Face-To-Face Monday, July 23, 2001

Nath Seeds

In conversation with Nandkishor Kagliwal, chairman, Nath Seeds

‘The company has released eight new hybrids in the last year’

Promoted by Nandkishor Kagliwal and his associates, Nath Seeds(NSL) belongs to the Nath group of companies. The company is one of the largest seed companies and its activities include research, breeding, production, processing and marketing of high-quality hybrid seeds for high-yield crops (cotton, sunflower, maize, jowar and bajra) and vegetables (tomato, cabbage, cauliflower, capsicum, etc).

Though the company is engaged in research, production, processing and marketing of hybrid seeds and seedlings, the present business of the company can be broadly divided into three categories, namely, (a) hybrid seeds and biotechnology, (b) agritech, i.e. commercial farming, and (c) teak plantations, real estate and investments.

Coinciding with the recent jump in bio-technology stocks across the globe and also in India, the company’s share price managed to touch the three-figure mark in Feburary 2000 after a span of almost six years. However, it again crashed to Rs 22 and currently trades around Rs 30. The company’s share price has seen wild swings in line with bio-technology stocks. Is this logical? How will shareholders benefit from the restructuring? Why was the company delisted in June 2000? Why has the company not declared results since June 2000.To answer all these questions and more, Nandkishor Kagliwal spoke at length with Capital Market’s Harihar Koirala. Excerpts:

In July 2000, the National Stock Exchange (NSE) suspended trading in Nath Seeds (NSL). What is the reason for this? Where did the company go wrong?
Trading at NSE was suspended because the company did not fill the vacancy for a full time company secretary on time. The vacancy has now been filled and the same has been intimated to the NSE.

Kindly provide the company’s results from June 2000 onwards. How has the company performed? Why did the company not declare its quarterly results since June 2000?
The company’s business is seasonal and 65-70% of the turnover is achieved in the quarter ending 30 June every year, i.e. after the monsoon. The company achieved sales of Rs 17.62 crore during the first nine-month period ended 31 March 2001. For the year ended June 2001, the company expects to achieve an aggregate sales of Rs 50.00 crore.

NSL has plans to raise funds through a private placement to finance the company’s growth plans. Why was the plan to give 26% stake to a strategic investor dropped? It is believed that the company was in advanced stages of negotiations with a multinational company for the same. Where did the deal get stuck ?
The company has made significant progress in the field of genetic engineering. It is perhaps the only Indian company to have access to transgenic technology in seeds on its own. As far as we know, the other company’s which have this technology are MNCs, i.e. Monsanto and Syngenta (formerly known as Novartis). Our ability to develop this technology in co-operation with leading research institutions of the world has given us the confidence to create a strong Indian MNC under the Nath umbrella.

The company can continue to add value to business on its own strength in the foreseeable future. Hence the company has now decided to place its shares privately rather than give a stake to a strategic investor.

Why was the demerger initiated? NSL has decided to demerge into three businesses? Kindly give the details. When will the demerger take place? What is the strategy behind the demerger? How will the shareholders benefit?
The company’s present business can be broadly divided into three categories, namely (a) hybrid seeds and biotechnology, (b) agritech, i.e. commercial farming, and (c) teak plantation, real estate and investments.

Pursuant to the restructuring plan, it is proposed that the businesses of the company should be vertically split into three different companies. Nath BioGene Ltd will conduct the seed business, while the business of corporate farming will be undertaken by Agri Tech India Limited. The balance business of plantation, real estate and investments will remain with NSL. NSL’s investors will be fully protected and they will be given shares in the other two companies in the ratio of their present holding. The two companies will also be listed.

In order to further enhance shareholder value, the Nath group has merged all its biotech and seed-related business into NSL. As a result of this consolidation of the group’s seed businesses, the new company—Nath BioGenes (India) Limited –will emerge as a major force in the Indian seeds and biotech industry

NSL has engaged the services of Rabo India Finance Pvt Ltd., a subsidiary of Rabo Bank of Netherlands, for rendering suitable advice. Rabo Bank has also been given the mandate to arrange for suitable equity placements for the company. The funds will be utilized for research, infrastructure and acquisition to provide further impetus for growth.

When do you plan to list the companies that will be demerged ? Give the break-up of each of the de-demerged businesses as a percentage to sales in the FY ended March 2001?
We expect to list the new company by August 2001 subject to the court’s approval which is expected by June end.

Since the corporate farming project is under implementation and since there is no regular revenue from the teak plantation and real estate division, the turnover of activities other than seeds is negligible. Over 95% of the turnover of Rs. 50 crore for the year ended 30 June 2001 will come from the seeds business.

What are your views about the future of the biotech industry? How do you expect to grow vis--vis the industry?
The future of the biotechnology industry is quite bright. It is best explained by the saying: IT is India Today and BT (Biotechnology) is Bharat tomorrow. We are expecting a growth of 30% per annum in the coming three years. It will further improve from the fourth year onwards with the introduction of transgenic seeds in our portfolio. It is expected that as the Indian seed industry doubles its turnover in the next five years, Nath will double its turnover in the next three years.

Whenever there are discussions about the biotech industry, NSL is also included as a biotech company. In what way is your company a part of the biotech industry?
To improve the quality of seeds, in addition to the conventional breeding techniques, research in seeds will have to increasingly employ newer tools of biology which is popularly known as ‘transgenic technology’. Since a hybrid seed is a biological product / living organism, the seed industry will have to be at the cutting edge of plant biotechnology. In view of this , we say that NSL is a biotechnology company.

How many germ plasms do you have? How much did you add in the last one year?Can you say something about the network of farmers growing seeds for the company?
The germ plasm collection has 18000 different lines. The collection of germ plasm is a regular feature at NSL. We improve our gene bank every year based on our own research and also by collecting them from different sources. More than 25000 farmers are associated with the company for seed production. The company’s production activity is spread over seven states in the country.

How many new hybrids were launched in the last one year? How is the response to the same?
The company released eight new hybrids in the last one year and they have been well received in the market.

What will be the size of the global agri-biotech industry in the next 5-10 years? What will be the growth rate?
As per estimates, the global seeds industry is currently worth over $ 30 billion. This is likely to be $ 100 billion by 2015.

What kind of competition do you face from the unorganized sector? Also give the break-up of the total market size in terms of the organized and unorganized sectors
Our competition comes mainly from the organized seed sector. The estimated size of the total seed market in India is Rs 4,100 crore, of which Rs 2,800 crore is from the private sector. In the private sector, the share of the organized sector is Rs 1,100 crore.

Give details about the number of stockists, distributors, dealers and retailers.
We have almost 1,000 dealers, distributors and stockists and our products are available in 9000 retail outlets spread all over India.

Which are the crops on which your research is focussed?
The company has set objectives for different crops with the focus on farmers. There is a separate team of research scientists working for each crop. The company is working intensively in rice, wheat and Mustard which have a very large potential in north India.

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