1. Plough, Plant and Grow AGRI INPUTS Gauri Anand December 2015

2. Agriculture value chain INR BnUS$ Bn% of GDP Seeds1202.00.1~ 25% is organised, rest is saved seeds of last year Fertilisers130021.71.4overall ~ 55 mmt of which urea is 30 mmt Pesticides1001.80.1CRAMs an emerging opportunity Irrigation equiments601.00.1Micro, drip/ sprinkler irrigation Tractors,Tillers3005.00.3 India ranks among the top countries in sheer volumes; however India lags in efficiency India yields are the lowest and well below the world average With ~ 50% of the population involved in farming and allied activities, agri and allied activities forms only ~ 15% to overall GDP

3. India's Position in World Agriculture ItemIndiaWorld% Share's RankNext to Area (mn hectares) Total Area329134422.4SeventhRussian Federation, Canada, U.S.A., Land Area297130092.3SeventhRussian Federation, Canada, U.S.A., 159141111.3SecondUSA Population in mn Total Population1181675017.5SecondChina Agriculture583261722.3SecondChina Crop Production (mmt) Total Cereals267252110.6ThirdChina, USA Total Pulses156124.6First Fruits & Vegetables (mmt) (A) : Vegetables & Melons909329.7SecondChina (B) : Fruits excluding Melons6758011.6SecondChina Commercial Crops (mmt) (A) : Sugarcane348173620.1SecondBrazil (B) : Tea0.813.920.7ThirdChina, Turkey (C) : Cotton(lint)3.7722.8516.5SecondChina

4. Poor Monsoons, is it still an area of concern? Net irrigated area has been on the rise Despite deviation in monsoons (compared to lpa), most factors have growing, underpinning the resilience

5. Declining per capita land availability (halved to 2.2 ha land per person) has put the onus of increasing food production on existing farm land Declining per capita land availability Projected demand of food in India India’s population by 2050 (in bn)

6. Dietary shifts - India needs to produce more also to feed the livestock Consumption (mmt)FY12CAGR 2007-12 Rice104.322.2 Wheat93.94.4 Cotton (mn bales)35.29.2 Meat*4.1015.8 Egg*0.656.5 Fruits*0.086.2 Vegetables*0.1411.1

7. Yields have to improve, farm inputs to aid growth Scope for yields to improve 000 Kgs/ha IndiaWorld% Paddy 3.374.31-21.8 Wheat 2.803.09-9.2 Maize 2.325.11-54.5 Groundnut 1.071.55-31.0 Sugarcane 68.8871.51-3.7 Yield/ha - India vs. World Between 2005 and 2009, profitability of farmers improved significantly on the back of rise in MSPs and largely stagnant input costs. Major part of the costs (~85 - 90%) include labour, land (rent) and inputs such as fertiliser and agro chemicals Post the 2005 – 2009 period, farmer profitability took a hit on account of increase in labour costs (>50% of cost of cultivation), increase in fertiliser costs (post NBS) and relatively stable MSPs On an average, paddy farmers in AP saw net income decline from ~Rs. 2,700 / acre (2009) to a loss of Rs. 2,320 per acre in 2011 NREGA program is considered to be a key driver for increase in farm labour cost as it reduced availability of labour, increased the base cost of labour especially during the important sowing and harvesting period

8. Rise in input costs has led to stagnating profits Cost components, agriculture is labor centric Cotton cultivation (high grade) in AP (Rs/ha) Profits stagnate: Rice cultivation in AP (Rs/ha)

9. Small ownership, falling farm profits and rising land prices to result in consolidation Category of Holdings__Number of Holdings (PPL in mns)________Area (mn hectares) __________Avg Size of Holdings (hectares)___ 2000-012005-062000-012005-062000-012005-06 1234567 Marginal (< 1 hect)758430320.40.38 (62.3)(64.8)(18.7)(20.2) Small (1 to 2 hect)232432331.421.38 (19.0)(18.5)(20.2)(20.9) Semi-Medi (2 to 4 hect)14 38 2.722.68 (11.8)(10.9)(24.0.)(23.9) Medium (4 to 10 hect)7638375.815.74 (5.5)(4.5)(24.0)(23.1) Large (>10.0 hect)11211917.1217.08 (1.0)(0.8)(13.2)(11.8) All Holdings1201291591581.331.23

10. Contract manufacturing – Agri input industry could be large aggregators of farm produce for modern retail APMC mandis are located far from farmers Sq km Implied radius (km) Punjab1156 Rajasthan82316 Uttaranchal94017 Himachal Pradesh146522 Sikkim709648 Average43512 Benchmark805 More than a tenth of the produce is lost due to poor infrastructure % Potato11 Onion11 Other vegetables13 Fruits19 Food grains and oilseeds10 Average12 Although FCI has upped procurement it’s a meager 35% - implies only 35% of the produce is sold at MSP Farmer realizes only 68% of the customer price

11. Seeds: sow for high returns RankCountryArea (mn hectares) Value (US$ bn) Biotech Crops 169.012Maize, soybean, cotton, canola, sugarbeet, alfalfa, papaya, squash 230.32Soybean, maize, cotton 323.70.6Soybean, maize, cotton 410.62Cotton 510.40.55Canola, maize, soybean, sugarbeet 63.99.5Cotton, papaya, poplaar, tomato, sweet pepper 72.8NASoybean 82.6NACotton 92.30.37Maize, soybean, cotton 101.3NASoybean, maize 110.9NASoybean 120.70.4Cotton, canola Rise in yield & production of cotton after application of BT cotton

12. Seed pie Crop share in volume termsCrop share in value terms

13. Rice the next big hybrid opportunity Rice yields though up 18% in the last decade, yields are stagnating over the last 5 years Seed replacement rate though improved it is still very low in cereals

14. Pesticides: Low gramage to drive growth MSP of rice and cotton on a rise, thus improving pesticide affordability Extent of crop losses(%) with and without crop protection Total agrochem market $ bn

15. Outlook for generics continues to look good Share of generics rising $6 bn worth products going off-patent in 5 years Average cost of a new product introduction is up ~ 70% in a decade

16. Monsanto India  The seed business is secular barring the setbacks over the last three seasons. Subdued MSP hikes and inadequate monsoons have led to lower corn plantings; weak glyphosate prices have further pressured earnings in FY15-16. However, Monsanto’s sustainable competitive advantage is derived from its technological superiority and market reach, making it a promising long-term investment opportunity.  Maize hybrid seed industry is set to compound 20% by FY18, Monsanto (leader with 26% share) guides of superior product launches which would help better industry growth (estimate EPS to compound 28% during FY16-18E). It’s an innovation led company steered by high rate management; with attractive dividend payout ~80%, yield 2%. Any approval for GM corn would be viewed as a significant positive (final leg of data submission). At CMP, doesn’t consider any option value for GM maize (a min Rs 2000/sh opportunity).