Camson Biotechnologies Ltd

(Small cap Medium risk) Seeding Growth

CMP Rs.111.45 Recommended Action Buy at CMP and add on dips Averaging Price Band Rs.96-104 Sequential Targets Rs.136 & Rs.152

Management Interaction Note

HDFC Scrip Code CAMBIOEQNR Industry Agrochemicals

July 08, 2011

Time Horizon 2-3 quarters

Company Background:
Camson Biotechnologies Ltd (Camson) is a leading agri biotech company. Camson was established as a private limited company in 1993, promoted by Mr. Dhirendra Kumar, an experienced and well qualified technocrat with over 25 years of experience, covering the entire spectrum of agriculture related activities from manufacture to marketing seeds, fertilisers, pesticides, etc. Founded in 1993, Camson combines traditional knowledge in agriculture with latest advances in safety and protection to market a wide range of products. These include hybrid seeds, bio-fertilizers and biocides that are non-poisonous, eco-friendly and residue-free. From discovery to development, Camson has the defining science and multi-product manufacturing capabilities to bring innovative biotechnologies to farmers. Partnering with rural farming communities, government agencies and corporate houses in India, Camson aims to empower farming communities through need-focused research and development.

Product Portfolio

Biocides

Hybrid Seeds

Biofungicides

Bioinsecticides

Kills Diseases/ Bugs

Biopesticides

Biostimulants

Helps plant growth

Manufacturing Facilities Biocides: Camsons production facilities have been setup in southern and northern parts of India, keeping in mind the diverse demand in both regions. Both of these are supported by well-equipped and internally connected storage facilities covering key locations in India. The first production facility was set up in 1993 in North Bangalore, Karnataka. Spread over 25 acres, the facility has been equipped for composite and simultaneous production of multiple products. Since then, Camson has updated the facility to keep it state-of-the-art and efficient. Its installed capacity stands at 900,000 litres on a per shift basis and can work upto 2 shifts on a daily basis. Its second production facility was set up on May 14, 2011 at Nangal - Himachal Pradesh in northern India. This has doubled its capacity and the installed capacity of the facility is 900,000 litres on a per shift basis. It can work upto 3 shifts on a daily basis.

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Karnataka Location (Existing) Type Land Area (Acre) 20 Area (Building) 45,000 sq mtrs Capex (Rs. cr) Capacity (ltrs on a per shift basis) 900,000

Karnataka (New Building) R&D Facility 30,000 sq ft ~Rs.4 cr NA

Nangal (HP) Biocide Plant 1.8 40,000 sq ft ~Rs.10 cr 900,000 Commenced on May 14, 2011

Aligarh (UP) R&D Lab 12 6,000 sq ft ~Rs.8 cr NA Gone on stream

Status

31-Mar-12

Kotabagh (Uttarakhand) Biocide Plant 1.5 30,000 sq ft NA 800,000 Land purchased But work not started

Total

2,600,000

(Source: Company)

Seeds For manufacturing seeds (including foundation seeds), Camson uses the route of contract farming. Marketing Network: Camson has an in-house, dedicated team of ~300 marketing professionals complemented by a wide, well-connected network of 300 distributors and 2,600 dealers across India. Its distributors and marketers ensure a direct connection between Camson and the farmer. It also involves the farming communities in sustainable agricultural perspectives and create awareness about the concept of zero-residue farming. Over the years its dealers have developed a deep understanding of the market and helps it take the research and development into new directions. R&D: Camson has a strong focus on in-house research capabilities, which has resulted in a successful portfolio of products over the years. Its intensive research programs in these areas have helped it build a wide-ranging product portfolio including 22 biocides, 7 bio-fertilizers and 17 hybrid seeds. Camson research centre is based over 25 acres at Dodaballapur in Bangalore. It comprises of a modern, fully equipped laboratory and field testing plots. Research work has also begun at the recently developed research centre at Aligarh in UP. Also, work has commenced on the new modern building, which will house the laboratory at Dodballapur in Bangalore. Biocides These are new generation products, which are not only effective, but also eco-friendly, non-poisonous and non-toxic. Owing to its focused R&D efforts, Camson is one of the pioneers in this field and holds a first-mover advantage to grow in this emerging new market. Bio fertilizers Through its on-going R&D efforts Camson has launched a range of new generation bio-fertilizers which are a combination of many microbes. These unique microbes help produce the required NPK and other elements required by the plants for its healthy growth. Need for Zero-residue Farming The agriculture industry is under increasing pressure to integrate measures that minimize the presence of chemical residues in farm produce. Modern farming methods use crop protection strategies based on high input of synthetic chemical pesticides. Although these pesticides are often effective, the problems that arise with their use are manifold. They cause acute and chronic health effects affect the equilibrium of agricultural systems and the environment and also lead to socio-economic problems in the farming community. Camson believes the key to safer produce and sustainable yields lies in the concept of zero-residue farming. Zero-residue farming uses organically derived biocides and bio fertilizers to protect crops and enhance growth. The slow but stable shift would be driven by increasing awareness about zero residue food and pro-environment syndrome in both developed as well as developing market. Product demand (niche market), volume growth and value growth would induce more and more conventional farmers to turn towards organic farming. Zero-residue farming: How microbial products work? Microbial bio pesticides and bio fertilizers are formulates of secondary metabolites. These metabolites are bio agents beneficial to soil conditioning and improve the plant physiology and produce. They mobilize the micronutrients in soil to maximize their utilization by the growing plant. Unlike broad-spectrum synthetic chemicals, these products work specifically against certain pests, without harming other organisms. Since they are living strains, they assimilate into the ecosystem without leaving any toxic residue.

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Since selection of the right kind of microbes from nature and the development of the manufacturing process to produce secondary metabolites is time-consuming, it took eight years of patient research for the company to launch its first biocide - a replacement for chemical pesticide - Calphonil in 2000-01. Over the decade, it has added several more. Its biocides, unlike other available biopesticides, are secondary metabolites produced by microbial processes, which have been carefully developed at the companys R&D centre after several years of research. They are, in fact, instant killers like the chemical pesticides, but without their toxic side effects. They also have a shelf life of three years, in comparison with the shelf life of about a year for bio-pesticides of competitors like EID Parry, Ocean agro and several others. At the same time, they are more economical, as they require fewer sprays than chemical pesticides. Camson has developed biocides with zero residue impact i.e. they are as effective as chemical pesticides but at the same time, does not pollute its water environment and that is why leading to healthy life. Camson is also looking at options in the international market. Hybrid seeds Camson is one of the pioneers in breeding of hybrid seeds, which perform well under organic and natural conditions. These unique seeds are able to utilise natural conditions to provide higher yields and better margins. Camson has successfully launched many unique vegetable and fruit hybrids, such as the yellow-skin watermelon and pink tomatoes. It is the only company in the country to research, produce and market unique seeds like ice box watermelons. It is the first company to launch a yellow skin watermelon and many other new hybrids in the market. Camson focuses on secondary metabolic activity based technology for producing biocides (organic chemicals) offering a stable product, while its major counterparts still use chemical pest or plant based alkaloid technology, which is not very effective on countering the pest. It has developed library of more than 3,500 microbes over a period of 10 years which is the base for the companys know-how and hence its product strength. The first product launch took 9 years of research (research started in 1993 and launched in 2002) but thereafter 24 products were launched in the next 5 years, reflecting Camsons R&D strength and its knowledge base. It enjoys first mover advantage in providing molecular based organic farming solutions to farmers to cater to both domestic and international organic food market. Currently the balance sheet of the company is under leveraged. The Debt is to Equity ratio currently stands at 0.01x and the company is holding cash & equivalents of close to Rs.10 in FY10. This acts as a good cushion for the company against any uncertainties and could also act as a fuel for the future growth and expansion. Although India has ~0.7% (1.2 mn hectare) of total cultivable land under organic farming, it has the highest number of organic producers 340,000 (2008 with second being Uganda at 181,000 (2008)). This portrays the acceptability and awareness for organic farming. According to International Competence Centre for Organic Agriculture (ICCOA) the land under organic farming in India is expected to grow at 13.6% CAGR to reach ~2 mn hectare by FY12E from current 1.2 mn hectare, which will still be less than 1% of the total land under farming. It is true that the increasing use of fertilizer at high rates has boosted agricultural production in the country. But it has also caused adverse impact on soil and water as well as environment on soil health has confirmed the adverse impacts. There has been a strong co-relation between the land under organic farming, number of organic producers and the companys biocide sales. However, biocides revenue during FY08-10 stagnated largely because of low production capacity, breakdown of key machinery and limited marketing reach. Organic farming in India started receiving focused attention from 2004-05 when National Project on Organic Farming (NPOF) was launched. In 2004-05, area under organic farming was 42,000 hectares. By March 2010 area under farming had increased to 1.08 million hectares. In addition, 3.40 million hectares is wild forest harvest collection area. Thus total area under organic certification process by March 2010 was 4.48 million hectares which is 25 fold increase in last 6 years. In cultivated organic land 7.56 lakh hectares is certified while 3.2 lakh hectare is under conversion. Nearly 6.00 lakh farmers under 920 grower groups produce 18.00 lakh tonnes of different organic commodities valued at Rs. 56-40 crores at farm gate price. Out of 18 lakh tonnes organic produce, 54000 tonnes of produce valued at Rs.561 crores was exported. Export of organic products has also grown steadily over the years. Value of exports, which was Rs.301 crores in 2006-07, has increased to 525.5 crores in 2009-10. India's struggling farmers are starting to profit from a budding interest in organic living. Not only are the incomes of organic farmers soaring by 30% to 200%, according to organic experts but their yields are rising as the pesticide-poisoned land is repaired through natural farming methods.

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Shareholding Pattern
Particulars Indian Promoters FII DII Others Total % of Holding 30/06/2011 36.74 4.87 3.47 54.92 100.00 % of Holding 31/03/2011 31.08 5.24 2.82 60.86 100.00 % of Holding 31/12/2010 31.08 5.17 1.53 62.22 100.00 % of Holding 30/09/2010 31.25 3.92 4.95 59.88 100.00 % of Holding 30/06/2010 31.25 4.99 2.90 60.86 100.00

(Source: Capitaline Database)

Among institutional shareholders, SBI MF-Magnum Comma Fund, SBI Magnum Monthly Income, Emerging India Focus Funds and Indiaman Fund (Mauritius) holds 2.2%, 1.1%, 1.3% and 1.3% stake respectively in the company.

Investment Rationale
Consciously present in unique seed products: Camson has presence in cash crops like tomato, brinjal, chillies, watermelon, etc but has consciously researched and launched unique varieties among these cash crops. This is because seeds for cereals and oilseeds require huge capex and there are too many players existing in the market. There are few players in the segment where Camson operates and these products offer it better pricing power, higher margins and demand fluctuation is lesser. An example of a product of Camson, which has had a strong presence in the market past 3-4 years and is the high yielding products is Freezer Watermelon'. It doesnt weigh more than 3-4 kg unlike the conventional ones that weigh over 10 kg. Further, when cut, not a drop of juice goes waste or trickles from the melon. While normal hybrid watermelon seed output is 812 tonnes an acre, Camson's Netravati gives 30-32 tonnes an acre and Vedavati yields 35-40 tonnes an acre as claimed by the management. The hybrids also score on the price front. As against Rs.5-8 a kg for the normal watermelon, Camson commands Rs.10-15 a kg as claimed by the management. The flesh is crunchy, soft and sweeter than the earlier varieties. Globally, Camson-type hybrid watermelon variety is known as icebox watermelon. Camson has not only received an encouraging response for its variety but appears to have helped farmers reap better rewards in terms of price and appeal. Since the Camson seeds are smaller, about 250 gms of seeds are enough cover an acre, while 500 gms of the conventional variety seeds are required for the same area. The plant matures in 75-80 days and has thick foliage with a few seeds. Camson's two seed varieties Netravati and Vedavati are in demand in the tier-II and tier-III cities. Besides watermelon hybrid seeds, Camson offers hybrid vegetable seeds such as lady's-finger, tomato, brinjal, chilli, bottle gourd, bitter gourd, ridge gourd, sponge gourd, sweet corn and baby corn. High entry barriers in the seed industry: Unlike in the past when seeds were mostly sold on traditional loyalty, they are now being aggressively marketed to the new generation of educated farmers, making it the first farming input to become almost an FMCG product. Branding has become important and a lot of effort is going into it. India is the sixth-largest market in the $42-billion global seed and trait industry. To tap this, seed companies now spend up to 4% of their turnover on branding and marketing. From catchy slogans and attractive names to advertising in the recently concluded ICC World Cup 2011, from erecting large hoardings to conducting interactive educational events, companies are working hard to catch farmers eyes. Seed companies need such branding to showcase their high-yielding varieties in an increasingly competitive market where consumers are better educated and access latest information through different media, including the internet and television. Brand promotion at the point of purchase during the planting season in May-June can help a farmer recollect what he saw during the field demonstrations six months ago. Secondly, the R&D into a particular type of seed is time and money consuming in nature and requires a long-term perspective. A plant breeder makes new crosses with the objective of combining desired characters of the parents into the offspring viz. yield, maturity, disease tolerance and quality traits such as taste, aroma, flavour, colour etc. Thousands of crosses are required to be made to develop a single commercially saleable hybrid. This process is expensive and time consuming and takes several years. These factors add on to the price of their production. Also copying a germplasm is difficult as natural mutation and segregation keeps happening and this changes the seed in some way or the other. This means that no new company can make a similar seed from an existing and established company. Also as the customers to cater to i.e. the farmers are so huge and dispersed across the country, the company needs to have a strong and widespread distribution network. Camson has over 300 distributors and 2600 dealers spread across the country. Camson also has storage facilities and offices at various strategic locations, to cater to the consumers at the shortest possible time, with a team of over 250+ marketing personnel. Further once the farmers realise the benefits of using a particular brand of seeds, he will keep using the same brand for years till he comes across another brand wuth dramatically better results and is in a mood to try it out. Hence brand loyalty in seeds is a given unlike in fertilsers or pesticides. All these results in creation of strong entry barriers for new players.

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Sector attracting lot of PE interest: The Indian seed market has a size of ~Rs.8,000 cr. As per industry experts, the seed sector is poised to witness a similar growth curve the IT industry registered in the last two decades. It has all the ingredients to see a very fast growth. An increasing demand for food, the shift towards high-yielding hybrids and a likely favourable policy environment are why investors are looking at the agri sector. It is firmly believed that a shift in favour of hybrids could result in multi-fold increase in seed sales. Private equity firms and other investment arms have invested Rs.2,050 cr in the Indian seed sector in the last four years. The list of investors includes Blackstone, Summit Partners and Axis Holdings. These investments also included intra-sector investments as the sector gets consolidated. While Blackstone invested about Rs.200 cr in Nuziveedu Seeds in 2008, Summit Partners invested $30 mn in Krishidhan Seeds in April 2010. Rallis too bought 60% stake in Metahelix for $45 mn in December 2010. Vibha Seeds is planning to come out with an IPO. Monsanto and Dupont, the two large global MNCs have aggressive growth plans for India. Seed companies generally are looking to grow sales at 25%+ over the next few years. With gross margins being high at ~50%, they have the flexibility to invest in R&D and promotional activities. The private equity story in India has largely been an urban one with capital finding an easy way into predictable and established growth areas such as technology and consumer spend industries. The global financial meltdown, which did not spare many of these sectors that were very coupled with the world, shifted the focus of the investment community on recession-proof and non-cyclical sectors that were under-served and untapped. Agriculture and food, the primary segment of the Indian economy both in terms of GDP contribution and labour force (accounts for one-fifth of our GDP and 56% of workforce), undeniably offers enough reasons for an active play by private capital despite the unique challenges. Large Presence in Vegetable segment: Hybridization at a nascent stage Indias vegetable seed (hybrid) market is valued at Rs.6 bn (organized) with 15-18% hybridization, contributing 10-12% of total seed market. The small size of the vegetable seeds market can be attributed to fewer product launches by MNC companies and limited financial muscle power with domestic seed companies to conduct long gestation research for new seeds. Post 2005 the scenario has changed, on one hand the consistent supply side constraints like decreasing land under cultivation, fertility of soil, varied temperature, etc made it imminent to use hybrid seeds in order to feed the ever growing population. While on the other hand better produce off take and high price realization enhanced farmers incentives, ensuring surge in vegetable seeds demand. According to an estimate, vegetable hybrid seed market is expected to grow at a CAGR of 15% on account of large hybridization opportunities especially in seeds like Tomato, Okara, Chilli, Gourds, Watermelon and Eggplant. A global trend of growers shift into the fast track of hybrid technology is clearly visible in India. The hybrids are being adopted for their: (a) greater productivity, (b) extended availability, (c) better adaptability, (d) selective capability. For the seed industry, constantly grappling with the onslaught of pirates, hybrids provide built-in safeguards in pre-programmed parent lines. Encouraged by these fundamentals, seed industry has started investing heavily in hybrid research while remaining an active partner in public institutional effort of an overall variety upgradation. Seeds business contributed 74% of Camsons revenue, of which 2/3rd of the business comes from hybrid seed products namely tomato, chilly, watermelon, brinjal and gourd. The company has opted to concentrate on the vegetable seed business, which requires consistent research and extensive germ plasma thus limiting the competition. The company has been successful in introducing innovative products in Hybrid seeds like yellow watermelon, button capsicum, orange coloured tomato, yellow tomato, strawberry shaped cherry tomato and others rather than focusing on the traditional products. The company has 12 varieties to cater to a major segment of the market. CAMSON is close to launching several new verities in the watermelon, tomato and chilly segment, which are expected to lend growth to the companys seeds business revenue. Camson has developed high margin high yielding vegetable and fruit seeds where the yields are claimed to be atleast higher by 30-40% its closest competitor yields. With the advantage of high yields, Camson is able to price its seeds at a premium to its competitors. Though its seeds look expensive, due to their relatively smaller size (seeds are typically sold on weight), the intake per acre is lower than the competitors. Added advantage is that the shelf life of watermelons as claimed by the company is one month as against 10-12 days with competitors. Camson is also assisting the farmers in distributing the produce to large retail outlets such as Reliance Fresh. As hybrid seeds on an average account for only 30% of the total vegetable seed market, there is 70% or Rs.20 bn unexplored market, which hybrid seed companies can tap in the years to come.. In addition to hybrid seeds, it is also keen on launching its first GMO vegetable seed developed through a non controversial intragenic route (rice), though this may take 4-6 quarters to launch.

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Organic food market to grow at 10% CAGR to USD 110 bn: Organic agrochemicals (biocides) contribute 26% of the revenue with more than 50% being sold to farmers catering to the international organic market. Global organic food and beverages market is driven by key factors such as increasing consumers' awareness towards organic benefits, increased organic farming in the world, and implementation of government regulations. Demand for organic food and beverages is increasing in conventional food supply stores because of development of private labels and increasing interest of large retailers. The organic food and beverages market is also expected to benefit from subsidies, financial aids, and R&D programmes conducted by different government and non-government organisations such as FiBL (Switzerland), APEDA (India) and USDA (US) to support conventional farmers to switch to organic farming. Asian organic food market is expected to grow at an estimated CAGR of 20.6% from 2010 to 2015. Organic supplements are the fastest growing segments in the organic industry with an estimated CAGR of 22.3% from 2010 to 2015. Camson is present in the biocides chain. Almost a quarter of sales of Camson comes from Biocides. As awareness level on advantages of biocides increases, Camson could benefit over the medium term by its rising contribution. Biocides - Offer maximum compatibility with organic and natural conditions and better yields Longer shelf life Higher realisation due to unique characteristics Offer great protection period Pests/insects do not develop resistance to biocide even after multiple uses Fewer sprays, in turn saves labour cost Greater yield per acre Zero residue product Can be used along with chemical pesticides Cater to wide range of crops New facilities to ensure margin expansion, tax benefits: During FY10 the revenue from Biocides business remained stagnant due to supply side constraints (limited production capacities and machine breakdown). This resulted in loss of ~Rs.6 cr revenue for the company during FY10. However with new formulation capacities namely Nangal - Himachal Pradesh (commissioned on May 14, 2011) Camsons biocides capacities has doubled from 900,000 litres to 1,800,000 litres during Q1FY12. It is also planning to set up a biocides facility at Kotabagh - Uttarakhand (only land purchased till date) with a capacity of 800,000 litres. This will take the total biocides capacity to 2,600,000 litres daily on a per shift basis. Bangalore (biocides formulation) facility will be evacuated in a phased manner in FY12 and will be used only for production of concentrate, which will then be transported to Nangal and Kotabagh facilities for formulation. The move will allow Camson to bring manufacturing facilities closer to key area of northern market thus ensuring prompt supply during peak season. The new facilities at single shift operation are expected to drive Camsons biocides revenue. Camsons Bangalore unit has been witnessing power and labour shortage, which compelled the management to operate its plant on a single shift with 65-70% capacity utilization level. The new biocide production unit at Nangal offers stable labour and power supply, critical for biocides production. Hence the shift in biocides production site from Bangalore to Nangal and later on to Kotabagh is expected to smoothen the companys production process, reduce cost on alternate power source, improve product availability and reduce its logistic cost, thus improving overall revenue and operating margins. Other than operating benefits, Camson could also gain from excise exemption for 10 years, 100% tax holiday for first five years and 30% rebate thereafter while other sales tax benefit will be available to the company till FY12.
Details of production capacity Location Type Karnataka (Doddaballapur) Biocide HP (Nangal) Biocide UP (Aligarh) R&D-Field trials Uttarakhand (Kotabagh) Biocide Karnataka (Doddaballapur) R&D Total

Capex (Rs cr) 10 8 NA 4 27

Capacity (litres/per shift) 900,000 900,000 800,000 2,600,000

Commissioning date Existing facility Commissioned on May 14, 2011 Gone on stream Land purchased but work not yet begun To be commissioned by end of FY12
(Source: Company)

Strong R&D capabilities: Camson has a strong focus on in-house research capabilities, which has resulted in a successful portfolio of products over the years. Camsons research can be broadly divided into 3 major segments: biocides, bio-fertilizers and hybrid seeds. Its intensive research programs in these areas has helped Camson build a wide-ranging product portfolio including 22 biocides, 7 bio-fertilizers and 17 hybrid seeds.

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It has successfully launched many unique vegetable and fruit hybrids, such as the yellow-skin watermelon and pink tomatoes. It is the only company in the country to research, produce and market unique seeds like ice box watermelons. It is the first company to launch a yellow skin watermelon and many other new hybrids in the market. Farm biotech is the fastest-growing segment of India's biotechnology industry. Biotechnology brought with it a new business model. Tie-ups allow Indian companies to leapfrog several years of research, and enter the market cheaply and quickly. While developing biocides, Camson was also carefully selecting germplasm from the nature that had traits to improve the mother seeds immunity against the pests, and also the yields. The effort was on developing commercially marketable pestresistant, high-yield, hybrid seeds. This too, like biocides, was a time-consuming R&D process, requiring unwavering commitment. Finally, in 2005-06, the company launched its hybrid seeds. It consciously branded them under names of Indias rivers like, Ganga, sutlej, Chambal, Kaveri, Krishna and many more, to facilitate easy brand recall by the farmers. It took eight years for Camson to launch its first product. It now has a germplasm bank of 3,700, which could be the envy of any agribiotech producer. As of now, Camson is the only company in India to have launched freezer watermelons, Netravati and Vedavati. It is also the only indian company to have launched hybrid seeds producing yellow-skinned, crunchy, juicy and delicious watermelons, having a shelf life of a month from the date of harvesting, vis--vis 10-12 days in case of other hybrid seeds. The latest in the pipeline is a delicious hybrid watermelon variety, with appetizing multi-coloured pulp inside. The yield of Camsons watermelons, at 35-40 tonnes per acre, compares favourably to the 15-18 tonne yields of others. Besides watermelon and chilli, the company also has hybrid seeds of tomatoes and other vegetables. It faces competition in vegetables from Seminis (a part of the US-based Monsanto), Nunhens (Holland), East West seeds (Philadelphia, US) and Knowyou seeds (Taiwan). Camsons yields are 25-30% higher than its competitors. Strong educational background and work experience of the promoter: Dhirendra Kumar, Managing Director and promoter of Camson holds a M.Sc. in Plant Genetics and Breeding and an MBA in Marketing from Punjab Agricultural University, India. He also holds an MBA in Export Management from IIFT, New Delhi. In his previous experience, as General Manager at ITC Ltd., Kumar took over a loss making division and reworked the entire product range, positioning and strategy to transform it into the fastest growing and most profitable division at ITC. Further, as the Marketing Manager at the Pioneer Seed Co., he held the distinction of leading the company to new heights in terms of market share and profitability. His previous experience also includes positions at Ranbaxy and Coromandel Indag. Recognising the potential in environment-friendly technologies, Kumar has led Camson through various phases of growth and expansion in the last 17 years, including the companys IPO in 1995. Industry fortunes on an upswing: Seed, the vehicle for delivering the benefits of technology, is the most important input, influencing the growth and sustainability of Indian Agriculture. The organised Indian seed industry has contributed significantly to ensure continued access to quality seed for the Indian farmers and improving their food, nutritional and livelihood security. India has emerged as a major player in the global seed business. India is the sixth largest seed market in the world and its size is estimated to be Rs.75-80 bn. It is currently growing at 12-14% annually vis--vis global market which is growing 4-5% annually. The country currently exports account for less that 5% of the total hybrids market in India predominantly to Southeast Asian countries. India is poised to rise higher on the strength of its dynamic, innovative, internationally competitive, research based seed industry. India today has a critical mass and level of growth that it could use not only to cater to the growing domestic requirement but also to make a concerted effort for global trade under provisions of GATT and WTO. Furthermore, India is endowed with second largest area of farmland, and the largest area of irrigated land, in the world and, with its huge germplasm diversity, its seed industry is well placed to serve both domestic and international markets. Multinationals are hunting for Indian players with research skills in cash crops like cotton, corn and vegetables. Companies are making variants to be relevant in all eight agro-climatic zones of India. They are setting up shop in Africa and South-east Asia, where the climate is similar to India. They are venturing into new crops with untapped market potential. Monsanto, for instance, is investing in vegetable seeds, a Rs 800 crore market. It has to start from scratch because vegetables that are popular abroad, like broccoli and lettuce, dont fly in India yet.

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Growth over the past few years of the industry players

500.0 400.0 Rs. Cr. 300.0 221.6 200.0 104.8 100.0 4.3 0.0 FY05 FY06 FY07 Period Sales PAT FY09 FY10 13.0 22.7 26.5 52.2 153.3 286.9

National Seed Corporation

464.5

JK Agri Genetics
150.0 135.0 140.1 113.8 110.0 Rs. Cr. 78.7 70.0 61.8 89.7

30.0

4.5 FY06

5.5 FY07

6.5 FY08

-6.3 FY09

-1.2

10.6

-10.0

FY09

FY10

Period

Sales

PAT

(Source: Company, Capitaline Database)

Advanta India
655.0 584.4

650.6

653.6
225.0

Kaveri Seed Company

233.7 162.1 Rs. Cr.

425.0 Rs. Cr. 291.6 195.0 32.3 -35.0 FY06

402.1

150.0 96.6 75.0 65.8 10.5 0.0 FY07 15.8

123.1

45.1

52.7

29.4 FY09

22.9

29.1

42.5

-12.4 FY10

FY07

FY08 Period Sales PAT

FY08

FY09 Period Sales

FY10

FY11

PAT

(Source: Company, Capitaline Database)

Industry Overview:
Pesticides & Biocides (Bio-Pesticides) The Indian Agrochemicals industry is expected to grow at 7.5 per cent, to reach over $1.7 billion by 2012, driven by various factors including the need for foodgrains self-sufficiency and the momentum in floriculture and horticulture sectors.
Increasing population, high emphasis on achieving foodgrains self-sufficiency, limited farmland availability coupled with pressure to increase yield per hectare and growth in horticulture and floriculture is expected to increase the usage of agrochemicals in the future. Companies are increasing their marketing efforts to train farmers, among other things, about the right use of agrochemicals in terms of quantity to be used. With increased awareness, the use of agrochemicals will also increase. Currently, crop lost due to non-use of pesticides is estimated to be around $17 billion every year. India is the fourth largest producer of agrochemicals in the world after the United States, Japan, and China. Bio-fertilisers and biocides are perfect substitutes for chemical fertilisers and pesticides. However bringing out change in the mindset of farmers, who have been using the tried and tested chemical pesticides for generations, is one of the biggest challenges that the bio-fertilisers sector faces.

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SWOT ANALYSIS of INDIAN AGRI-BIOTECH INDUSTRY Strengths:

Trained

Weakness:
Lack of venture capital Relatively low R&D expenditure

manpower and knowledge base Good network of research labs Extensive clinical trials and research access to vast and diverse disease in the huge population

by industry
Doubts about ability of Indian

products to meet international standards

Opportunities:
Large domestic and export

Threats:
Exodus of brilliant brain to other

market Plant and microbial biodiversity provides vast prospecting opportunities for new drugs Vast and diverse disease based population provides unique opportunities for clinical research and trials Conducive Government policy on GM crops provides useful opportunities for agribiotech companies

countries
Improper utilisation of funds Lack of scientific responsibility

among young scientists

From increase in population and food demand to resource depletion and climate change, governments and nations across the world are grappling with the changing dynamics of food security. According to estimates, the global demand for food is likely to double by 2050 as world population multiplies and economic growth enables higher spending on food. Meeting the food demand of the world, across developed and developing nations is the biggest challenge governments and the private sector face in the near future. With land shrinking and agricultural land resources diminishing, the only way to meet the food demand is by producing more from less and protecting the produce from destruction. In this changing scenario, agricultural biotechnology continues to promise higher value agriculture for farmers and is witnessing a high rate of adoption. The global pesticide (crop protection chemicals) market is estimated at USD 43 bn in 2009 and with a projected CAGR of 3.6% is estimated to reach USD 51 bn by 2014 (Source: BCC Research). Of the total pesticide market, biocides account for 4% of the global pesticide market. India is the fourth largest producer of pesticides with an estimated size of Rs.70 bn. Of this, ~50% market share is held by MNCs and the rest by Indian companies who are largely into off-patent generic formulations. Biocides presence in Indian crop protection market is miniscule, however is witnessing increasing interest from farmers. Today, nearly 50% of the total pesticide produced is consumed by only two crops i.e. paddy and cotton. After a subdued growth for over a decade, Indias Rs.8,000 cr pesticide industry is likely to grow at 3.2% every year for the next 2-3 years. Increased affordability of Indian farmers, growing number of pests and diseases, shifting crop patterns, crunch in farm labour availability and better price realisation could drive the industry revival. However, the awareness against the pesticides residue and the increase in export of fruits and vegetables from India has adversely affected the chemical pesticides business and its growth.

Seeds Indian seed industry is the sixth largest in the world with an estimated size of Rs.75-80 bn. It is projected to grow at ~12-14% p.a. as against an estimated ~4% growth globally. The average hybrid seeds penetration levels (hybridization) in the vegetables are still low at ~ 30% with 3% for Cucumber as the lowest and 85% for cabbage as the highest.
Ever increasing food demand along with declining acreage under cultivation is building pressure on the nation to increase the crop yields. One can achieve the increased crop yields by using better seeds and better irrigation system. Seeds are classified as open pollinated, hybrid (artificially pollinated) and genetically modified (GMOs) seeds. The success of Bt cotton (a GMO seed) in India, which account for at least 80% of total cotton grown has opened up the markets for other expensive commercially viable seeds such as hybrid seeds.

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GMO seeds have their genes altered using molecular techniques to make it resistant to specific pests or drought tolerant. These GMO seeds are further classified as 1) intragenic - seeds produced from genes of two closely related vegetable species 2) transgenic - seeds produced from both animal and plant genes (ex. Bt Cotton). Though there is an unproven concern of using transgenic seeds globally with long-term negative consequences, there are no such controversies surrounding intragenic seeds.

Seed Types There are two types of seed that are available to farmers varietals [e.g., open pollinated (OP) and self pollinated (SP) varieties] and hybrids developed through controlled pollination of selected parents. Compared to hybrids, the yields from varietals are lower but the farmer can save and re-use the seed from year to year for several generations. The downside of using famers saved seed of OP and SP varieties is that there is some degeneration of uniformity, yield potential and quality from one generation to the next when such seeds are reused. Hybrid seeds compared to OP seeds usually do not perform well when used by the farmer from saved seed in the next generation and must be repurchased every year.
OP and SP Seed Production Seed programs generally adhere to the four-generation system of seed multiplication, namely, breeder, foundation, registered and certified seed. Nucleus seed is the seed produced by the breeder to develop the particular variety and is directly used for multiplication as breeder seed. Breeder seed is the seed material, directly controlled by the originating or the sponsoring breeder or institution for the initial and recurring production of foundation seed. Foundation seed shall be the progeny of breeder seed, or be produced from foundation seed which can be clearly traced to breeder seed. The production shall be supervised and approved by a seed certification agency and handled in a manner so as to maintain its specific genetic purity and identity and shall be further required to meet the relevant labelling standards for the crop. Registered seed shall be the progeny of foundation seed that is handled so as to maintain its genetic identity and purity according to the standards prescribed for the particular crop. Certified/Truthful Labelled seed shall be the progeny of registered or foundation seed that is handled so as to maintain genetic identity and purity according to the standards specified for the particular crop. Certified/TL seed is the one which is sold to the farmer.

Hybrid Seed Production The development of seed crops takes place in several steps. The process begins with trait selection choosing plants that have desirable characteristics, such as high yield, nutritional content, flavor, size or tolerance to certain diseases and pests. Trait selection requires an extensive pool of germplasm and significant research and development capabilities. Seed companies produce both hybrid and OP seeds. OP seeds are pollinated by natural means and produce progeny with no significant variation from their component lines. In many crops, this type of nucleus seed is the seed produced by the breeder to develop the particular variety and is directly used for multiplication as breeder seed. Breeder seed is the seed material directly controlled by the originating or the sponsoring breeder or institution for the initial and recurring production of seeds to maintain traits indigenous to a specific parent line. In contrast, hybrid seeds are the first generation progeny of two different parent lines. Hybrid seeds are produced by crossbreeding two genetically dissimilar parent plant lines. The hybrid seed production depends on the crop variety. Hybrid seed is produced after crossing a male and a female. Male - Parent Female - Parent

F1 - Hybrid

The offspring of hybrid seeds (i.e., the F1 shown in the illustration above) that results from the crossing is sold to the farmer. The F1 hybrid seed possesses the hereditary characteristics determined by the selected traits of the parent lines and also would normally contain enhanced performance characteristics superior to the parent lines. The yield benefit is a result of hybrid force or heterosis, a naturally occurring characteristic across the biological world. Crops produced from these seeds exhibit a higher degree of uniformity and produce higher yields. However, second generation seeds produced by a hybrid will not inherit the enhanced performance characteristics of its hybrid parent. Thus, crops produced from seeds saved from hybrid crops do not display the same performance. As a result, hybrid crop farmers must purchase new hybrid seeds everytime in

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order to benefit from hybrids. The demand for hybrid seeds has been increasing in recent years. Seed companies can typically demand a premium for their proprietary hybrid seeds. This is because these seeds are generally the only alternative for farmers looking for certain traits, such as increased yields, tolerance, etc. Farmers worldwide have recognized the value of hybrids (including high yields and disease tolerance) and are beginning to switch over to hybrids from OP seeds. The benefits of hybrid seeds are such that there is economic advantage to growers who purchase hybrid seed each year. Successful hybrids have been evolved and commercialized in many crops. So far Camson is into hybrid seeds. It is developing intragenic seeds and could launch the first one in about 2 years from now.

Advantages Unique to India for Seed Production Bestowed with ideal weather conditions required for seed production. Broad range of climatic situations that facilitate seed production of wide range of crops. Better capital management for seed industry in view of the seed production season being Rabi and the marketing season being Kharif. Availability of inexpensive and skilled labour Quarterly Performance:
Rs. Cr.

Particulars Net Sales Expenditure Raw Material Consumed Stock Adjustment Employee Expenses Selling & Distribution Expenses Research Exp Other Expenses Total Expenditure EBIDTA EBIDTA Margin% Other Income Interest Depreciation PBT PBTM% Tax Effective Tax Rate% Reported Profit After Tax Extra-ordinary Items Adjusted Net Profit NPM% EPS Equity Face Value

Q4FY11 23.1 14.1 -11.4 1.9 8.5 2.8 0.4 16.1 7.0 30.4% 0.1 0.0 0.6 6.4 27.8% 0.2 3.4% 6.2 0.0 6.2 26.9% 3.4 18.1 10

Q4FY10 19.0 4.0 -2.5 0.7 10.7 3.3 0.2 16.5 2.5 13.2% 0.3 0.1 0.3 2.4 12.5% 0.0 0.8% 2.4 0.0 2.4 12.4% 1.5 16.1 10

% Chg 21.5% 251.3% 366.9% 158.3% -20.5% -16.9% 66.7% -2.5% 178.9% -73.2% -68.4% 96.9% 170.1% 1000.0% 163.1% #DIV/0! 163.1% 132.9% 13.0% 0.0%

Q3FY11 32.3 6.1 -0.6 0.6 11.1 6.1 1.1 24.5 7.8 24.2% 0.2 0.0 0.7 7.3 22.6% 0.0 0.0% 7.3 0.0 7.3 22.6% 4.5 16.1 10

% Chg -28.7% 129.6% 1942.9% 200.0% -23.3% -55.2% -68.8% -34.5% -10.5% -60.5% 0.0% -8.7% -12.0% #DIV/0! -15.0% #DIV/0! -15.0% -24.8% 13.0% 0.0%

FY11 99.1 28.5 -9.9 4.3 34.0 16.5 1.5 74.8 24.3 24.6% 0.6 0.1 2.5 22.4 22.6% 0.3 1.4% 22.0 0.0 22.0 22.2% 12.2 18.1 10

FY10 80.0 22.4 -7.3 2.1 30.0 15.1 0.0 62.3 17.7 22.1% 0.4 1.7 1.7 14.7 18.4% 1.1 7.1% 13.7 0.0 13.7 17.1% 8.5 16.1 10

% Chg 24.0% 27.0% 35.3% 101.4% 13.7% 9.1% 3525.0% 20.0% 37.7% 80.0% -95.5% 52.4% 52.1% -69.5% 61.5% #DIV/0! 61.5% 43.0% 13.0% 0.0%

Q2FY11 23.1 3.0 3.9 1.0 7.7 3.3 0.5 19.4 3.7 16.0% 0.2 0.0 0.7 3.2 13.8% 0.0 1.1% 3.1 0.0 3.1 13.7% 2.0 16.1 10

% Chg 40.2% 104.7% -114.4% -38.0% 44.0% 84.9% 128.6% 26.5% 112.5% 18.8% 500.0% 6.2% 128.9% -100.0% 131.5% #DIV/0! 131.5% 132.2% -0.3% 0.0%

(Source: Company)

Segmental Financials
Particulars Segment Revenue Seeds & Vegetables Agri Biotech Products Others Net Sales Segment Results Seeds & Vegetables Agri Biotech Products Others Total Less: Other Unallocable exp / (income) Q4FY11 22.3 0.7 0.0 23.1 Q4FY10 15.5 3.5 0.0 19.0 % Chg 44.1% -79.5% 21.5% Q3FY11 28.2 4.1 0.2 32.5 % Chg -20.8% -82.8% -100.0% -29.1% FY11 84.5 14.7 0.0 99.1 FY10 59.7 20.3 0.0 80.0 % Chg 41.5% -27.6% 24.0% Q2FY11 17.7 5.4 0.2 23.2 % Chg 59.6% -23.1% 18.8% 40.2%

6.0 0.3 0.0 6.4 0.0

1.6 0.6 0.0 2.2 -0.2

268.3% -43.6% 190.0% -78.9%

6.4 0.7 0.2 7.3 0.0

-6.1% -55.7% -100.0% -13.3% -

20.7 1.1 0.0 21.8 -0.6

12.0 4.0 0.0 16.0 -0.2

72.4% -72.5% 36.2% 189.5%

2.5 0.5 0.2 3.2 0.0

153.1% 45.8% 18.8% 130.2% -

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PBT Segment Capital Employed Seeds & Vegetables Agri Biotech Products Others Unallocated Total

6.4

2.4

168.5%

7.3

-12.7%

22.4

16.2

38.0%

3.2

130.6%

69.5 24.2 16.9 110.6

50.0 25.3 1.6 76.9

39.1% -4.5% 962.3% 43.8%

43.3 15.8 19.7 78.8

60.4% 53.7% -14.2% 40.4%

69.5 24.2 16.9 110.6

50.0 25.3 1.6 76.9

39.1% -4.5% 962.3% 43.8%

16.7 9.2 11.1 37.0

158.8% 72.1% 76.8% 112.7%

(Source: Company)

Camson posted a robust 21.5% growth in Q4FY11 over the corresponding period of the previous year. This strong growth can be attributed to increased demand and better realisations for Camsons unique hybrid seeds. Its OPMs expanded substantially by 1720 bps y-o-y to 30.4% in Q4FY11 on the back of lower selling and distribution cost, lower research expenditure and higher revenue. Its depreciation cost witnessed a jump of 170.1% to Rs.63 lacs. The net profit increased by 163.1% to Rs.6.2 cr in Q4FY11 from Rs.2.4 cr in the same quarter last year. The company declared a total income of Rs.99.1 cr for FY11, rising 24% y-o-y from Rs.80 cr in FY10. Q4FY11 saw an increased demand from Indian farmers to use Camsons products. The companys hybrid freezer watermelon is now a hit with consumers and retailers alike. There is also a steady demand for cost-effective and eco-friendly biocides and bio-fertilizers. Moreover, there is a better understanding of the value addition Camson products provide to rural farming. The companys commitment to produce zero-residue biocides and bio-fertilizers is changing farming practices in India.

Peer Comparison
Company Revenue - FY11 (Rs.Cr.) OPM% - FY11 NPM% - FY11 Growth in Sales over FY10 (%) Growth in PAT over FY10 (%) EPS - FY11 (Rs.) BV - FY11 (Rs.) FV CMP P/E P/BV EV/EBIDTA JK Agri* Advanta$ 123.9 709.2 12.8% 8.5% 8.6% -18.7% 0.5% 965.0% -142.1% 30.3 0.0 160.7 294.9 10.0 10.0 393.0 265.9 13.0 2.4 0.9 12.2 16.4 Hybrid seeds of Sorghum, Pearl Millet, Maize, Cotton, Hybrid seeds of Sunflower, Rice, Sunflower, Tomato, Rice, Corn, Mustard, Okra and Hot Pepper Cotton, Vegetables Kaveri Seeds 234.0 23.0% 18.2% 44.1% 46.1% 31.0 141.2 10.0 436.3 14.1 3.1 10.4 Hybrid seeds of corn, sunflower, cotton, paddy, etc Bihar, Madhya Pradesh, Gujarat, Uttar Pradesh, Punjab, Haryana and Rajastan, Karnataka, Tamilnadu, Maharastra & Andhra Pradesh Camson 99.1 24.6% 22.2% 24.0% 61.5% 12.2 51.6 10.0 111.5 9.2 1.9 7.8 Hybrid Seeds like watermelon, brinjal, tomato, chillies, etc

Presence in (kind of seeds)

Presence in countries/regions

20 states in India with three other Asian & African Countries across the boundaries

East Asia, South East Asia, South Asia, Latin American countries like Brazil

Southern and Western parts of India

*September ending company, $ December ending company and has consolidated financials

(Source: Company, Capitaline Database)

Camson is cheaper than all its peers on P/E and EV/EBITDA basis, though it is also smaller than all of them.

Risks and concerns:

Shift in crops by farmers could impact demand for seeds: In India shifting of crops i.e. from cotton to rice or rice to sorghum is easy and isnt regulated by the Government like the West. The type of crop that can be grown is affected by changes in temperatures, the length of the growing season and the commercial viability. Farmers also face risk from fluctuating prices and thus go for shifting of crops to get better yield. But this impacts demand for seeds and in turn seed companies could see volatility in sales from particular regions. Diversity in crops and regions is necessary: Some crops are more drought resistant than others, but may offer poorer economic returns. A diversified portfolio of products ensures that farmers and companies both dont suffer complete ruin when the weather is bad. Also it is important for companies to have presence across regions as if one region is suffering from some natural calamity the other regions can reduce the effect of that to some extent on their sales. This risk exists for Camson to some extent as it is largely present only in West and South India. More than 75% of the business comes from Western & Southern region. Post the Nangal plant going into full production; its presence in the North and East could improve.

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Miniscule market share in crops, but large and growing share in unique varieties of crops: Camson has very small market share in the total seed industry and also in the crops in which it is present, but has a large share in the unique varieties of vegetable and fruit hybrids, such as the yellow-skin watermelon and pink tomatoes. It is the only company in the country to research, produce and market unique seeds like ice box watermelons. It is the first company to launch a yellow skin watermelon and many other new hybrids in the market. Proposed Seed Bill 2008 neither in favour of companies nor farmers: The proposed Seed Bill of 2008 penalises companies for crop failure. The new Bill seeks to regulate the seed market and improve the quality of seeds as well as to harmonise and update the old policies in line with the current international practices for production, supply and for domestic and international trade. The new Bill makes it mandatory that all types of seeds and planting material be registered with the state governments before they are marketed. If the proposed Bill is implemented in the present form it could throw up many practical difficulties for the industry as a whole. Counterfeit Seeds: Given the ignorance and lack of effective policing in the rural areas, brand infringements can happen with relative ease. This could cause loss of revenue and goodwill for established players. Research output takes long time and could fail too: R&D into a particular type of seed is time consuming in nature and requires a long-term perspective. A plant breeder makes new crosses with the objective of combining desired characters of the parents into the offspring viz. yield, maturity, disease tolerance and quality traits such as taste, aroma, flavour, colour etc. It requirements a lot of scientific research that is why it is so expensive to produce. These factors add on to the cost of production. There is no certainty about the outcome of research efforts in terms of their success, timing etc. Growing MNC/ Indian competition from large players: There is increasing competition from large MNCs and domestic players in the seeds industry as new players eye this lucrative market and existing players redouble their efforts. . Lack of Awareness Many farmers in the country have only vague ideas about organic farming and its advantages as against the conventional farming methods. Use of bio-fertilizers and bio pesticides requires awareness and willingness on the part of the farming community. Knowledge about the availability and usefulness of supplementary nutrients to enrich the soil is also vital to increase productivity and grow sales of biocides. Product patent lacking Although Camson has one of the best products in organic pest management in India but it has no patents on its products, which could always pose a risk. As per the patent law a living microbe cannot be patented. Hence microbes and hybrid seeds cannot be patented. However, the company has its processes patented. Accounting treatment of Foundation seeds different from peers: Camson capitalises the cost of Foundation Seeds (Gross block as on March 2010 Rs.16.01cr - including Rs.8.3 cr capitalised during FY10 and net block Rs.13.2 cr), which is amortized over a period of ten years whereas peers like Advanta and Kaveri treat Foundation/Basic seeds as part of inventory. However in case of these companies, materials and other items held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. While Camson writes off the cost equally over 10 years, its peers seem to have flexibility in writing off the cost of the foundation/ basic seeds.

Conclusion
Established in 1993, Camson combines latest knowledge of breeding, molecular genetics and metagenomics in agriculture with the latest practices in environmental safety and protection to market a wide range of products that include hybrid seeds, bio-fertilizers and biocides that are non-poisonous, eco-friendly and residue-free. Its essential business opportunity is to convert farmers into using zero-residue Biocides and biofertilizers to ensure a safe produce. It also addresses the food needs across the entire value chain. Its seed R&D is focused on ensuring that consumers at the retail level get products, which are healthy and user-friendly. For example, its ice box watermelon an oblong and smaller watermelon, which is ideal for small families and storage in home refrigerators and its yellow skin watermelon, another compact variety of the fleshy summer fruit have been very well received. The management aims at remaining focused on innovation and operational excellence. In a major step towards building a more sustainable future for the company, it has stepped up its research investments. Camson has undertaken and is currently undertaking expansion plans to improve its biocides capacity and is also building new R&D facilities so as to increase its research trials and bring out more innovative products. These projects, when fully operational, could make a large contribution in shaping the earnings of Camson. Marketing has been expanded in fresh areas in the domestic market. The products have been received well in these new markets.

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The biocides business (organic agrochemical) which has been facing capacity constraints for expansion is expected to resume its growth path once Nangal facility become operational. Though Camson is small in size, it is the only integrated player in the agri-input space with a focus on unique hybrid seeds and zero-residue products. While the sector has been attracting attention from private equity players, Camson could go for it when it is need of that kind of money and at higher valuations. In this backdrop, we feel that investors can buy the scrip at the CMP of Rs.111.45 and add on dips between Rs.96 to Rs.104 (6-6.5x FY12E EPS) with sequential price targets of Rs.136 (8.5x FY12E EPS) and Rs.152 (9.5x FY12E EPS).

Financial Estimations: Profit & Loss A/c

(Rs. in Cr)

Particulars Net Sales Other Income Total Income Production Expenses Employee Cost Operating & Other Overheads Research Expenses Total Operating Expenses EBITDA (incl. other inc) EBITDA (excl. other inc) Interest Depreciation Profit Before Tax Tax (including FBT & DT) PAT

FY08 41.9 0.1 42.0 11.9 1.3 11.8 8.1 33.2 8.8 8.8 0.1 0.7 8.1 0.3 7.8

FY09 49.4 0.0 49.4 12.8 2.0 24.3 0.7 39.8 9.6 9.6 0.1 1.0 8.5 0.4 8.1

FY10 80.0 0.4 80.3 15.1 2.1 44.5 0.6 62.3 18.1 17.7 0.2 1.7 16.2 2.6 13.7

FY11A 99.1 0.6 99.8 18.5 4.3 35.5 16.5 74.8 25.0 24.3 0.1 2.5 22.4 0.3 22.0

FY12E 129.3 0.9 130.2 25.0 5.8 45.3 20.7 96.7 33.5 32.6 0.1 3.3 30.1 1.1 29.0

(Source: Company, HDFC Sec Estimates)

Balance Sheet
(Rs. in Cr)

Particulars Share Capital Equity Warrants Reserves & Surplus Shareholders Funds Secured Loans Loan Funds Deferred Tax Liability Capital Employed Gross Block Less: Depreciation Net Block CWIP Investments Inventories Sundry Debtors Cash & Bank Loans & Advances Total Current Assets Current Liabilities & Provisions Working Capital Miscellaneous Expenditure not w/off Capital Deployed

FY08 11.8 0.0 15.8 27.7 1.8 1.8 0.0 29.5 16.7 3.7 13.1 0.0 0.0 12.1 4.9 1.4 0.3 18.6 2.3 16.3 0.1 29.5

FY09 13.7 0.0 26.3 40.0 1.1 1.1 0.0 41.1 23.1 4.6 18.5 0.1 0.0 15.0 7.3 1.1 4.6 28.0 5.5 22.5 0.0 41.1

FY10 16.1 6.1 53.3 75.5 1.0 1.0 0.4 76.9 35.5 6.6 28.9 5.5 0.8 22.3 11.7 15.1 1.2 50.3 8.6 41.7 0.0 76.9

FY11E 18.1 0.0 88.9 107.0 1.0 1.0 0.4 108.3 43.5 9.1 34.3 0.1 14.2 28.3 14.8 25.9 1.5 70.6 10.9 59.7 0.0 108.3

FY12E 18.1 0.0 117.9 136.0 1.0 1.0 0.4 137.4 49.5 12.4 37.0 0.1 20.0 34.6 18.6 39.0 2.0 94.1 13.9 80.2 0.0 137.4

(Source: Company, HDFC Sec Estimates)

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Ratio Analysis
Particulars FD EPS (Rs.) (Adjusted) PE (x) Book Value (Rs.) P/BV (x) OPM (%) PBT(%) NPM (%) ROCE (%) RONW (%) Debt-Equity Current Ratio Mcap/Sales (x) EV/EBITDA FY08 4.3 25.9 15.3 7.3 20.9 19.3 18.6 27.6 28.2 0.1 8.2 4.8 23.3 FY09 4.5 24.9 22.1 5.1 19.5 17.2 16.4 21.0 20.3 0.0 5.1 4.1 21.1 FY10 7.5 14.8 41.6 2.7 22.1 20.3 17.1 21.4 18.1 0.0 5.9 2.5 11.4 FY11E 12.2 9.2 59.0 1.9 24.6 22.6 22.2 20.8 20.6 0.0 6.5 2.0 7.8 FY12E 16.0 7.0 75.0 1.5 25.2 23.3 22.4 22.0 21.3 0.0 6.8 1.6 5.6

(Source: Company, HDFC Sec Estimates)

Cash Flow Statement

(Rs. in Cr)

Particulars Profit Before Tax Net Opt Cash Flow Net Cash from Investing Activities Net Cash from Financing Activities Cash & Cash Equivalents Net Inc/(Dec) in Cash

FY08 8.1 1.7 -6.0 2.0 1.4 0.0

FY09 8.5 2.8 -6.5 3.5 1.1 0.0

FY10 16.2 10.5 -18.6 22.0 15.1 0.0

FY11E 22.4 30.8 -22.0 2.0 25.9 0.0

FY12E 30.1 44.2 -29.7 -1.5 39.0 0.0

(Source: Company, HDFC Sec Estimates)

Analyst: Sneha Venkatraman (sneha.venkatraman@hdfcsec.com)

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Corporate Office: HDFC Securities Limited, I Think Techno Campus, Building B, Alpha, Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Tel: (022) 30753400 Fax: (022) 30753435 Website: www.hdfcsec.com Email: hdfcsecretailresearch@hdfcsec.com Disclaimer: This document has been prepared by HDFC Securities Limited and is meant for sole use by the recipient and not for circulation. This document is not to be reported or copied or made available to others. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We may have from time to time positions or options on, and buy and sell securities referred to herein. We may from time to time solicit from, or perform investment banking, or other services for, any company mentioned in this document. This report is intended for Retail Clients only and not for any other category of clients, including, but not limited to, Institutional Clients.

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