Advanta can Bank on Expansion to Tide Over Growth Challenges

Advanta can Bank on Expansion to Tide Over Growth Challenges

With a debt-to-equity ratio of 1.2, it’s a good bet for long-term play

Listed in 2007, seed player Advanta India was a quick hit among investors as its share price tripled within few months. Yet, its fall in 2009, 2010 and early 2011 meant that today it is one of the few stocks with a dubious distinction of trading below its March ’09 level — the absolute bottom for the overall market. Things have, however, undergone a dramatic change, of late. Advanta has gained nearly 40% in the past three months while the Sensex lost 13% in the strong headwinds that the equity market is currently facing. Fluctuations in market favour were owing to its shaky performance in 2009 and 2010. Its profit halved in 2009 YoY and turned into a net loss of . 30 crore in 2010. After another loss-making quarter of March ’11, in Q1, the company finally displayed a strong spurt in its net profit. The fluctuation in the profitability was partly a result of the inherent uncertainties of the seed industry. The industry is seasonal in nature, with long-gestation periods and long-working capital cycles. While developing a new variety is a 7-8-year long process, marketing an established product is restricted to only the quantity planned couple of years in advance since the production of seeds takes place in farmers’ fields. Thus, they are exposed to unique and extreme uncertainties. 

For example, Advanta’s 2010 results were affected by a . 35 crore write-off on sunflower seeds while in 2011 a strong demand for the same product saw it run out of stock by September itself. The company is readying itself to overcome such challenges by expanding product portfolios, investing in research and expanding geographically.
It has made six buyouts in the last two years and it is trying to enter Europe for sunflower seeds. It has tied up with Monsanto for GM corn and has licensed a drought-tolerant gene construct from Arcadia BioScience for its main product sorghum.
The debt-to-equity ratio rose to 1.2 in December 2010, while interest cost took away more than half of PBDIT in the first half of 2011. Considering the company’s growing prowess, it should be able to meet its challenges squarely. However, itcan be a good investment for only such investors, who can overlook an occasional bad quarter.