Initiating Coverage

Advanta India Limited Rs 410

…best bet to play the agricultural productivity theme Buy
Industry : Agriculture -Hybrid Seeds BSE/NSE Code : 532840 / ADVANTA
Company P/E : 9xCY'10E 52 Week H/L (Rs) : 1100 / 310
Market Cap. (Rs) : 7bn Daily traded volumes : 8, 500 / 6,500
Face Value (Rs) : 10 Dividend (FY'08) : 10%

Investment Argument
• We believe that Advanta India Ltd - AIL is the most aggressive and geographically diversified hybrid seed play
available to investors to play the agricultural productivity improvement theme in key markets across the globe.

• Fox Paine LLC a private equity firm based in the US sold Advanta in bits and pieces and the United Phosphorus
Group acquired the Asia Pacific and Latin America business in March 2006 and Advanta India Ltd - AIL came
out with its IPO in March 2007 by raising Rs2.2bn by issuing shares of Rs10 each at a price of Rs640 per share.
AIL part of the UPL group is the holding company for the global business of Advanta spanning five major
geographies - Australia, USA, Thailand, Argentina and India. AIL has a leadership position in Sorghum Sunflower
and Corn and is a leading agronomic global seed company competing with Syngenta, Limagrain, Monsanto,
Pioneer (Dupont group) and Pro Agro (Bayer group) in most of the markets.

• Australia is a $35mn business and Sorghum is the focus crop accounting for close to 40% of the business. The
other key crops are corn, canola, sunflower, oats and pearl millet among others. Acquisition of Longreach Plant
Breeders, a wheat research company in Australia has reinforced its presence in the wheat market in Australia.
Exports of AIL are channeled out of Australia and the key countries where hybrids of sunflower and canola are
sold include Pakistan, Bangladesh, Sudan, Iran and Indonesia. However the profitability is not high as the
operating costs in Australia is high.

• US business was reinforced in sweet sorghum with the acquisition of Garrison and Townsend-GT, which essentially
is a private label business with no branding. AIL acquired the $10.5mn business at one time revenues and the
acquired companies have proprietary traits and a good germplasm in grain and forage sorghum and we expect
this crop to fill the gap arising due to corn in the bio-fuel market. AIL remains the third largest player in
Sorghum after Monsanto and Pioneer. It is among the few players in the world to have a quality sweet sorghum
germplasm and while GT is the vehicle in the US, AIL has tied up with the TATAS in India. Sweet sorghum
although a relatively small component in its portfolio would be a fast growing segment as the cost of production
is low and can develop into a preferred crop in the bio-fuel market. AIL also acquired the sunflower seed
business of Limagrain in the US last year which consolidated its position in the sunflower seed market. The
US business is expected to grow at the rate of 15% annually.

• Thailand is a $15mn business where Corn is the key crop and it has a 60% market share in corn. Thailand is
also a good market for vegetable seeds. AIL is a strong player in the Thai corn market in baby corn and sweet
corn and is now building a strong presence in the field corn market.

• India is a $30mn business and the focus crops include paddy, vegetables, corn and sunflower and we expect
the business to grow at 20% annually led by vegetables, paddy and mustard. With the acquisition of Golden
Seeds and Unicorn Seeds AIL now has a 10% market share in the Rs6bn vegetables seeds market in India. As
India is the second largest producer of vegetables in the world, AIL is looking to tap the opportunities in
vegetable seeds like cabbage, cauliflower, chillies and okra. Hybrid rice is a huge opportunity with 42 million
hectares of acreage under rice of which only 2 million is under hybrid and Bayer, Pioneer and Advanta are the
key players in this segment.

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• Argentina is a $18mn business and Sunflower is the focus crop for AIL and has a market share of 17%. More
than 75% of the business in Argentina comes from Sunflower and Sorghum (both grain and forage). We expect
Sunflower and BT corn to be the growth drivers in Argentina. Healthy sunflower oil project - SUNSAT is on track
and globally regulators are working on banning the usage of trans-fats in foods and this provides a huge
opportunity for AIL's high oleic and high stearic sunflower oil branded as -NUTRISUN. AIL has targeted
chocolates in the initial phase as the product finds application as a cocoa butter equivalent - CBE. Although
this project is only beginning to evolve AIL has sold 250 tons of the product till date in CY'09 and we are
factoring a sale of 3,000 tons during the year and 10,000 tons in CY'10 in to our estimates. We expect this
product to be a hugely profitable product for AILS once the volumes gain traction from CY'11 onwards.

• AIL has signed an MOU with leading oil formulators-TEAM and CALSA in Latin America for different applications
on NUTRISUN. It is a non GM healthy oil with 20% stearic and 60% oleic content. SUNSAT derived from
sunflower saturated and developed by AIL using plant breeding and molecular marker technology - modifying
the fatty acid profile through a non-GM technology has the propensity to lower bad cholesterol and is likely
to be a block buster product for AIL in applications like food, bakeries, ice-cream, chocolates, confectionery,
margarine and spreads as the product offers solid fat without transfat and is natural without hydrogenation.
The focus in on CBE and Spreads as Nutrisun is the most stable source of natural stearic acid. The product is
being sold in Latin America and is being launched in Argentina and Japan.

• AIL effective CY'09 has started to leverage the vast distribution strengths of UPL to distribute its seeds in India,
capitalize on the recent acquisitions made and exploit the synergies with the objective of growing its Rs1.5bn
India business at a rate of 20% annually led by growth in vegetable seeds, hybrid rice and hybrid mustard.
As a matter of fact India has more than 20 million acres under cultivation for mustard and AIL is the first seed
company in the world to launch the first hybrid mustard seed.

• Third quarter performance for AIL in India is traditionally weak as it is a lean period and sales return post peak
season sales impacts performance. Q2 and Q4 are the best quarters for the company due to peak sales in India
and Australia.

• Acquisition of Longreach Plant Breeders in Australia has enabled AIL to participate in the End Point Royalty
System - EPRS for wheat wherein wheat breeders licence the seed to producers who in turn produce seeds and
sell to farmers. Wheat breeders get a royalty on sales by the farmers and we expect AIL to capture a 25% share
of the Australian market as the EPRS would create an additional market worth $50mn AUD over the next five
years. Under this system AIL will not face any inventory or receivables risk in Australia and the end points would
start accruing from CY'11 onwards.

• AIL trading at 9xCY'10E earnings is the best way to play the agricultural productivity theme across multiple
geographies and despite the fact that the global shortage of corn and sunflower in 2008 made it an extraordinary
year we believe that AIL is a good investment bet. The key constraint is the poor liquidity in the stock (as
promoters and institutional holding is close to 93%)

Hybrid Seed Opportunity

• The global commercial seed market is worth $37bn while India is the fifth largest market in the world with
a size of $1500mn. Also the seed cost as a percentage of revenue per acre for a farmer in India is less than
5% as against 15% in other countries. Hybridisation is usually followed by Biotechnology and as genetic gains
and agronomic practices support yield increase the seeds market in India is one of the fastest growing markets
in the world.

LKP Research 2613March, 2009

 Initiating Coverage

• Hybrid Seeds are a product of cross-pollination and are the first generation offshoot of different parental lines
and hence hybrid seeds are high performance seeds compared to naturally pollinated seeds. Hybrids are distinct
from Genetically Modified -GM seeds which involve artificial mutation of existing gene.

• We expect GM seeds to take center stage in the global agricultural input space and even in India we have seen
that within six years BT cotton now accounts for close to 85% of the cotton acreage in the country.

• Increasing Minimum Support Prices - MSP for agricultural crops in India should boost demand for hybrid seeds
in India, which is growing at the rate of 13% annually.

• Seed development cycles can last five to ten years prior to launching a commercially viable seed and this
requires development of proprietary differentiated germplasm, bioscience technologies, access to seed growers,
global distribution and brand building.

• Regulation in India disallows cultivation of Genetically Modified - GM seeds except cotton as BT cotton is the
only GM technology approved in India. Regulations in India permit selling of non-GM seeds at market-
determined prices.

Table 1: Profit and Loss A/c. Table 2: Balance Sheet

Financial Performance (Rs Mn) CY'07 CY'08E CY'09E Financial Performance (Rs Mn) CY'07 CY'08E CY'09E
India 1020 1428 1714 Share Capital 168 168 168
Australia 1400 1820 2275
Reserves 4364 4800 5450
Argentina 700 910 1225
Thailand 560 756 907 Net Worth 4532 4968 5618
USA 560 686 900 Total Debt 3183 3500 3500
Consolidated Revenues 4240 5600 7021
Deferred Tax 110 110 110
Total Expenditure 3420 4536 5617
EBIDTA 820 1064 1404 Capital Employed 7825 8578 9228
Margins (%) 19.33 19.00 20.00 Net Fixed Assets 1535 1793 2013
Other Income 115 115 115
Depreciation 124 180 210 Goodwill 3687 3687 3687
Net Interest 220 340 350 Deferred Tax 248 248 248
Taxation 148 150 215
Working Capital 2355 2850 3280
Net Profit 443 509 744
EPS (Rs) 26.34 30.30 44.30 Capital Deployed 7825 8578 9228

Shareholding Pattern Price Performance Chart

LKP Research 26 14
March, 2009 S. Ranganathan