PI Industries vs Sumitomo Chemical vs Bayer Cropscience | Top Agrochemical stock in India

Agriculture is the largest source of livelihood in India. With 82% of Indian farmers being small and marginal, 70% of country’s rural households still depend primarily on agriculture for their livelihood.

And one segment that plays a crucial role in the agriculture sector is the Agrochemical segment.

India is one of the biggest player in the chemical industry which is already booming due to the closure of various chemical factories in China creating a huge growth opportunity for Indian companies. So in this article, we will discuss about one of the segment of Chemical industry i.e. Agro Chemical. Now within agro chemical, there are 2 main categories: Pesticides and Fertilizer.

If we look at some of the key players in Indian chemical sector, it includes UPL which is a large cap company, PI Industries, Bayer Cropscience, Coromandel International, which are mid cap companies and some companies in small cap segment include Rallis, , Sumitomoto Chemical, Chambal Fertilizer, etc.
In this article, we have compared PI Industries, Sumitomoto Chemical & Bayer Cropscience which are predominantly pesticide companies and fall in the mid and small cap category.

Agrochemical sector

Agrochemical are manufactured to protect agricultural crops from pests and for increasing the crop productivity.

They are mainly classified into pesticides and fertilizers.

Pesticides are basically the chemicals used to destroy or control the pests which are harmful for plants whereas fertilizers are used to increase the crop production.

Pesticides are again classified into

  • Insecticides: To destroy the insects
  • Herbicides: It is used to control or kill weeds and herbs
  • Fungicides: It is used for controlling fungi
  • Rodenticides: It is used to prevent spread of rodents like rat, mice
  • Bio-pesticides: Bio-pesticides are pesticides derived from natural substances like animals, plants, bacteria and certain minerals.

Fertilizers: Fertilisers can be categorized into two categories: organic and inorganic fertilisers. Organic fertilisers are naturally existing substances prepared through natural processes. Inorganic fertilisers, also referred to as synthetic fertilizers are manufactured artificially using chemical processes by utilizing natural deposits, which are altered chemically.

We will focus our analysis on the pesticide segment for now. Within pesticide, herbicides constitute 55% market while fungicides and insecticides contribute 23% and 22% respectively.

Key Trends and Future Growth

Crop protection chemicals (CPC) play a vital role in reducing crop losses from a range of insects, herbs, fungus, nematodes, rodents, etc. They play a significant role in improving yields and farm income. Having been dominated by synthetic products for many decades, the industry is now witnessing growing popularity of bio-pesticides, which are estimated to grow at a much faster rate due to government support and increasing awareness about use of non-toxic, environment friendly pesticides. The biggest growth driver for CPC industry is government initiatives. Aimed at doubling of farmers’ income, the union and several state governments have been running numerous support initiatives that put more money in the hands of farmers.

PI Industries

  • Incorporated in 1947, PI Industries focuses on complex chemistry solutions in agri and pharma sciences. PI industries has a wide range of products in categories including insecticides, fungicides, and herbicides. It has also got speciality products like Biovita granules, etc.
Sumitomo Chemicals India
  • Established in year 2000, Sumitomo Chemical India is a subsidiary of Japanese company Sumitomo which was founded in year 1913. Sumitomo Chemicals India has presence in all the product segments - insecticides, weedicides, fungicides, fumigants and rodenticides, plant growth nutrition products, bio-rationals and plant growth regulators. It is also into animal nutrition and environment health businesses – currently these are comparatively small businesses.
Bayer Cropscience

  • Established in 1958, Bayer Cropscience is an Indian subsidiary of German company Bayer which is one of the largest pharmaceutical and healthcare companies in the world.
  • Bayer Cropscience is among the leaders in the areas of crop protection pest control seeds and plant biotechnology. The company develops and markets fungicides insecticides herbicides and seed treatment products. They use plant biotechnology and breeding to offer solutions for agriculture nutrition health and biomaterials.

Financials

  • Market Cap: If we look at the market cap, PI industries has a market cap of ~ Rs 31,000 Crore, Sumitomo has a market cap of Rs 15,000 Cr and Bayer Cropscience has a market cap of Rs 23,000 Cr. So in terms of market cap, is PI Industries is #1 followed with Bayer Cropscience and then is Sumitomo is #3.
  • Last 5 year stock returns: In the last 5 years, PI industries share price has jumped from Rs 667 to currently at Rs 2250 at a CAGR of 27.5%. Sumitomo recently had the IPO in january 2020 and since then its share price has doubled from Rs 167 to currently at Rs 318. Bayer Cropscience share price has jumped from Rs 3400 to currently at Rs 5190 at a CAGR of 8.8%. So in terms of returns in the last 5 years, PI industry has given fantastic returns as compared to Bayer cropscience. We can’t compare Sumitomo Chemical as it was listed only last year. However, it has given almost double the return in the last 1 year.
  • Revenue: If we look at the revenue, PI industries revenues have increased from Rs 1940 Cr to currently at Rs 3,360 Cr for FY20. Sumitomo revenues have increased from Rs 671 Cr to currently at Rs 2,423 Cr for FY20 and Bayer Cropscience revenues have been constant from Rs 3660 Cr to currently at Rs 3,609 Cr. As per latest revenue figure, PI Industries and Bayer Cropscience are at par and Sumitomo is at 3rd position, although not too behind.
  • Revenue growth in last 5 years: In terms of revenue growth in the last 5 years, PI industries revenues have grown at a CAGR of 11.65%, Sumitomo chemical revenue have grown at an exceptional CAGR of 29.29%, Bayer cropscience revenues have shrunken by 0.28%. So in terms of revenue growth Sumitomo chemical is way far ahead of PI Industries and Bayer Cropscience.
  • Profits: If we look at the profits, PI industries profits have increased from Rs 246 Cr to currently at Rs 457 Cr for FY20. Sumitomo profits have increased from Rs 35 Cr to currently at Rs 206 Cr for FY20 and Bayer Cropscience profits have increased from Rs 383 Cr to currently at Rs 474 Cr. Again, as per latest profit figure, PI Industries and Bayer Cropscience are at par and Sumitomo is at 3rd position, although not too behind.
  • Profit growth in last 5 years: In terms of profit growth in the last 5 years, PI industries revenues have grown at a CAGR of 13.19%, Sumitomo chemical revenue have grown at an exceptional CAGR of 42.55%, Bayer cropscience revenues have grown at a CAGR of 4.35%. So in terms of profit growth Sumitomo chemical is way far ahead of PI Industries and Bayer Cropscience.
  • ROE: If we look at the return on equity, PI industries ROE for FY20 stood at 17.45%. Sumitomo chemical ROE is 17% and Bayer Cropscience ROE stood at 18.4%. So all 3 companies are at par in terms of ROE. However, Sumitomo chemical ROE is more consistent over the years hence I would rank it at #1 position.


  • ROCE: If we look at the return on capital employed, PI industries ROCE for FY20 stood at 20.18%. Sumitomo ROCE is 22% and Bayer cropscience ROCE stood at 23%. Again all 3 companies are at par in terms of ROCE.
  • Debt to equity: If we look at the debt to equity ratio, PI industry debt to equity for FY20 stood at 0.2. Sumitomo debt to equity is 0.03 and Bayer Cropscience debt to equity is 0. So all 3 companies are comfortably placed in terms of their debt to equity ratio.
  • Promoters shareholding & % change in promoters shareholding : If we look at the promoters shareholding, PI industries promoters shareholding for FY20 stood at 46.57%. Sumitomo promoters shareholding stood at 75% and Bayer Cropscience promoters shareholding stood at 71.43%. So all 3 companies have good amount of holding from promoters which shows the trust of promoters in the company. Please note that the promoter shareholding in PI industries has reduced by 9% in the last 2 years and Sumitomo chemical shareholding has reduced by 6.6%. Bayer cropscience promoter shareholding has increased by 3.99%
  • Valuations: If we look at the valuations, PI industries share is currently trading at PE of 46. The median PE of the last 3-5 years is between 36-41. So PI Industries is trading slightly above its 3-5 year median PE and looking fairly valued. Sumitomo Chemical is currently trading at a PE of 60. Considering the fact that it is growing much faster, it is available at decent valuations with PEG ratio of 1.3. Bayer CropScience is trading at a PE of 35 and 3-5 year median PE is 40. So it is currently trading below its median PE.
Conclusion
All 3 companies are key players in the agrochemical business in India. In terms of market cap, PI and Bayer Crop science are Mid cap companies and Sumitomo is a relatively small cap company.In terms of profit and revenue size, PI and Bayer are at par and Sumitomo is at 3rd position as it is relatively smaller company. In terms of growth, Sumitomo is way far ahead of PI and Bayer Cropscience. Bayer cropscience growth has been sluggish in the last 5 years.In terms of profitability, all 3 companies are doing good. In terms of debt to equity, again all 3 companies are financially comfortable. Finally, in terms of valuations, PI and Sumitomo are looking fairly valued and Bayer Cropscience is slightly undervalued.

PS: If you want to learn every aspect of fundamental analysis of stock and other important concepts of personal finance, you can explore my video course on "Everything about money management".
Disclaimer: This article is only for education purpose. Consult your financial Advisor before investing your money.

Note: This article is co-authored by Sahil & Juhi. Sahil is the founder of this personal finance academy and Juhi is an investor and finance expert based out of the USA.

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