NATH BIOGENES (I) LTD Rs 90/: UnderValued/Bright Prospects

Rationale for Recommendation;

a) Amongst the oldest in Hybrid Seed industry.

b) Balanced Product Portfolio

c) Strong R&D centres over 5 locations

d) FY15 Eps Rs 15.85.  PERatio only 5.68 (LOWEST in peer group Kaveri Seeds, JK Agri etc)

e) Cmp significantly lower than 52 week High (Rs 174).

f) Bright prospects for the Industry, almost recession proof as

Agriculture continues and will continue to play dominant role in

Indian economy which in turn ensures ever-increasing demand for Hybrid

seeds

PRODUCTS and FINANCIALS:

Aurangabad based NBIL is amongst the oldest Hybrid seed company in India, having headquarters at Aurangabad and belonging to Nath group of industries. Hybrids have undergone seachange in last few years as it is no longer good enough to offer high yield hybrids. Now, hybrids carry additional built-in value through seed embedded technologies/genes for protection against specific diseases/pests and  vagaries of ature. NBIL is pursuing Genetically Engineered Technologies as well as Molecules-aided Selection Systems to enrich crop breeding.

NBIL offers choice of Bt-cotton technologies and also has wide range of Bt-cotton hybrids, incorporating Fusion-Bt technology of Chinese Academy of Sciences. NBIL also offers BG-II (of Monsanto) version of elite cotton hybrids

Besides Cotton, NBIL also has in its product portfolio Paddy, Bajra, Jowar, Wheat, Maize and in Oil segment, Mustard seeds

NBIL is increasing its focus on Vegetable seeds like Okra, Tomato, Chillies, Brinjal, Gourds etc

NBIL is pursuing the strategy of balanced product portfolio comprising of Cotton, Food crops, Vegetable crops, as also Plant Nutrition Supplements.

NBIL has 12 acre campus near Hyderabad for its R&D activities, apart

from another 4 centres in Bihar and U.P.

Stock is trading at 5.68xFY15 Eps

PROSPECTS:

                               2015-16         2016-17

                                Rs/Cr           Rs/Cr

Sales                           190               220

Net Profit                       26                32

Eps Rs                         16.25             20

For Q1, NBIL has reported sales of 109 crores as against sales of 119 crores in corresponding quarter of previous year. Sales have declined due to little higher sales-return. Profit after Tax too has come down from 30 crores to 24 crores, partly caused by higher provision for depreciation and Interest cost.  In seed industry, Q1 is peak season and accounts for 65-70% of full year's revenues.

NBIL has strong pipeline of new products due to strong emphasis on R&D

activities, full impact of which will be felt in FY17.

VALUATIONS/RECOMMENDATION:

1. NBIL is trading at 5.68xFY15 earnings which is quite low considering that seed industry has bright prospects. Moreover, these valuations are lower than peer group companies like JK Agrigenetics, Kaveri Seeds (deserves higher valuation due to bigger size). Even when Sensex is between 26,000-28,000 levels, such PE Ratio is definitely low for a regularly profit making company

2. NBIL is available at PE Ratio of 5.54 against FY16E earnings and PERatio of 4.50 based upon FY17E earnings.

3. Downside is very low considering that stock has already reacted from 52 week high of Rs 174.

4. Hybrid seed industry has extremely bright prospects and is almost recession proof. In such a scenario, NBIL valuations are definitely very low as NBIL will have assured demand for its product portfolio.

Even if NBIL gets modest PERatio of 10, its stock price should be Rs 160 in next 12 months. If held for 2-3 years, stock may cross even Rs 350 mark.

Investors may please note that investment in NBIL should fetch decent appreciation if broader markets remain stable. If broader markets fall sharply, then NBIL may or may not give appreciation