For Monsanto India, the current year is marked by a sharp drop in glyphosate prices, a stable market share in the hybrid corn business and an uncertain regulatory environment. Against this backdrop, we met with Ms Shilpa Nirula (MD, Monsanto India) and Mr Saurabh Vaidya (India Finance & Asia Africa FP&A Lead, Monsanto India) to discuss, among other things, (i) the company’s strategy to protect margins in the glyphosate business, and the outlook on glyphosate prices and (2) scope for hybrid corn growth, and new product launches. Key takeaways:
- Glyphosate prices are expected to move upward after a sharp correction from a high of INR300/kg in FY16 to ~INR230/kg in FY17. The decline in prices can be ascribed to inventory correction (had piled up due to poor monsoon in FY15/FY16) and lower raw material (China acid) prices. To counter this, Monsanto took a price cut in May 2016. It has maintained prices since then.
- China acid prices are on an uptrend, mainly due to the crackdown by the Chinese authorities due to non-adherence to environmental norms. This will lead to an increase in glyphosate prices, which should benefit Monsanto India as it sources from its parent in the US under a fixed transfer pricing mechanism (cost plus 3-4%), with prices remaining stable over the past three years.
- During October-December 2016, the southern markets, especially Tamil Nadu and Karnataka, were under stress due to poor rainfall. However, the company remains upbeat on its glyphosate volume growth, considering the low level of herbicide penetration in India and innovation-driven growth in glyphosate formulations.
- The share of hybrid corn penetration in India stands at 65%, with a market size of 85,000-100,000mtpa; Monsanto’s hybrid corn market share has remained stable over the past three years.
- Management expects the share of hybrid corn to structurally improve over a period of time. This, coupled with the company’s plan to introduce new products, is expected to drive sales/margins and help Monsanto largely maintain its market share. Currently, the age profile of its products is 6.5 years, which is expected to remain stable.