ADVANTA INDIA: New Products and New Markets to Bear Fruit for Co

Advanta India is making a slow, but steady comeback from a woeful time in 2010. It has closed 2011 with a profit and is looking forward to a significantly better 2012 with the introduction of new products and entry into new geographies. Although slightly risky, the company is likely to prove to be a worthwhile investment for long-term investors. 

BUSINESS Advanta is India's largest seeds company headquartered in Hyderabad. It has operations across the world. Australia contributes nearly 25% to its revenues, followed by Argentina (23%), Thailand (16%), US (15%) and India (14%) with the rest of the world making up for the remaining 7%.
In terms of products, sorghum contributes 35% of its revenues followed by corn (20%), sunflower (12%), canola (11%), vegetables (8%) and others making up for the balance 14%. The company faced a tough time in 2009 and 2010, posting a net loss of 30 crore in 2010. It turned things around with a strong spurt in net profit in the June 2011 quarter. Since then its performance has been robust. 

GROWTH DRIVERS The company has launched new products regularly. In the last 1-2 years, it has launched hybrid canola in Australia based on its proprietary technology, hybrid corn and sweet corn varieties in Indonesia, and genetically modified (GM) corn in Brazil, which will benefit it in 2012. It is also gearing up to enter the European market with sunflower seeds in 2012 apart from strengthening product portfolios in other geographies. Two of its high-profile research programmes — wheat breeding in Australia and development of high stearic, high oleic sunflower in Argentina — have recently seen the launch of its first commercial products. The company had invested nearly Rs 120 crore over the last four years in these projects. 

FINANCIALS In 2011, the company reported a net profit of 12.3 crore against a net loss last year, while the revenues were up 40% at 911.8 crore. Its December quarter ended in a net loss due to forex losses. Its debt-equity ratio stood at 1.4 at end December 2011. The debt mostly represents working capital. 

VALUATIONS Based on profits for the trailing 12 months, the company is being valued at 52.7 times. However, last year it had two loss-making quarters, which are not likely to be repeated again. Excluding these two quarters, the P/E comes to 21.6, which is reasonable for a high-growth company.