Annual Report - Monsanto India - 2009-2010

MONSANTO INDIA LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

To
The Shareholders,

Your Directors have pleasure in presenting their 60th Annual Report
together with the Audited Accounts for the year ended 31st March, 2010.



Financial Highlight:

(Rs. in Lacs)
Year ended Year ended
31st March, 31st March,
2010 2009

Net Sales 41014 39019

Profit Before Taxes 5777 8693

Taxation (395) (1339)

Balance of Profit 5382 7354

Add: Balance brought forward from previous 6440 2245
year

Amount available for appropriation 11822 9599

Appropriated as under:

a. Interim Dividends 863 1036

b. Tax on Interim Dividends 147 176

c. Proposed Final Dividend 1036

d. Tax on proposed Final Dividend 176

e. Transfer to General Reserve 735

Balance in Profit & Loss Account 6440

11822 9599

During the year under review, the net sales of the Company increased by 6%
to Rs.410.1 Crores in financial year 2009-10 from Rs.387.0 Crores in the
financial year 2008-09. Profit before tax decreased by 33.5% to Rs.57.8
Crores in the financial year 2009-10 from Rs.86.9 Crores in the financial
year 2008-09. Profit after tax decreased by 26.8% to Rs.53.8 Crores in the
financial year 2009-10 from Rs.73.5 Crores in the financial year 2008-09.

Profitability was impacted mainly due to the global mismatch between supply
and demand of glyphosate herbicides, this impacted our flagship brand
Roundupr adversely. This negative impact was made up in part by the
strength of our Dekalbr maize franchise and also by focused cost side
actions.

Operational Highlights:

During the year, the Company's seeds sales increased from Rs.228.7 Crores
in financial year 2008-09 to Rs.272.2 Crores in financial year 2009-10
marking an increase of 19.0%. The business also saw strong volume growth.
The Company's seed business marked better margin realization during the
year through a combination of high quality products, better mix and cost
management. The increase in the sales is being well supported by
appropriate investments in Production, Quality and Breeding to sustain the
growth.

The global situation in glyphosate deteriorated during the year with supply
far exceeding demand and with the consequent impact on prices and
realizations. The oversupply also meant that competition heated up with
many players resorting to sales based on marginal costing, thus dragging
the market down even more. The global prices of glyphosate products were
down by more than 30% during the year.

Despite intense competition in the glyphosate herbicides market, sales of
our market leading Roundupr brand increased in volume terms. This is an
encouraging sign and underlines the strength of the brand.

The year also saw the completion of the restructuring exercise that we had
undertaken over the past three years, with the completion of our post sale
service agreements with the buyers of our Butachlor and Alachlor
businesses. With this now, we are 100% focused on our maize and glyphosate
businesses.

During the year the management took many proactive steps to ensure that
costs were kept under a tight leash. This focus led to a large savings in
manpower and administrative costs.

Dividend:

During the year, the Board of Directors declared Interim Dividend of
Rs.10/- per equity share on 16th October, 2009.

Your Directors are pleased to recommend a final dividend of Rs. 7.50 per
equity share to the shareholders.

The total dividend for the financial year 2009-10 including the proposed
final dividend is Rs. 17.50 per equity share.

Corporate Governance:

A detailed report on the Corporate Governance system and practices of the
Company is given as a separate section of the Annual Report.

Management Discussion and Analysis:

A Management Discussion and Analysis on the business and operations of the
Company is given as a separate section of the Annual Report.

Directors:

The following changes occurred in the Board of Directors of the Company
during the year under review:

a) Mr. Bradley Louis Huseman resigned as Director of the Company effective
10th September, 2009.

b) Mr. Ravinder K. Reddy was appointed as an Additional Director of the
Company on 10th September, 2009.

Mr. Pradeep Poddar retires by rotation at the ensuing Annual General
Meeting and, being eligible, offers himself for re-appointment.

Mr. Ravinder K Reddy was appointed as an additional director of the Company
upto the ensuing Annual General Meeting, being eligible offers himself for
re-appointment.

Directors' Responsibility Statement:

In compliance with Section 217(2AA) of the Act, your directors, on the
basis of information made available to them, confirm the following:

a) In the preparation of the annual accounts, the applicable accounting
standards have been followed;

b) They have selected such accounting policies and applied them
consistently and made judgements and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the
Company as at 31st March, 2010 and of the profit or loss of the Company for
that period;

c) Proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the Act,
for safeguarding the assets of the Company and for preventing and detecting
fraud and other irregularities;

d) The annual accounts are prepared on a going concern basis.

Personnel:

The Company continues to maintain cordial relationship with its workforce
at all locations. Continuous upgradation of core skills, through training
programs - conducted by internal as well as external agencies, are an
integral part of human resources development policy of the Company.

The information regarding particulars of remuneration etc. of certain
employees required under Section 217(2A) of the Companies Act, 1956 and the
rules made thereunder is given in an Annexure which forms part of this
report. In terms of Section 219(1)(b)(iv) of the Companies Act, 1956, the
Directors' Report and Accounts are being sent to the shareholders excluding
this Annexure. Any shareholder interested in obtaining this Annexure may
write to the Company Secretary at the registered office of the Company.

Auditors:

M/s. Deloitte Haskins & Sells, Chartered Accountants, retire as auditors of
the Company at the ensuing Annual General Meeting and, being eligible, are
proposed for re-appointment.

Conservation of Energy & Technology Absorption:

The information required to be furnished pursuant to Section 217(1)(e) of
the Act, read with the Companies (Disclosure of particulars in the Report
of the Board of Directors) Rules, 1988 is enclosed as Annexure - 1 and
forms part of this Report.

Foreign Exchange Earnings and Outgo:

The details of earnings and expenditure in foreign currency are given under
Notes to Accounts in Para 6 and 7.

Acknowledgement:

Your Board acknowledges the service rendered by the employees of the
Company for the satisfactory performance of the Company. The Board also
places on record its appreciation for the continued support from Monsanto
Company, USA. The Board also thanks its shareholders, channel partners and
other business associates for their support during the year. Without this
support we would not be successful in serving our farmer customers whose
success eventually determines our success as a Company.

For and on behalf of the Board of Directors

Sekhar Natarajan
Chairman
Place: Mumbai
Date : 15th May, 2010

Annexure - I

Information required under Section 217(1)(e) of the companies act, 1956
read with the companies (Disclosure of particulars in the report of the
Board of Directors) rules, 1988.

I. Conversation of Energy

a) Energy conservation measure taken; } The Company
} continues to take
b) Additional investments and } all possible steps
proposals, if any, being implemented } to conserve energy.
for reduction in consumption of } These include
energy; } efficient electric
} fittings and equipment
c) Impact of the measures at (a) and } that consumes
(b) above for reduction in energy } less energy than
consumption and consequent impact } conventional ones.
on the cost of production of goods. }

Form A:

Form for disclosure of particulars with respect to conservation of energy.

a. Power and Fuel Consumption

Current Previous
Year Year
2009-10 2008-09
1. Electricity
a. Purchased Units (000's) 3989.97 7293.11
Total Amount (Rs. in Lacs) 269.11 375.67
Rate/Unit (Rs.) 6.74 5.15
b. Own Generation: - -
1. Through diesel generator-Unit's (000's) 423.35 1002.85
2. Total Amount (Rs. in Lacs) 41.18 83.42
3. Rate/Unit (Rs.) 9.73 8.32
c. Through steam turbine/generator - -
2. Coal - -
3. furnace Oil - hS Diesel:
Purchased - Ltrs (000's) - -
Total Amount (Rs.in Lacs) - -
Rate/Ltr. (Rs.) - -
4. Others - Gas
Purchased - Kgs (000's) 837.40 2772.12
Total Amount (Rs. in Lacs) 403.56 1283.30
Rate/Kg. (Rs.) 48.19 46.29

B. Consumption per unit Of production:

The Company manufactures a wide range of products which pass through
various operations before reaching the finishing stage. It is therefore not
feasible to furnish the information in respect of consumption per unit of
production.

II. Technology Absorption:

Form B:

Form for disclosure of particulars with respect to Technology absorption.

a.Research and Development (r&D)

1. Specific areas in which R&D Breeding & Testing of new hybrid
carried out by the Company varieties of seeds. Study of new
technologies in maize.

2. Benefits derived as a result Identified new hybrid seeds
of above R&D which suit various agro climatic
conditions and meet farmers'
requirements. Initial knowledge
of new technologies in maize.

3. Future Plan of Action Continuous efforts for
development of new high quality
and specific maturity hybrid
seeds as well as seeds that have
the ability to protect the yield.

4. Expenditure on R&D (Rupees in lacs)

a. Capital 760.48 (including CWIP)
b. Recurring 771.25
c. Total 1531.73

B. Technology Absorption, Adaptation and Innovation:

1. Efforts in brief, made towards The Company is working on and
technology absorption, studying new technologies in
adaptation and innovation. maize.

2. Benefits derived as a result New maize technologies will help
of the above efforts, e.g.; farmers in protecting his yield
product improvement, cost by reducing his losses caused
reduction, product development, by insects and weeds. This will
import substitution etc. be an improvement on current
products.

3. Imported technology (imported During the last five years no
during the last 5 years technology has been imported
reckoned from the beginning of by way of foreign collaboration or
the financial year) otherwise.

For and on behalf of the Board of Directors

Sekhar natarajan
Place: Mumbai Chairman
Date : 15th May, 2010

Management Discussion and Analysis

Introduction:

In the 70s, India was successful in creating a green revolution which gave
a boost to the agriculture sector across the country. The Green Revolution
accelerated the yields of major food crops such as paddy, wheat, millets
and oil seeds, particularly in the states of Punjab, Haryana, parts of
Uttar Pradesh and Rajasthan. This revolution based on the latest
agricultural technology of that day - hybrid seeds and balanced fertilizer
use, made India self sufficient in food grains and changed our dependence
on food aid and food imports.

Growing population and changing food patterns due to increased prosperity
as well as the changing environment, is now putting pressure on our
agriculture - again. The growth in agricultural productivity has slowed -
particularly in the regions which had contributed significantly to the
success of the first green revolution and we now need another Green
Revolution, like the earlier one, based on the latest agricultural
technology available today - Biotechnology, Molecular Breeding and
agronomic extension services.

The Impact of Biotechnology:

The advances in biotechnology and their integration with plant breeding are
likely to be an integral part of the impending second green revolution in
Indian Agriculture.

India has already witnessed such a technology led revolution in cotton -
The Second White Revolution (the Milk revolution was the first one). A
collaborative approach, a science-based regulatory system and far reaching
Govt policies led to the introduction of Bt cotton in India - which helped
double cotton production in India in a mere seven years and turned India
from a net importer to a net exporter of cotton.

These technologies are already making a huge impact on global agriculture
and are helping improve productivity in many countries in crops such as
maize, cotton, soybeans, canola, sugarcane among others. Many institutions
in India too, are now working towards developing and adopting newer
technologies in the agriculture sector, in many important crops. The future
for such technologies is promising and increasingly inevitable.

Over the past two decades, the advances made in agricultural biotechnology
have opened up new frontiers in agricultural production. The new techniques
for understanding and modifying the genome of living organisms have led to
large investments in agribiotechnology research and development. Most of
this development has taken place in North America, Western Europe and East
Asia, with the United States being far ahead of the others.

Challenges for Indian Agriculture:


By 2050, the population of the world is likely to reach 9 billion and the
population of India is likely to be at ~1.63 billion. This increase in
population will generate massive new demand for food, feed and fiber. At
the same time the land used for cultivation is constant in most parts of
the world including India. Agricultural land can be increased in a very few
places and that too at the cost of forests - an unacceptable cost in
today's world.

To provide feed, fuel and clothes to our growing population, farm
production must increase on a continuous basis through improvements in farm
productivity. The genetic capability of the seed must also improve as a
result.

Overview of the agriculture Sector in india:


The 11th Five-Year Plan recognizes these facts and the Government of India
is focusing on the agriculture sector to achieve agriculture productivity
and inclusive GDP growth. At the current pace of growth, meeting the future
food grain, fibre and feed demand would be an uphill task.

Seeds and herbicides are important input components for productive
agriculture. In the significant advances that India made in agriculture in
the last four decades, the role of the agriculture input industry has been
substantial. The expansion of the seeds industry has occurred in parallel
with growth in agricultural productivity. Improved seed is the most
important factor in improved agricultural productivity. Indian agriculture
faces many challenges today - from limited availability of quality seeds,
to soil degradation, to depleting water tables, to reduced farm labor
availability, amongst many others.

Availability of farm labor has reduced due to progressive policies of the
Govt. and its social schemes such as the NREGA, consequently farm labor has
also become more expensive. Expensive labor in turn means that practices
such as manual weeding become difficult.

Across India, agri-business companies are developing new technologies and
models to tackle some of these challenges and to reach out to farmers and
consumers. Investments are also being made in modern supply chains and
organized retail stores for supply of agri-inputs - from seed to nutrients
to crop protection chemicals.

The Indian agricultural sector is changing and catching up with the rest of
the world. There is an increasing realization that it needs to - and indeed
can, change much faster. The Government, Public and Private sector share
the responsibility to make this happen.

Industry structure - Seeds:


Seed is the most important input component for productive agriculture.
Although the Indian seed market is one of the largest, it is almost
exclusively supplied by locally produced and farmer saved seeds. Farmers
retain seeds of major food crops and commercial crops for many years and
the largest volume of seed trade involves local exchanges of established
self-pollinating varieties. The Seed Replacement Rate in most crops is very
low, with the exception of cotton and some vegetables. The use of hybrid
seeds is mostly confined to cotton and to some extent to maize, millets,
sunflower and a few vegetables.

However, awareness about the high yield and quality of produce from hybrid
seeds, is beginning to attract farmers to switch over to hybrids in many
important crops. Many institutions are also doing extensive research in
hybrid varieties.

The total seed market in India is ~5,000 crores, which is relatively small
compared to our agricultural acres and compared to the total value of
agricultural produce.

Following the easing of government regulations and the implementation of a
new seed policy in 1988, the private sector seed companies have started
playing a major role in seed development and marketing. The Government's
consideration to embrace biotechnology as a means of achieving food
security has attracted several leading biotechnology-focused global seed
companies to India, including Monsanto.

This market will grow strongly on the back of increased hybridization in
key crops, increased farmer realization of the benefits of new seeds every
year and due to newer technologies being made available. One other factor
that will contribute strongly to its growth is India's recent introduction
of the necessary laws to protect Unique and Distinct Plant Varieties under
the PVPFRA legislation.

Industry structure - Herbicides:

The chemical industry is one of the oldest industries in India and it
contributes significantly towards the industrial and economic growth of the
nation. It is highly science based and provides valuable chemicals for
various end products such as agriculture, textiles, paper, paints, food
processing, varnishes, leather etc., which are required in almost all walks
of life.

Agrochemicals have become an integral part of the development process of
agriculture and the use is expected to increase manifold in India. Indian
agriculture is still very dependent on traditional practices and its
insecticides, pesticides and herbicides usage is still very low. Also
globally, herbicides represent the largest group within agrochemicals,
while in India this is still not the case. Chemical weed control is slowly
becoming one of the more important and reliable measures in weed management
systems in India.

There are three growth drivers in this business. First, the rise in farm
labor costs and the continuous decrease in the availability of farm labor.
Secondly, the increasing practice of conservation tillage, wherein crops
are grown with minimal cultivation of the soil. Crops grown without tillage
use water more efficiently, the waterholding capacity of the soil increases
and water losses from runoff and evaporation are reduced. In addition, soil
organic matter and populations of beneficial insects are maintained, soil
nutrients are less likely to be lost from the field and less time and labor
is required to prepare the field for planting. The third growth factor is
the increasing use of herbicide tolerant crops across the world and the
resultant use of herbicides for over the top' application.

In India, herbicides are manufactured and marketed by many global and local
companies. The industry also faces competition from generic players in the
industry.

In India and globally, glyphosate is the most significant herbicide product
and is preferred by farmers because it is relatively safe' and very
effective. This market in India is extremely competitive with 150+
manufacturers and many more brands being available. Most of these players
import their requirement of the intermediate product from countries such as
China. Unfortunately many of these products are also of questionable and
inconsistent quality. This market is also characterized by extreme price
competition. Monsanto has a strong market position based on its quality and
Brand reputation.

Operational Review:

Dekalbr hybrid maize seeds:

The demand for maize grain in India is continuously growing due to
population growth and the changing food habits which in turn are driving
the demand for poultry products. The productivity of maize in India is very
low due to the use of conventional seeds and low hybridization. The Company
estimates that at present, hybridization is at less than 50%, which is
increasing but at a slow pace.

Our maize seeds are sold under the Dekalbr brand name - and are well
established within the farming community.

During the year, the Company's seeds sales increased significantly
recording strong high-teens percentage growth. The Company's seed business
also improved during the year through a combination of high quality new
products and a better mix. At the same time costs of manufacture and sales
were kept strictly under control.

Our focus through the year has been on developing the market and educating
the farmer on the benefits of our superior products. We probably have one
of the largest direct contact programs in the country today.

The increase in the sales is being well supported by appropriate
investments in Production, Quality and Breeding to sustain the growth.

Operational review:

Roundup product portfolio:

The Company's glyphosate based herbicide is sold under the popular brand
name Roundupr. The Company also sells glyphosate in bulk to corporate
customers. Glyphosate is the largest selling herbicide globally and
Roundupr is the market leader globally.

Despite intense competition in the herbicides business, the sales of the
brand Roundupr increased in volume terms. This is a huge achievement and
one which underlines the core brand strength. The prices of herbicides
products were under severe pressure globally throughout the year, impacting
the realization of our brand Roundupr as well.

To cope with the downturn in the global business scenario in glyphosate and
considering the weak potential for a quick turnaround in this situation,
the Company increased its focus on costs - both fixed as well as variable.
These actions should result in a lower cost to make, sell and deliver our
products and will enable us to compete more effectively in the market.

Financial overview:

During the year under review, the net sales of the Company increased by 6%
to Rs. 410.1 crores from Rs. 387 crores in 2008-09.

Profit before tax decreased by 33.5% to Rs. 57.8 crores in 2009-10 from
Rs.86.9 crores in 2008-09.

Profit after tax decreased by 26.8% to Rs. 53.8 crores in 2009-10 from
Rs.73.5 crores in 2008-09.

These results have been delivered despite the intense price pressure on
Roundupr glyphosate herbicides and despite lower investment income during
the year as well as income related to the divested businesses. The core
businesses saw volume growth and strong cost management.

Overheads and people related costs were also managed well during the year,
with declines in staff costs.

Opportunities:

Indian Agriculture presents an important opportunity for companies such as
ours, that are focused on the long term and that are interested in long
term value creation. Agricultural development through the seed sector could
make India a prospective Agricultural commodity powerhouse of the world. An
effective Indian seed industry with the capacity for a continuous supply of
improved high quality seed varieties at competitive prices would serve as a
catalyst to increase food, feed and fibre production and for sustained
agricultural and socio-economic development.

Many of the problems that impede the productivity of our farmers have
defied a solution through conventional breeding approaches - these include
widespread moisture stress, expanding salinity, new pests and biotypes of
higher virulence as well as poor shelf life. Some of these problems will
yield to a biotech solution and the Company is working towards that.

Increased labor cost for manual weeding and increased awareness of farmers
on the benefits of chemical weeding as well as increasing use of
conservation tillage present robust opportunities for growth in the
glyphosate business.

Threats, risks and concerns:

Our products face intense competition from products of many Indian and
global competitors in all our businesses. Competition from generic players
in the herbicide business continues to exert pressure. Agricultural
activities are still greatly dependant upon the vagaries of the monsoon and
upon soil conditions, availability of skilled labor, quality inputs and
credit terms as well as global commodity cycles.

Macro economic factors like the recession, inadequate rainfall, subdued
demand, political uncertainty and acts of god, may affect the business of
your Company as also the industry at large.

The business of the Company is dependent on various laws, regulations and
policies announced from time to time. Any developments in these areas
affecting the freedom of the Company to operate may adversely affect the
business and growth of the Company.

The Company imports most of its technical materials and hence the business
is susceptible to the volatility of the exchange rates and import duties.

Open pollinated seeds account for ~58% of the maize seeds market in India.
The growth of maize seeds sales depends largely on continuing hybridization
of the maize seeds business.

Outlook:

The Company remains focused on its key objectives of profitable and
sustainable growth, maximizing operational efficiencies and striving to
attain the highest standards of quality, safety and productivity.

Through - continuous breeding research efforts, new product offerings,
aggressive sales and marketing strategies, a strong brand, far-reaching
distribution infrastructure and investments in people development, the
Company is hopeful of maintaining its performance going forward. Efforts at
offering better technologies, that provide better value to the farmer,
while mitigating external risks, have been generally well received both by
the Government and the farmer. Continued success in these efforts is
critical to maintain these growth prospects.

The overall outlook for the growth of the maize seeds business continues to
be positive and the management remains optimistic with regards to continued
growth. Competition from generic players in the herbicide business
continues to exert pressure on the margins of our glyphosate product -
Roundupr.

Internal control systems:

The internal control system in the Company is reviewed by the Audit
Committee of the Board of Directors which would provide assurance regarding
the effectiveness and efficiency of operations, reliability of financial
reporting and compliance with applicable laws and regulations. The
transactions are authorized, recorded and reported in conformity with
generally accepted accounting practices. The internal audit of the Company
is conducted by a reputed independent firm. The observations and
recommendations of the internal auditors are reviewed by the Audit
Committee and adequate follow up measures are taken to overcome the
identified control weaknesses.

All employees are trained to follow your Company's business conduct
guidelines with Integrity as the foundation of every transaction and
activity that is undertaken.

Human resources:

The Company believes in allowing people to set their own personal
development targets and gives them the freedom to achieve them. This idea
has been ingrained in all our employees which has become a source of
motivation for them.

The Company continues to invest in its people by providing appropriate
training, refresher courses and skill up-gradation programs. A robust
implementation of the unique Development, Performance and Rewards program
provides an opportunity for all employees not only to be recognized and
rewarded for efforts but also to develop and grow into leadership positions
within the organization. The focus is on providing an enabling environment
that motivates employees to perform at their best. The Company has been
recognized for its efforts in this field by various forums including a top
50 position at the prestigious Great Places to Work' awards.

As on 31st March, 2010, the number of people employed by the Company were
379.

Cautionary Statement:

The statement made in this section describes the Company's objectives,
projections, expectations and estimations which may be forward looking
statements' within the meaning of applicable securities laws and
regulations.

The annual results can differ materially from those expressed or implied,
depending on the economic and climatic conditions, Government policies and
other factors which are beyond the control of the Company.