7/31/2019 Kaveri Seed - Anagram - Sept 2010
1/13Contd.. .
Kaveri Seed Company Ltd. CMP : 330TARGET PRI CE: 45 0
Source: Capitaline
We in i t i a te cove rage on Kaver i Seed Company L td . w h ich i s I nd ia ' s
p rominen t hyb r id seed p laye r . We be l i eve tha t KSCL i s i dea l l y
pos i t ioned t o cap i ta l ise on th e r is ing demand seen for hy br id seedsl i ke co t ton , sun f lower and r i ce.
A lso w i th a t ime ly expans ion a t Pamu lpa r th i v i l l age , waranga l
M a n d a l , M e d a k d i s t r i c t , t h e c o m p a n y w i l l g e t t h e b e n e f i t o f
i nc reased capac i t y expans ion wh ich w i l l f u r the r boos t ea rn ings
dur ing FY11 and FY12. We ra te t he s tock as a BUY wi t h a Target
pr ice o f Rs 450. A t our Target pr ice Rs KSCL w i l l be va lued a t 1 2x
FY12E.
St ra t eg ic sh i f t i n un ique b us iness mode lThe company is one of the prominent hybrid seed players of India with
huge product portfolio of more than 45 hybrid verities. The top-line of
the company was heavily contributed by Corn and sunflower but after
2007 the company has shifted its focus to the BT cotton seeds and the
contribution of BT cotton to the topline is 25% during FY 10 from 10% in
FY 07. The market share of the company is just 2% in FY 10 while
cotton is contributing more than 25% to the top line. It shows huge
potential for the cotton seeds business.
Capex w i l l f ue l f u tu re g rowthThe company has invested more than Rs 60 Crs in recent past. This
capex is enough to take top line to Rs 400 Crs in years to come from the
present Rs 160 Crs. The capex includes Strategic green field expansion
at Pamulparthi village, warangal Mandal, Medak district with state of
art facility for utilizing cob drying, seed processing and cold storage on
owned farmland of 29 acres.
Valuation
The KSCL has historically traded at 15X earnings. The stock is currently
trading at 9X and 7X on there FY 11E and FY 12E. The company shows
very attractive forward EV/EBIDTA of 7.1X on its FY 12 earnings. The P/
E and EV/EBIDTA of company is trading at discount of 22% to its peers
like Advanta and Camson bio. We recommend a Buy on the stock with a
target price of Rs 450.
PRI CE PERFORMANCE
Initiating Coverage
27 t h October 20 10
Sector Agro Input- Seed
Marketcap(INR bn) 4.56
Marketcap(USDm) 103.63
O/S Share(m) 137.02
52-wk-HI/LO 355/196
Avg 6m vol(ooo) 27698
Bloomberg KSCL IN
Reuters KVRI.BO
KEY DATA
Sources:- Company, Anagram research
BUY
1mnth 3 mnth 6mnth 12mnthAbsolute 13% 18% 17% 38%
Relative 2% 11% 14% 15%
Re t u rn s ( % )
Sources:- Company, Anagram research
SHAREHOLDI NG PATTERN ( % )
Sources:- Company, Anagram research
Analyst : Mi ten Chavda, FRM
mi ten [email protected] . in
Sources:- Company, Anagram research
Y/E Mar (Rs. Crs.) FY09 FY10 FY11E FY12E
Net Sales (Rs Crs) 123 164 229 297
Growth (%) 27% 33% 40% 29%
EPS (RS.) 18 21 29 36
EBIDTA (%) 25% 22% 22% 21%
P/E (X) 18 16 12 9
ROE(%) 20% 21% 23% 23%
EV/EBIDTA 15 13 9 7
ROCE (%) 22% 20% 23% 23%
7/31/2019 Kaveri Seed - Anagram - Sept 2010
2/13
7/31/2019 Kaveri Seed - Anagram - Sept 2010
3/13
7/31/2019 Kaveri Seed - Anagram - Sept 2010
4/13
4 27 t h October 2010
Kaver i Seed Com pan y Lt d . I n i t iat ing Cov er age
Company Profile
The company is one of the few recognized agri-input companies in India. It
is mainly into the business of production, processing and marketing of high
quality hybrid seeds for different crops like corn, sunflower, cotton, paddy,
grain sorghum, etc. and has recently forayed into micronutrients and
bioproducts. The company also produces non-hybrid seeds, primarily forpaddy.
KSCL is having an experienced and
professionally qualified R&D team
w h o a r e e n g a g e d i n f u l l t i m e
research.
Over time, KSCL has consciouslybeen enhanc ing i ts germplasm
( e i t h e r s o u r c e d f r o m v a r i o u s
universities and global bodies, or
developed in-house) in mult ip le
crops.
Efficient R&D is backbone of any of the seed company. The company is
havingR&D facilities located at Ranga Reddy District are recognized by the
Department of Science & Technology, Government of India. The R&D for
breeding high performance hybrids and also value added micronutrients
and bioproducts. The company is having an experienced and professionally
qualified R&D team who are engaged in full time research.
Germplasm (a seed database, with various combinations of traits possible
in a specific crop) is the key differentiating factor for a seeds company,
enabling it to roll out hybrids far more quickly to respond to a specific trait
required in a crop for a particular region. Over time,Kaveri has consciously
been enhancing its germplasm (either sourced from various universities
and global bodies, or developed in-house) in multiple crops. Today it can
boast of access to a wide range in various crops, thereby providing it with a
competitive edge.
The company try 8 to 10k combination to develop 1 or 2 traits. It takes
almost 5 to 6 years to manufacture seeds commercially.
Seed, being a biological entity has to be grown and cannot be manufactured.
The planning of requirement of raw material for hybrid seeds is done one to
two years in advance based on their own estimates of market demand for
the future trend. After conducting GoT and Germination tests, the seeds are
processed and packed for sale. The basic material is given to the farmer in
the form of foundation seeds and farmer gives back the same upon
multiplication as raw seed to company.
As per chart corn cotton and paddy contribute almost 70% of
the sales.
The company generates most of the revenues during the first
half of the year.
Southern states mainly Karnataka and Andhra contribute the
most in total sales.
Segmental Revenue
7/31/2019 Kaveri Seed - Anagram - Sept 2010
5/13
55 27 t h October 2010
Kav er i Seed Com pany Lt d . I n i t iat ing Cover age
Management Profile
Mr. G V Bhaskar Rao, Chai rm an& Managing Di rector
Mr. Gundavaram Venkata Bhaskar Rao is one of the founder Promoters and
has motivated the Company to succeed in this business. He has been the
Chairman-cum-Managing Director of the Company. He is a Science graduate
majoring in agriculture from Andhra Pradesh Agriculture University. His efforts
towards growth and development have also ripened\through introduction of
high yielding varieties of hybrid seeds in agricultural crops like corn, sunflower,
paddy, grain sorghum, bajra, cotton and other vegetable seeds.
Mrs. G Vanaja Dev i , Execut ive Di rector
Mrs. Gundavaram Vanaja Devi has been an Executive Director of the Company
since its inception. She is one of the founder Promoters of the Company and
along with her husband, Mr.Gundavaram Venkata Bhaskar Rao. She is an
Arts graduate from Osmania University, Andhra Pradesh
Mr. R Venu Mano har Rao, Execut ive Di rector
Mr. Rangineni Venu Manohar Rao is one of the founder Promoters of theCompany and has been an Executive Director of the Company since its
inception. His main responsibility in the Company is marketing of the products.
He has established a strong marketing network and sales management in
the Company.
Mr. C Vamsheedhar , Execut ive Di rector
Mr. Chennameneni Vamsheedhar has been associated with the Company for
the past seven years. He joined the Company as "Marketing Officer" and has
risen through the ranks and was appointed as an Executive and Additional
Director at the Board Meeting held on September 18, 2006. He has been
instrumental in the expansion of sales and marketing efforts of the Company.
Mr. C Mi thu n Chand, Execut ive Di rector
Mr. Chennameneni Mithun Chand is an M.B.A. from Shiva Shivana Institute
of Management. He joined Kaveri Agriteck as 'President' (Agriteck) and has
significantly contributed in sales, administration and management by creating
a core team for its products. He was appointed as an Executive and Additional
Director at the Board Meeting held on September 18, 2006. He travels
extensively, deals directly with field staff and dealers and tackles their
problems and is a key driver of the sales team
Mr. Gundavaram Venkata Bhaskar
Rao i s one o f t he founder
Promoters and has motivated the
C o m p a n y t o s u c c e e d i n t h i s
business.
7/31/2019 Kaveri Seed - Anagram - Sept 2010
6/13
6 27 t h October 2010
Kaver i Seed Com pan y Lt d . I n i t iat ing Cov er age
Seed Industry & outlook
India is contributing over 17% of the world population and producing over
10% of food grains. Despite of this fact Indian crop industry is account for
just 5% of the global industry. Saved seeds meet 85% of the seed demand
in India while commercial seeds just 15%.its expected that saved seed user
is like to shift to commercial seeds after the great success of BT cotton.
BT cotton is great success story in India to understand potential of seed
industry. Farmers had made $225 per hectare representing 88% growth in
profit and allowed reduction of pesticide sprays by 39%. BT cotton currently
accounts for ~85% of all cotton cultivation across the country. The seed
industry is likely to enjoy growth 15 to 20% in the era of bio tech seeds.
India is contributing over 17% of
t h e w o r l d p o p u l a t i o n a n d
p r o d u c i n g o v e r 1 0 % o f f o o d
grains.
Seeds
Commercial 15%
Public 40% Private 60%
Saved 85%
Apparently the cost of the hybrid seeds is almost double than the saved
seeds but their better productivity is making it better option than the saved
seeds. Farmers can earn 25% more yield by applying hybrid seeds. Hybrid
seeds makes plant pest and weed resistant which is an added advantage.
Cost benefit Analysis of application of hybrid Seed
Sav ed Seeds Hyb r id Seeds % I n cr ease
Seed Consumption Kg/Acre 30 6
Per Unit Cost Rs/Kg 20 200
Total Seed Cost Rs/Acre 600 1200 100%
Rice Yield Kg/Acre 1000 1250 25%
Selling Price Rs/Kg 12 12
Total Revenue Rs/ Acre 12000 15000 25%
Profit Rs/Acre 11000 13800 25%
Source : Company / Anagram Research
Hybrid seeds makes plant pest and
weed resistant which is an added
advantage.
Source : Company / Anagram Research
7/31/2019 Kaveri Seed - Anagram - Sept 2010
7/13
7/31/2019 Kaveri Seed - Anagram - Sept 2010
8/13
8 27 t h October 2010
Kaver i Seed Com pan y Lt d . I n i t iat ing Cov er age
At t rac t i ve fundamenta l amongs t a l l pee rs
The company enjoys strong fundamentals against its all peers. All the
comparative multiple analysis parameters like P/E, EV/EBIDTA and P/BV
are showing that company is in better shape.
The seed companies use to offer very few number of seed crops. It is likely
to give very stagnant kind of growth but unlike other players Kaveri Seed is
offering a wide seed in its product portfolio which provides flexibility and
bigger market to sell their product to the company.
KSCL enjoys strong fundamentals
against its all peers.
Financial Analysis
Comparative Multiple Analysis
Kav er i seed Ad v an t a* Mon san t o Cam son b io*
Sales 162.1 154.0 410.0 80.0
EBIDTA 35.2 23.6 74.4 15.8
NPM 29.0 6.0 53.5 13.8EBIDTA% 22% 15% 18% 20%
NPM% 18% 4% 13% 17%
ROE% 21% 2% 15% 18%
EV 477.7 935.0 1760.0 164.0
BVPS 110.2 247.5 406.7 47.0
EPS 21.2 3.8 62.0 8.6
MPS 330.0 465.0 2039.0 166.0
EV/EBIDTA 13.6 39.7 23.6 10.4
P/BV 3.0 1.9 5.0 3.5
P/E 15.6 123.8 32.9 19.4
* TTM Data
2008 2009 2010 2011E 2012E
PAT/PBT (Tax Effect) 58% 84% 93% 93% 93%
PBT/PBIT (Int. Effect) 94% 93% 95% 95% 96%
PBIT/Sales(PBIT Margin) 26% 24% 20% 19% 19%
Sales/T.A(Asset Trnover) 0.9 1.0 1.0 1.1 1.2
T.A/N.W (Fin. Leverage) 1.1 1.1 1.2 1.3 1.2
ROE % 13% 20% 21% 23% 23%
Sources:- Company, Anagram research
Du-Pont Analysis
7/31/2019 Kaveri Seed - Anagram - Sept 2010
9/13
99 27 t h October 2010
Kav er i Seed Com pany Lt d . I n i t iat ing Cover age
Margins expected to stabilize at 16%
Company / Anagram Research
The company is enjoying good business with the healthy operating margin
of 22% and NPM of 18%. As company has shifted its strategy and
aggressively increasing Cotton seeds sales which will help to increase thesales volume and sales number in absolute term but being a lower margin
business the company is likely to face marginal down fall in operating profit
and NPM.
The top line of the company is likely to grow up to Rs 295 crs in 2012 from
just 97 Crs in 2008. EBIDTA of the company will register CAGR of 34% by
2012 to Rs 60 Crs from Rs 25 Crs in 2008 in absolute terms.
KSCL is enj oying good business with
the heal thy operat ing margin of
22% and NPM of 18%.
Forward EV/EBIDTA BandForward PE Band
Company / Anagram Research
7/31/2019 Kaveri Seed - Anagram - Sept 2010
10/13
10 27 t h October 2010
Kaver i Seed Com pan y Lt d . I n i t iat ing Cov er age
Q1 FY11 Result Review
Kaveri seed company normally records 65% of its revenue in Q1 only. Total
revenue of FY 10 was Rs 162 Crs out of which Rs 100 Crs was contributed
by Q1 FY 10.The company has recently started concentrating on rabi season
as well.
The company has registered robust growth of 48% to Rs 148 Crs against
Rs 100 Crs topline growth in Q1 last year, which is mainly attributed to BT
cotton seeds segment performance which witnessed double volume growth.
The operating profit of the company is also up to Rs 36 Crs from Rs 26 Crs
reflecting the sales volume growth.However there is decline of 200 bps in
operating margin on the back of shift in crop acrage to lower margin product
like BT cotton from maize and sunflower. The company has registered bottom
line growth of 35% to Rs 31 Crs against Rs 23 Crs.
Company / Anagram Research
( Rs cr or es) Q1 FY1 1 Q1 FY1 0 YoY Q4 FY1 0 Qo Q
Net Sales 148 100 48% 13
Expenditure 112 74 12
Other op. income 0 0 0
EBITDA 36 26 37% 1
Depreciation 2 1 1
Core EBIT 33 25 32% -1
Other income 0 0 2
Interest 1 0 0Exceptional item 0 0 0
PBT 33 25 1
Tax 1 2 0
Adj PAT 31 23 35% 0
Mat. cost/Sales 29% 42% -31% 39% -26%
Emp. cost/Sales 2% 2% -4% 18% -90%
Other exp/Sales 45% 29% 55% 40% 13%
Tax rate 4% 8%
EBITDA Margin 24% 26% -8% 6% 338%
Net Profit Margin 21% 23% -9% 1% 1473%
Equity 13.7 13.7 13.7
EPS 22.75 16.88 0.12
Sources:- Company, Anagram research
Revenu Distribution
7/31/2019 Kaveri Seed - Anagram - Sept 2010
11/13
7/31/2019 Kaveri Seed - Anagram - Sept 2010
12/13
12 27 t h October 2010
Kaver i Seed Com pan y Lt d . I n i t iat ing Cov er age
Company Financials SnapshotProfit and loss (RsCr.)
Particulars FY09 FY10 FY11E FY12E
Net Sales 123.1 163.7 229.0 296.5
% Gr ow t h 2 7 % 3 3 % 4 0 % 2 9 %
COGS 47.4 65.4 99.4 137.8
Administration Exp 44.5 61.5 78.7 95.4
Misc exp 0.0 0.0 0.0 0.0
Cost o f sales 9 2 .0 1 2 6 .9 1 7 8 .2 2 3 3 .2
EBITDA 31.1 36.8 50.8 63.3
% Margins 25% 22% 22% 21%
Depreciation 3.2 4.1 6.8 8.3
Gr o ss Pr o f i t 2 7 .9 3 2 .6 4 4 .0 5 5 .0
Gross Profit Margins 23% 20% 19% 19%
Interest 1.9 1.8 2.1 2.2
Other Income 1.3 0.3 0.3 0.3
PBT 2 7 .2 3 1 .1 3 8 .9 4 9 .7
PBT Mar g in s % 2 2 % 1 9 % 1 7 % 1 7 %
Tax 2.2 2.1 3.0 3.7
Net Profit 25.0 29.0 35.9 46.0
Net Pr o f i t Mar g in s % 2 0 % 1 8 % 1 6 % 1 6 %
Adjustments -2.0 0.0 0.0 0.0
Repo r t ed Net Pr o f i t 2 3 .0 2 9 .0 3 5 .9 4 6 .0
Balance Sheet (RsCr.)
Particulars FY09 FY10 FY11E FY12E
Source Of f und s
Equity Share Capital 13.7 13.7 13.7 13.7
Total reserves 111.3 137.2 173.5 219.7
Total Shareholders Fund 125.0 150.9 187.2 233.4
Tot al Deb t 2 1 .4 4 5 .6 4 1 .6 3 6 .6
To t al l iab i l i t y 1 4 6 1 9 6 2 2 8 2 7 0
App l i ca t i on o f Fund
FIXED Assets 78.8 109.2 109.1 109.2
Net Current Assets 65.5 85.3 114.6 148.8
Investments 2.0 2.0 5.0 12.0
Foreign currency Trans 0.0 0.0 0.0 0.0
To t a l Asse t s 1 4 6 1 9 6 2 2 8 2 7 0
Cash Flow Statement (RsCr.)
Particulars FY09 FY10 FY11E FY12E
PBT 2 7 .1 3 1 .1 4 2 .3 5 3 .1
Depreciation 3.2 4.1 6.8 8.3
Interest 1.9 1.8 2.1 2.2
Divi received 1.3 0.3 0.3 0.3
Cash f l ow f r om op er a t i on s 3 1 .0 3 6 .7 5 0 .8 6 3 .3
Changes in working capital -20.0 -14.4 -25.8 -20.6
Taxes paid -2.5 -2.1 -3.0 -3.7
Net Cash fr om op er at ion 8 .5 2 0 .3 2 2 .1 3 9 .0
Fix Assets purchase -45.2 -34.0 -6.8 -8.3
Invt sales 19.7 0.0 -3.0 -7.0
Dividend&Int received 0.9 0.3 0.3 0.3
Net cash Flo w f r m I n t Act i - 2 4 .6 - 3 3 .6 - 9 .5 - 1 5 .0
Proceeds from ishue 0.0 0.0 0.0 0.0
Dividends -3.2 -3.2 -3.2 -3.2
Shorterm Loan -4.3 29.6 -1.0 -1.0
Longterm Loan 20.0 -5.5 -3.0 -4.0
Interest -1.9 -1.8 -2.1 -2.2
Net Cashflow from Fin Act. 10.6 19.1 -9.3 -10.4
Net Inc/Dec in Cash -5.5 5.7 3.3 13.6
Opening Cash Balance 19.5 14.0 19.7 23.7
Closin g cash b alan ce 1 4 .0 1 9 .7 2 3 .7 3 7 .9
Financial Ratios
Particulars FY09 FY10 FY11E FY12E
Mar k et p r i ce ( Rs) 3 3 0 .0 3 3 0 .0 3 3 0 .0 3 3 0 .0
EPS RS. 18.2 21.2 28.7 36.1
OPM% 2 5 % 2 2 % 2 2 % 2 1 %
NPM% 1 9 % 1 8 % 1 7 % 1 7 %
ROE % 2 0 % 2 1 % 2 3 % 2 3 %
ROCE % 22% 20% 23% 23%
Book Value's per share 91 110 137 170
P/E Ratio 18.2 15.6 11.5 9.2
P/BV 3.6 3.0 2.4 1.9
EV/EBIDTA 14.8 13.0 9.2 7.1
Leverage Rat ios
Debt-Equity Ratio 0.2 0.3 0.2 0.2
Interest Cover Ratio 15.2 18.2 21.6 25.0
Work ing cap i t a l ra t i os
Debtor Days 116 92 78 80
Inventory Days 147 227 227 227
7/31/2019 Kaveri Seed - Anagram - Sept 2010
13/13
Top Related