Industrial Milk Company keeps crop sowing area flat yoy

Ukrainian farmer Industrial Milk Company (IMC PW) reported on the completion of its spring sowing campaign on May 24. Based on its report, we calculate it sowed about 108,000 ha in spring crops, which is about 3% less yoy. It kept its traditional focus on corn (more than 71,000 ha, or about -5% yoy), sunflower (25,000 ha, or close to +2% yoy) and soybeans (6,400 ha, +3% yoy). It also increased its sowing area under potatoes by 7% yoy to 634 ha. About 5,000 ha will be sown by fodder crops. Last autumn, IMC reported on sowing 15,500 ha with winter wheat, of which it said crops on 15,400 ha are in good or satisfactory conditions. All the provided data suggests the company sowed about 123,000 ha this season (90% of its total land bank), which is flat yoy.

The farmer also indicated in its presentation to investors it will increase its harvest of grains and oilseeds by about 11% yoy (to 693 kt) in 2016, mainly due to an improvement of its corn yield this season. Last season, its corn yield fell 7% yoy to 6.8 t/ha due to adverse weather conditions.

Alexander Paraschiy: Based on the updated crop mix for the 2016 season, we estimate IMC will harvest about 680-685 kt of grains and oil crops, which is slightly less than the company guided, but about 7% more yoy. The company’s P&L this year will likely be slightly weaker yoy on weaker grain prices and volumes, while due to its limited CapEx it will be able to go through with its deleverage plan and keep its debt/EBITDA ratio below 1.5x by the year’s end. All this confirms our optimistic view on IMC stock.