Not too long after Don Agro International became the first Russian company to be listed on the Singapore Exchange, about 20 of its staff fell ill from Covid-19.
One of them was CEO Marat Devlet-Kildeyev, whose lungs were 70% damaged. As a result, he was fighting for his life in the hospital’s Covid-19 ward for 25 days.
Devlet-Kildeyev’s infection coincided with a drop in the company’s share price from its then all-time-high of 36 cents on May 28 last year. It went as low as 25 cents, wiping out much of the gains made by the winter wheat and dairy producer, which made its debut at 25 cents on Feb 14, 2020. The company’s IPO price was 22 cents.
Fortunately, Don Agro’s operations were not impacted significantly by Covid-19. The infected staff were mostly those who were stationed at the company’s headquarters. Staff working in the production of crops and dairy were able to continue harvesting wheat and milking the cows since they tested negative.
However, the stock fell further to an all-time low of 20 cents on Aug 20, 2020. This came after Don Agro posted a mixed set of results for 1HFY2020 ended June 30. The company’s revenue had tumbled 60.6% y-o-y to $6.9 million on the back of lower sales of crop production. Earnings were up 3.3% y-o-y to $4.4 million, thanks largely to a 70% gain from change in fair value of biological assets and agricultural produce to $5.5 million.
As for Devlet-Kildeyev, he managed to pull through and is now in good shape after undergoing a two-week rehabilitation programme in Moscow. “I was close to leaving this world [last year]. But, you know, I survived. And recently, I got vaccinated,” Devlet-Kildeyev tells The Edge Singapore in an interview.
Shares of Don Agro subsequently rebounded strongly to end 2020 at 36 cents, before hitting a new all-time high of 40 cents on June 1. The stock has since come off a little to close at 39 cents or seven times earnings on July 16, but it is up 77.3% from its IPO price.
Despite the recovery of Devlet-Kildeyev and his staff, Covid-19 continues to be a risk for the company. The number of new daily infections in Russia has risen sharply since early June to more than 25,000 cases this month. Record Covid-19 deaths were registered five days consecutively to 697 on July 3.
Don Agro’s financial performance continues to be mixed. For FY2020, the company’s revenue declined 12.5% y-o-y to $31 million on the back of lower sales of crops. This was the result of lower yield due to bad weather conditions. Earnings were up 66.5% y-o-y to $8.7 million, thanks to a 41.5% jump in gain from change in fair value of biological assets and agricultural produce to $9.2 million.
So, how will the company’s financial performance and share price fare ahead?
Mitigating risks
Unlike many other companies, Don Agro is unlikely to be affected by lockdowns. Key industries such as agriculture are deemed to be “strategic” to the “well-being” of the country, Devlet-Kildeyev explains. Hence, the company should continue to operate if further lockdowns are to be imposed.
In any case, Devlet-Kildeyev says Don Agro has further tightened its own Covid-19 measures. Staff working at the company’s headquarters are now prohibited from visiting the farms. Meetings are only held through video calls. This is on top of existing measures already put in place, such as mask-wearing and temperature taking.
It helps that the tasks involved in agriculture work, thanks to technology, are siloed. For instance, instead of working the fields in groups, only one worker is required to operate a harvester to harvest the winter wheat or sow the seeds, explains Devlet-Kildeyev. “So, the risk of getting infected is limited,” he says.
However, the challenge for many agriculture companies is the weather. Don Agro cannot control the elements such as frosting which leads to crop damage and poorer than expected yield.
To mitigate the impact of unfavourable weather conditions, Devlet-Kildeyev says Don Agro follows a strict schedule in the agricultural cycle. For instance, the company fertilises the winter wheat with saltpetre — a type of fertiliser — in February when there is still snow and ice in the fields. When the weather subsequently gets warmer in a few days, the fertiliser melts and penetrates the soil.
But if the company fertilises the winter wheat late, the soil will be too wet to do so as the ice has melted. Conversely, if the company fertilises the winter wheat early, the saltpetre will be wasted as it will not penetrate the soil. “It’s a formula attached to the schedule, and you have to maintain it very strictly,” he says.
Don Agro’s dairy business also helps to offset the fluctuation in its crop business. In FY2020, the livestock segment recorded y-o-y revenue growth of 1.9% to $9.8 million. This came on the back of an increase in milk yield per cow per day to 20.1 litres from 19.5 litres.
Don Agro expects further increases in milk yield and total production volume as constant improvements are undertaken to improve the production processes and the genetics of its dairy herd.
Expanding landbank, going organic, using automation
Meanwhile, Don Agro has taken steps for growth ahead by acquiring more arable land. In 4Q2020, the company acquired a 99.99% stake in agricultural company Volgo-Agro for about $900,000. The latter operates a landbank of about 24,809.4 acres in an area that provides favourable levels of precipitation and quality of soil highly suited for winter wheat production. Volgo-Agro also owns important assets including a grain cleaning machine and grain storage facilities of 10,000 tonnes.
The result of the acquisition has expanded the company’s total arable landbank by 18.9% to 156,269.4 acres (632.4 sq km). More importantly, Volgo-Agro’s land bank is situated north of the Caspian region and in the basin of the Volga River, which is near important trading routes. The region also borders Kazakhstan, which is a key gateway to Central Asia. The acquisition has enabled Don Agro to position itself favourably to ship crops to these untapped markets.
According to Devlet-Kildeyev, the company is not done acquiring landbank. So, how much more is the company keen to add? “There is no limit, really. We’re looking at a certain number of opportunities, ranging in size from 150 sq km to 500 sq km,” he says.
The main obstacle, however, is location. Ideally, Devlet-Kildeyev says the land bank should be close to the company’s existing land bank. It also needs to be near transport infrastructure. “Because, you know, if landbanks are very far away, then you have management problems,” he explains.
The yield quality of the landbank is another important factor. Devlet-Kildeyev says the company would not acquire landbank in the Urals region because the soil there is “not good”. Moreover, the climate conditions there are less than favourable. “So, it’s a combination of factors,” he says.
Devlet-Kildeyev says Don Agro should have no problem financing any potential acquisitions ahead. As at Dec 31, 2020, the company has borrowings amounting to $12.4 million, which translates to a debt-to-equity ratio of 28.4%. It also has cash and cash equivalents of about $10 million as at Dec 31, 2020.
Besides accumulating more land, the company is channelling its efforts to growing crops seen to enjoy better prospects. Specifically, Don Agro is venturing into the organic market. The company has allocated 27.2 acres of land to grow organic winter wheat. Devlet-Kildeyev says the company is keen to do so because the organic market is worth $100 billion and growing.
He points out that many people are now getting more health-conscious and want to have more healthy eating options. Citing himself as an example, Devlet-Kildeyev notes that he would have rejected organic meals a few years ago. But not any longer.
“We are what we eat. If we consume food that has higher levels of certain minerals, certain chemicals, maybe traces of pesticides, then, you know, our body is affected,” he says. “[But] we all want to live longer, happier lives and [thus] eating organic food is [one way to do so].”
The company has also taken steps to increase its efficiency in crop harvesting. The company announced on June 15 that it will acquire two units of an autonomous driving system for agricultural machinery called Cognitive Agro Pilot. Each unit costs $14,400.
Although harvesters today utilise computerised technologies to enable the automation of certain processes, the harvesting process still requires the significant involvement of human operators. With the adoption of Cognitive Agro Pilot, the company’s crop harvester operators will be able to focus solely on managing machinery parameters as the autonomous driving system steers the crop harvester.
As a result, the total daily output is projected to increase as operators will be able to clock in more working hours each day due to the shift in focus to less tedious tasks. “So, there are a lot of benefits to that,” says Devlet-Kildeyev.
