Reap a Bumper Harvest - Mahindra Finance · CITY WHERE IT APPEARED MUMBAI DATE JUNE 3,2007 bt money has been virtually unchanged for.decades. Until that happens, agri cultural prices

PUBLICATION NAME BUSINESS TODJ\ Y

CITY WHERE IT APPEARED MUMBAI

DATE JUNE 3,2007

bt money

has been virtually unchanged for. decades. Until that happens, agri­cultural prices are likely to stayelevated," saysSi Kannan, AssociateVice President of KotakCommodity Services.

Hence, companies producingagri-based products are well poisedfor th~ future. A case in point isrice and wheat miller Usher Agro,which listed last year at Rs 9, butzoomed to Rs 30 levelssoon there­after. The stock thrived on the backof steadydemand for its products byacquirers such as Food Corporationof India, among others. Besidescompanies such as REI Agro, KRBL,

exporters of the long-grained andaromatic basmati rice, are also rid­ing the crest of the same wave.

Sugar is yet another agri­commoditywhich is on an upswing.IDBI Capital's agri-analyst MaitaliShah picks up India's top two sugarproducing companies, B.ajajHindusthan and Balrampur Chini,along with Dwarikesh Sugar for along-term play of four years andmore. She cautions though, "sugarstocks are not in favour just now asoff late, sugar industry is facing a

nies that provide farminginputs such as seedsto farm­ing techniques and mac­hinery to those involved indistribution of farmingproducts-companies in theagri-sectorare slowlycoming

into the limelight.As the farmincome increases,another class

of companies that has tradition­ally focussed on urban centres hasrapidly increased its penetration inrural India. These are banks andconsumer durable companies.There are many themes playingout in the agri-sector.(seeThe Seedsof Growth).

The Base ProducersThe first to benefit are direct agri­products companies. Commodityprices affect the earnings of ricemillers, sugar producers and teamanufacturers. Investment oppor­tunities abound in this category asthe global and domestic demandis expected to remain strong overthe coming years, and prices areexpected to remain reasonablyfirm."Strong demand will require a sub­stantial increase in acreage, which

INVESTMENTGURUS SUCH AS JIMRogers saw it coming as early as1999. Prices of agri­

commodities are soaring in theface of sustained uptick in globaldemand and stagnating produc­tion. Notwithstanding the scorch­ing economic growth in India,Indian agriculture is painfullyambling along at around 2 per centdue to decades of under-invest­ment. That, however, is changing.

With the policy-makers renew­ing efforts to boost agriculture­the last two budgets were agri­focussed-now, a clutch of com­panies is poised to capitalise on thecoming boom. Right from compa-

Reap a Bumper HarvestAs agri-sector booms, related companies

offer good opportu nities for investors.SHALINI s. DAGAR

PLOUGHED FOR RETURNSHere's the cream of the crop that is poised to deliver a rich harvest.

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PUBLICATION NAME BUSINESS TODAY

CITY WHERE IT APPEARED MUMBAI

DATE JUNE 3, 2007

bt money

IFood processing Dabur, Jain Irrigation, KS Oils, Ruchi Soya,

(fruit pulp, soya oil processing) Agro Dutch, Heritage Foods

I Infrastructure Jain Irrigation, KSBPumps, Kirloskar Bros, Finolex Industries,

(irrigationsystems,pipes,pumps) Patel Engineering,Adani Enterprises

THE SEEDS OF GROWTHA host of agricultural sectors and companies will benefit from the growing opportunities,

SECTORS COMPANIES

IAgri-commodities REIAgro, Bajaj Hindusthan, Balrampur Chini, Satnam

(sugar, tea, rice) Overseas, KRBL,Riddhi Siddhi Gluco Biols, Usher Agro

The Fringe GainersThere are many companies not dir­ectly related to agriculture but thriv­ing nevertheless on the agri-sector.Mahindra & Mahindra Finance is

essentially a play on India's ruraleconomy with more than 70 percent of its business coming fromrural and semi-urban areas.

Brokerage house SSKI believes thatthe "increasing focus on agricul­ture by the government, corp oratesand organised financiers wouldpropel India's rural economy onto a higher growth trajectory. M&MFinance is ideally placed to cap­ture this opportunity." ICICI Bank isalso aggressively zooming in onrural markets.

Agriculture contributes about20 per cent to the gross domesticproduct. As of now its capital mar­ket exposure is fairly insignificant.Rnt m"rkf't ohsf'rvf'rs reckon that

*This list is only indicative

share of this market.

lTC, HLL, M&M, Punjab Tractors, Escorts,

M&M Financial, ICICIBank, YESBank

Monsanto, Rallis India, United Phosphorus, EID Parry,

GNFC,Coromandel Fertilisers, Tata Chemicals,

Bhagiradha Chemicals

"The seeds business is cyclical

but fetches high return oninvestment"

Harendra Kumar/ Head (Research)/ IGIGIDirect

seeds business as companies tryand improve the low yields frommost crops. Other companies worthconsidering are agro-chemical com­panies such as Rallis India, UnitedPhosphorus which deal with cropprotection chemicals.

Fertiliser companies such as EID

Parry, Coromandel and GodavariFertilisers or Gl\TfC are good betsas we look into the future even

though they operate in a highlyregulated environment as yet.

Among other equipment pro­ducers, tractor companies also pro­vide a good opportunity asincreased mechanisation of farm­

ing results in an increased demandfor tractors. M&M has significant

IRural consumption

(generic products, services)

IAgri-inputs

(seeds, fertilisers

agro-chemicals)

glut." Arun Kejriwal, Director,Kejriwal Research and InvestmentServices, however, points out thatthe long-term story in sugar willplay out more aggressively onceIndia starts looking seriously atethanol as an alternate fuel. Ethanol

is a by-product of sugar pro~ess­ing. Brazil has made a significantmove towards using ethanol andthat move alone has affected globalsugar prices tremendously.

Besides, companies in the busi­ness of food and solvent extrac­

tions are seeing a revival in theirfortunes. Among the many compa­nies, Ruchi Soya and KS Oils--<:om­panies into solvent extraction-alsofeature high among investors'favourite stocks.

Indirect BeneficiariesHowever, soft commodities apart,there are many more investmentopportunities within the broad agro­theme. One company that has beenin focus is Jain Irrigation. It is thelargest supplier of micro-irrigationequipment in the country. As thegovernment stresses on increasingthe arable land under rrrigation, thecompany is well poised to take

. advantage of the investments comingin new irrigation techniques. FinolexIndustries, KSB Pumps and KirloskarBrothers, too, fall in the category ofagri-infrastructure companies.

As production techniques arespruced up, the agri-input sectorwhich provides the much-neededstimulant to crops is the seeds and

'the fertiliser sectors. There are a

number of players in this segment­among them Advanta India, whichc1phntPc1rprpntlv ()n thp~t()rk- m"r-

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