Aventis CropScience India: Hold

Recommendation: Hold

Aarati Krishnan

After a poor performance in 2000, Aventis CropScience India reported a turnaround in financial performance in the quarter ended March 2001, with net profits of Rs 1.32 crore against net losses of Rs 4.35 crore last year.

The company has a strong presence in the insecticides segment with brands such as Decis, Spark and Hostathion. Access to the parent's product pipeline and research efforts are the key strengths. Over the past year, the company has benefitted from the informal integration of the agrochemical operations of Rhone Poulenc Agro, as a consequence of a global merger of the respective parent companies. This integration has made Aventis the largest crop protection company in the domestic market with a 14 per cent share.

This integration is now proposed to be formalised by a merger of Rhone Poulenc Agro (now called Aventis CropScience India Private Limited), with Aventis CropScience India. The share swap ratio has been fixed at 1.6 shares of the former for one share of the latter. Since the former is a wholly-owned subsidiary of the parent, the move is likely to increase the parent's equity stake in the listed company from the present 51 per cent.

Shareholders of Aventis CropScience stock have to keep track of two events. One, since the financials of the merging entity are unknown, the impact of the merger on the company's performance over the next quarter could bear watching.

Two, in a recent decision Aventis' parent has decided to exit the crop protection business. The company has approached major players such as BASF and Bayer with proposals for sale of the business. Since these companies have a presence in India, any global level sale of Aventis' crop protection business could trigger speculative interest in the stock of the domestic arm as well. Shareholders can, therefore, retain their investments in this company until further progress is made on the sale at the global level.