Maybe it takes an outsider to realise true worth. First, agrochemicals giant Monsanto picked up a 26-per cent equity stake in Mahyco (the Maharashtra Hybrid Seeds Company) in return for that $45 million (some Rs 190 crore). That's a valuation of $175 million (Rs 735 crore) for a, dare we say, unexciting company.
But this was no flash in the pan because Hoechst Schering AgrEvo was also in on the act, paying $200 million (Rs 850 crore) for the Delhi-based Proagro group of four seeds companies. With one mega deal, the Berlin-based biotechnology company made its foray into seeds in India.
It's a simple, even simplistic, formula. What's the safest business to get into? Food, because people must eat, right? Then, how far can you go back up the er... food chain? To the seed. Or, more specifically, its transgenic, genetically-tinkered variants. Now, which country has several generations of agricultural research available dirt-cheap? A top scientist in the government's R&D establishment says: "Look at the work in the government labs. It's perhaps less focused than the work in private companies, but makes up in sheer volume of research."
So how valuable is the industry in India? A product of the green revolution, the seeds industry is a highly fragmented one. Says Sekhar Natarajan, managing director, Monsanto Chemicals of India: "The industry is worth around Rs 1,600 crore (in sales), growing at anywhere between 15 and 25 per cent. There are around 125 to 200 companies and of these, 15 large companies (with a national presence)." But really, it's taken those two buyouts to make clear the value of the underlying seeds business in India.
Not surprisingly then, a trickle is turning into a flood. Says Shankar Athreya, associate director, mergers and acquisitions, BNP Prime Peregrine: "I see tremendous potential in the seeds sector." Buying interest, he adds, is coming from both financial and strategic investors. Chips in a Mumbai merchant banker whose firm has been active in this sector, "Looking at Proagro and Mahyco laughing all the way to the bank, there isn't a dearth of sellers, believe me."
A crude benchmark used by valuation experts and M&A advisers is the value-to-sales ratio. The Mahyco and Proagro deals provide this benchmark. In the case of the Rs 150-crore Mahyco, the ratio was nearly 5 (Rs 735 crore divided by Rs 150 crore), while for Proagro it was much higher at over nine (Rs 850 crore divided by Rs 90 crore sales).
The domestic seeds industry, then, is worth anything between Rs 8,000 crore ($1.9 billion) and Rs 14,000 crore ($3.35 billion). The government scientist admits it's difficult to put a value to the work in the non-private Council for Scientific and Industrial Research, Indian Council for Agricultural Research and agricultural university labs, but feels their market value is at least equal to the numbers being bandied around by M&A specialists.
Satish Sohoni, vice-president, agribusiness, Rallis India, agrees: "Why not? What companies have paid for is the tremendous potential that is expected to come out of this business in the long term." He is referring to technology in the form of genetic engineering that is expected to change the complexion of agriculture in the next millennium.
Concurs Kannan K Unni, executive vice-chairman and managing director, AgrEvo India, the man who masterminded the acquisition of Proagro : "We admit the price we paid for Proagro was high. But if you really want something you have to pay for it."
But this willingness to spend is symptomatic of the churning below the surface. Globally, recognising that the days of environmentally-harmful pesticides are numbered, agrochemicals companies are turning towards seeds. They foresee the seed itself being the carrier of disease-resistant qualities rather than externally-applied fertilisers.
The near-obsessive series of M&As in the west confirm this. Monsanto has acquired some 14 companies worldwide in the seeds business in the past year, including Cargill Seeds' non-US interests, for some $8 billion. DuPont took over Pioneer Hi-Bred for $7.7 billion. Chemicals majors _ Novartis, Adventa and Aventis CropScience _ are announcing joint initiatives every other day. Besides these, chemical giants like Dow, Bayer, Zeneca and American Home Products, among others, are looking at seeds. Analysts predict the emergence of just five-six global players early next century.
The future, it seems clear then, is in bio-engineered seeds. And India is almost ideally placed because of the sheer breadth and depth of plant germplasm that India is endowed with, which companies and researchers have easy access to. More importantly, perhaps, seed development _ like molecule hatching _ is a long-drawn and expensive process. Typically, a seed takes seven-eight years to develop (transgenic variants take more) and the process is expensive in developed markets. It is this lead time that an acquirer looks to cut short and is willing to pay a premium for.
After buying out Proagro, the Hoechst Schering AgrEvo CEO Gerhard Prante commented: "We will create significant growth potential for AgrEvo by leveraging Proagro's hybrid seeds with AgrEvo's strengths in biotechnology and crop protection." It helps that Proagro has a couple of disease-resistant vegetable transgenic seeds in the pipeline _ with enormous potential in pest-prone Asian farm tracts.
Similarly, Rallis, which has invested heavily in R&D, has a research centre in Bangalore which employs 250 scientists. At least 40 concentrate on just seeds. Rallis is also working on wheat hybridisation _ this being one of the largest crops in the country, it's being targeted as a money spinner.
The Aurangabad-based Nath Group is scouting for strategic investors in its Rs 50-crore plus seeds company Nath Seeds. Promoter Nand Kishore Kagliwal, who hol
