growth of -1.11% for the past 3 years.
- The company has shown a poor revenue growth of 13.25% for the past 3 years.
- The company is trading at a high EV/EBITDA of 39.62.
Now let's talk about the third company. Its name is Bayer CropScience.
This company is
directly connected with the agriculture sector. The business of this company
includes the manufacturing of herbicides, insecticides, and pesticides. After
manufacturing, it markets and supplies it to end customers. It also runs its
business in crop protection, seeds, traits environmental science, and digital
farming.
From here you can understand that the business of this
company is quite diversified. When we talk about Bayer then Monsanto's name
also comes up. Monsanto is one such company that works in the agriculture
sector. In recent times there was news regarding the merger between them.
If both of them merge then a wonderful synergy will be seen
as they have different businesses and will be able to derive a lot of value
from each other. Bayer is associated with crop protection. While Monsanto is
connected with seed. If both of these companies merge then synergies will be
seen.
In the coming time, we will know about their merger. This
was a fact/news that I wanted to communicate to you. The share price of this
company is above Rs.5400. In the last one year, it has given a 45% return to
its investors. The market capitalization of this company is around Rs.24,000
cr.
While its P/E ratio is around 36. The return on equity of
this company is 23% and debt to equity is 0. This means that it is virtually
debt-free.
Now let's talk about the 4th company. Its name is Godrej Agrovet.
This company is also
directly connected to the agriculture sector.
The business of this company is directly connected to animal
feed, oil palm plantation, agrichemicals, and poultry. This company primarily
runs its business to improve the productivity of farmers. This company recently
brought a technique- Dripzyme. This company provides its technology in drip
irrigation that helps farmers in more production.
It helps them in improving their yield. So this was the
discussion regarding the company's core business. An interesting thing about Godrej
Agrovet is that it sells more than 1 million tonnes of high-quality feed. Their
feed is used in poultry and aqua. The share price of Godrej Agrovet is Rs.542.
In the last one year, it has given a positive 5% return to its investors.
The market capitalization of Godrej Agrovet is around
Rs.10,000 cr. Its P/E ratio is around 30. While the return on equity is around
17%. Now you might want to know the CAGR growth of the company for the last 5
years in terms of profit. This figure is around 7%.
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Now let's talk about the fifth and last company. Its name is
Bharat Rasayan.
This directly
connected with the agriculture sector.
This company mainly manufactures pesticides. Besides this,
it makes intermediaries that are used in pesticides. The main production plants
of this company are in Rohtak (Haryana) and Gujrat. Earlier its prime focus was
in India but recently it has started expanding its business outside India.
The share price of this company is around Rs.9,600. In the
last one year, it has given more than 50% return to its investors. The market
capitalization of this company is around Rs.4000 cr. The P/E ratio of this
company is 28. The return on equity of this company is more than 32%. This can
be considered an outstanding number.
Its debt-equity ratio is almost 0. This means that the
company has no/negligible debt. The most interesting thing about this company
is its CAGR growth in its last 5 years profit. This number is 37%. In the last
5 years, the net profit of the company has increased by 37% every year. This
can be considered a remarkable number.
So this was the discussion regarding the 5 companies that
are directly/indirectly linked to the agriculture sector. I hope that you liked
today's article. If you liked it then share with your family and friends.
Comment below the best companies for long-term agriculture sector investment. Please
mention your reason in the comment so that our viewers can learn from it. If
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