Kaveri Seed Company Ltd. share price target

Kaveri Seed Company limited is a leading producer of quality crop seeds in India. Kaveri seed was incorporated in 1986 recognizing the need to accelerate crop productivity to ensure food security and farmer prosperity. We are today among the fastest and leading seed producing companies in India offering a broad...

EBITDA loss stood at INR118m in 4QFY20 v/s loss of INR59m in Kaveri Seeds (KSCL) closed FY20 on a strong note, with 15%/20%/20% revenue/EBITDA/PAT growth. We have increased our earnings estimates by 25%/31% in FY21/FY22 on the 1015% volume growth guidance in the Cotton Seed segment and 2025% growth in the Non-Cotton segment. However, we have assumed 7m packet (in FY21) sales of cotton seeds (lower by 3% YoY) on lower cotton price due to subdued domestic as well as export demand. 12% revenue growth in FY20 in cotton seeds was driven by 17% volume growth (to 7.23m packets). Additionally, the contribution of new products rose from 15% to 23% of the total volume. Hybrid paddy reported 66% revenue growth in FY20 on 60% volume growth; growth was driven by the launch of the new Hybrid Paddy KPH 468. The contribution of new products rose from 26% to 51% of volumes.

Background: Kaveri Seed Company is the largest producer of hybrid cotton seeds in India with a market share of ~15%. The company has access to 60,000 acres under seed production, with farms in Karnataka, Andhra Pradesh and across the country. 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 has 26 warehouses at...

Sector: Agri-Input /Small-Cap | Earnings Update 2QFY20 Background: Kaveri Seed Company is the largest producer of hybrid cotton seeds in India with a market share of ~15%. Kaveri Seeds has access to 60,000 acres under seed production, with farms in Karnataka, Andhra Pradesh and across the country. 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 has 26 warehouses at strategic location with a combined...

12%), led by gross margin expansion of 370bp YoY. For 1HFY20, revenue/EBITDA/PAT increased 12%/16%/6% YoY. 87% YoY to INR356m, primarily driven by spillover of sales volume from the prior quarter to 2QFY20 (as the late onset of monsoon delayed the timing of sowing). Volumes thus increased 73% YoY to 0.52m packets and realization improved 8% YoY to INR684/packet in 2QFY20. Non-cotton revenue declined 26% YoY to INR418m due to lower maize volumes (-33% YoY to INR1.2m packets) on account of reduced government orders. (i) KSCL maintained its revenue growth guidance of 15-20% for FY20. (ii) Cotton volume growth guided at 10-15% for FY21. (ii) Capex of INR300-400m planned for FY20. Despite the miss in 2QFY20, we largely maintain our earnings estimates for FY20/21, given that ~75% of revenues are derived in the first quarter of a financial year. We value the company at 16x FY21E EPS and arrive at a target price of INR607.

Largely in-line performance: Revenue grew 13% YoY to INR6,555m (our estimate: INR6,588m). EBITDA increased 15% YoY to INR2,333m (our estimate: INR2,306m), with the margin expanding 60bp YoY to 35.6% (our estimate: 35%) led by operating leverage. Adj. PAT was up 9% YoY to INR2,289m (our estimate: INR2,367m). Non-cotton business drives revenues: Cotton revenue grew only 7% YoY to INR4,051m, despite volume growth of 13% YoY to 6.6m packets, due to lower realizations (-5% YoY to INR609/packet). Management expects volume...

Sector: Agri-Input /Small-Cap | Earnings Update 4QFY19 Background: Kaveri Seeds is the largest producer of hybrid cotton seeds in India with a market share of ~15%. Kaveri Seeds has access to 60,000 acres under seed production, with farms in Karnataka, Andhra Pradesh and across the country. In the last five years (FY13-18), company's standalone revenue and PAT have grown at a CAGR of 1.6% and 10.4% respectively. 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 has 26 warehouses at strategic location with a combined storage space of ~600,000 sqft. The...

Revenue declined 5% YoY to INR672m 18 February 2019 INR47m). The sluggish performance can be attributed to the fear of fall armyworm in maize, which dampened sentiment and led to lower acreage (note that majority of third quarter revenue is contributed by maize, where volumes declined 22% YoY). The downside to our estimate is the non-renewal of KSCLs license by the Andhra Pradesh government (got suspended recently for a year), which can impact FY20 revenue by 6-7%. Given this uncertainty, which might restrict the company from taking advantage of a likely positive cotton season in FY20, we cut our multiple from 17x to 15x (~10% discount to its three-year average multiple). We, however, find comfort from the companys reducing dependency on cotton business, with non-cotton share likely to rise up to 55% in FY21.

Operating performance disappoints: Revenue grew 8% YoY to INR752m (our estimate: INR849m) in 2QFY19. EBITDA declined 47% YoY to INR79m (our estimate: INR188m), with the margins shrinking YoY from 21.2% to 10.5%. Adj. PAT declined 43% YoY to INR119m (our estimate: INR261m). 1HFY19 performance: Revenue was flat YoY at INR6,571m, with the margin contracting 140bp YoY to 32.2%. Adj. PAT, too, was flat YoY at INR2,225m. Cotton biz subdued; Non-cotton showing promise: Cotton business revenue declined 44% YoY, with volumes down 25% YoY. This was partly due to the...