Kaveri Seeds Company Limited (“Kaveri Seeds” or the “Company”) is one of the fastest growing seed company in India with a market share of ~15%.

With one of the largest collection of crop germplasm in the country, Kaveri Seeds’ draught and disease resistant as well as high yielding hybrid portfolio includes Cotton, Corn, Rice, Jowar, Bajra, as well as vegetable such as Tomato, Okra and gourds.

The Company has a pan-India presence with a strong distribution network of ~15,000 distributors (direct & in-direct) and retailers across 15 key states in India (up from 11,000 – 4 years ago).

Kaveri Seeds has 26 warehouses at strategic location with a combined storage space of ~600,000 sqft.

Financial Position

Particulars FY15 FY16 FY17 FY18 FY19
Revenue (In Rs. Cr.) 1,161.23 744.89 704.99 819.23 809.42
Growth -35.85% -5.36% 16.20% -1.20%
EBITDA (In Rs. Cr.) 309.66 187.52 139.55 221.81 211.65
EBITDA Margin 26.67% 25.17% 19.79% 27.08% 26.15%
EBIT (In Rs. Cr.) 294.75 160.08 109.31 196.73 188.70
EBIT Margin 25.38% 21.49% 15.51% 24.01% 23.31%
PBT (In Rs. Cr.) 310.00 172.94 84.25 219.81 231.14
PAT (In Rs. Cr.) 300.96 167.88 77.83 211.24 217.45
PAT Margin 25.92% 22.54% 11.04% 25.79% 26.86%
EPS (In Rs.) 43.68 24.31 11.27 31.96 34.45
EPS Growth Rate -44% -53.6% 184% 7.8%
Historic P/E (Closing Price of 31st March) 22.55 15.53 49.53 15.12 13.30
CURRENT P/E (based on price of 31st  May  – Rs. 544.45) 15.94
Shareholder funds (In Rs. Cr.) 754.23 927.19 1,014.34 1,012.40 1,006.87
Minority Interest (In Rs. Cr.) 0.22 (0.20) (0.74) (0.57) (0.61)
Debt (In Rs. Cr.) 1.44 1.64 4.64 2.88 6.78
Cash (In Rs. Cr.) 6.56 9.49 20.97 13.91 8.70
D/E 0.00 0.00 0.00 0.00 0.01
Interest Coverage 1821.53 781.33 581.46 369.68 384.82
ROCE 38.99% 17.24% 10.74% 19.39% 18.63%
ROE 41.10% 18.65% 8.31% 21.71% 22.96%

Quarterly Performance

Quarterly Results Q4 FY 2018 Q3 FY 2019 Q4 FY 2019 Q-o-Q % Y-o-Y %
Revenue (In Rs. Cr.) 41.60 67.18 44.72 -33.43% 7.50%
EBITDA (In Rs. Cr.) (13.34) 0.12 (5.93)
EBITDA Margin -32.07% 0.18% -13.26%
PAT (In Rs. Cr.) (18.38) 3.65 (11.44)
PAT Margin -44.18% 5.43% -25.58%
EPS (Rs.) (2.74) 0.56 (1.77)

June Quarter is important for the Company as farmers sow cotton seeds in the month of May and June, (cotton accounts for 55 to 60% of the revenue)

Quarterly Results June 2015 June 2016 June 2017 June 2018
Revenue (In Rs. Cr.) 659.30 493.97 590.56 581.89
EBITDA (In Rs. Cr.) 227.30 158.26 206.88 203.51
EBITDA Margin 34.48% 32.04% 35.03% 34.97%
PAT (In Rs. Cr.) 221.18 154.37 202.38 210.58
PAT Margin 33.55% 31.25% 34.27% 36.19%
EPS (Rs.) 32.03 22.35 29.31 31.86

WHAT’S DRIVING THE STOCK?

Diversification

To de-risk its portfolio, the Company is focusing on reducing the cotton dependency in the product portfolio and aggressively launching new products in other categories like maize, rice, sunflower etc. The Company expects to reduce the cotton segment from the current 60% to 40% in the next three years.

Management Guidance

The management maintained its guidance of 15% growth in cotton portfolio sales and 20% in the non-cotton sales for FY20.

Strong Financial Position

With equity of just Rs 12.63 Cr, the Company has huge reserve of around Rs 1,021 Cr. and operates with negligible debt of Rs. 6.78 Cr.

Renew of License in Andhra Pradesh

The Andhra government, in January 2019, had suspended the licence of 13 seed firms (including Kaveri Seeds) to sell cotton seeds. However, after an appeal by the companies and studying various representations, the government has reissued their licences. As the Company has got the licence before the kharif season starts, it will be able to manufacture as well as distribute seeds before the sowing season starts in June-July 2019. There will be negligible impact on Kaveri’s Q1FY20 revenues.

Commencement of its corn cob drying facility

In March 2019, Kaveri Seeds announced the commencement of its corn cob drying facility at Molangur – Karimnagar in Telangana which will help increase germination and vigor and also the shelf life of seeds. Kaveri Seeds has invested around Rs. 20 Cr. exclusively for cob drying facility in its existing integrated seed conditioning & packing facility, spread over 15 acres of land.

WHAT’S DRAGGING THE STOCK?

  • The Company’s product portfolio remains highly concentrated on cotton seeds.
  • Deficient and delayed rainfall which will lead to reduced acreages across crops.
  • Fear of pink bollworm impacted cottonseed sales.

The Company is one of India’s largest hybrid seed manufacturers. Over the next three to five years, the Company is eyeing an annual revenue growth of about 15-20%, with products lined up for launch and entry into new markets in the north.

Valuation Perspective – At the current price of Rs. 549 (as on 3 June 2019), Kaveri Seed’s trailing 12 month PE comes to ~ 15.94x which is at a 31% discount to its 5 year average PE Multiple of 20.20x. Based on this, fair value of Kaveri Seed should be Rs. 696.