Kaveri seeds company limited -- kscl


why management does not understand little issues in comparison to the big things…

Little issues (if thought properly…would have been avoided)

  1. They are keeping 65 crores ( that too not sure)
  2. They don’t want to buyback/increase dividend. They save some hundred crores.

Big thing–>
They lost almost 2000 crore rupees in terms of market cap ( promoters have more than 50%, so they are the biggest losers).

(Augustine Jos) #935

It’s worrying that competition is paying full royalty to Monsanto without contesting, so easiest thing for Monsanto will be to prefer players ready to pay full royalty over players like kaveri in future.

(manomagg3) #936

why it has such a low tax %
any one please advise
this is another positive for this company and increases the Returns

(sajin cj) #937

(Ravi) #938

@manomagg3: Bro, this is explained multiple times in this thread. Since they are into producing(/manufacturing?) seeds, this is considered as agri-income and hence tax-exempt.

There are multiple discussions on provision for the 64 crore royalty for Monsanto. Agreed that the company has not followed conservative(/good?) accounting practices here. Deduct that from Q1 2015, 221 crores which was reported and factor in ~10% lower bottomline for the rest of the quarters. They will still do ~220 crores this year. The question to ask here would be, do we have reasonable MoS here? The best time to enter good names is when everyone is afraid.

Having said this, the key question to be answered would be:

  1. Varadha pointed out that, they lost significant market share to Bayer. The veracity of this information has to be checked. If it is true, how likely will this repeat next year? Did Bayer offer Credit sales?

Promoter selling and IDFC exit was concerning!

Ravi S
Disc: Invested ~ 7% of my pf. My views may be biased.

(Vivek Sukumaran) #939

I think some clarity on following 2 points would go a long way

  1. Reduction in promoter stake
  2. Loss of market share to Bayer or others due to product superiority

Discl. Invested

(Dhwanil Desai) #940

It is good to see counterpoints emerging and getting debated. However, what I feel we should desist from is to start raising questions directly on the integrity of the promoters which may not always be in the question when the results are below par or unforeseen event unfold or the cash is not distributed immediately. I do not intend to say that we should not ask tough questions. However, as long term investors who focus on “value”, we may be far better served if we ask these questions when things are normal (business as usual scenario). All the events (except for reduced royalty payments which currently is not provided for as CL) that has prompted some of us to raise doubt about the integrity/intention of the management whether it is the failed attempt to look for a strategic partner, an announcement to diversify in food processing and intended stake sale by promoters, calling of stake sale and selling a part of stake by the time of announcement, has happened in the past and not now. Hence, if we indeed had serious doubts, or were not satisfied with the explanations given by the promoters at for any of these events, raising the concerns at that point of time would have been far more meaningful.

If we start raising these questions just when an unfavourable events unfold, it implies two things

  • It indicates that we have not done our due diligence properly or at least have not asked the right questions at the right time to get a conclusive answer for the event/development in question
  • It severely impacts our ability to make a decision when the uncertain situation unfolds, as we, like market, start believing that there is something “fishy” and start rationalizing the fall by recounting the past events and draw inferences which in the current context may have little relevance . ( To put it differently, had we asked the questions with same ferocity had the result came rather reasonably good despite of challenging market)

Coming to KSCL specific points

  • Most of the boarders knew that the number of variables in the Kaveri business are more than an many other steady compounder businesses like Astral/Page/Eicher etc. Hence, we knew that when any of these variables play out adversely, there is going to be a negative impact on company’s financials. (So we knew monsoon, preference for cotton crop (a function of cotton price) vs other crops, successful product launches, government regulation etc are some of the variables and may have material impact on company’s financial).

The duration and significance of the adverse impact on company’s financials will be different in case of each variable (or a combination of these variables) playing out. So, in my opinion what has played out is the combination of many variables (i.e. A draught last year coupled with very low cotton prices forcing government to cap/reduce the prices; low cotton prices with draught this year in some parts leading shift to other crops) thus hitting the company really hard.

On top of it, company adopted a strategy not to focus on credit market to contain the risk of defaults. This to me is not a bad strategy, especially considering that they had much lower inventory than planned (shortfall of about 20 lakh packets due to lower seed production at farms hit by unseasonal rains) and lack of cash available with farmers due to back to back draughts that will put receivables of the company under stress. However, it did have impact on the top-line of the business in near term.

I quite agree with a view that as an investor we shall reduce 64 Crores of royalty saving from profit (irrespective of the accounting treatment given by company) and make our calculations based on that. After reducing that amount, what is the risk-return profile over next 3-5 years considering that some of the years may be challenging for the company and few variables that have played out adversely may play out again or few that has not yet played out may play out as well? Considering this,does the odd exist for an investors to make good upside with limited downside?

Having said that, one lesson that has been reaffirmed to me is to have our own independent view instead of getting swayed by what management believes (to be fair, in all businesses, management tend to be optimistic and at times have no clue as to how some events may unfold or impact such unforseen event may have on the company). So in case of Kaveri,

  • My understanding of management’s commentary (and probably some of the other boarders as well) was that draught does not have significant impact on KSCL’s cotton business. Now, this statement may be partially true in terms of direct impact ,but draught does have (and it did have!) an impact on company’s cotton business.
  • Another impression I got was that amongst all the crops, even at lower cotton prices, cotton remains the most attractive crop for farmers. However, current situation suggests that there is a shift in crop preference from cotton to other crops due to other crops being more attractive to farmers.
  • Till May, everybody in the industry( not only Kaveri) was positive that there will not be reduction in cotton seed prices. However, governments have their own agenda and preferences and does not always act in the most rational way. Thus, eventually, within a month, the prices in Maharashtra were reduced by Rs. 100.

So, one should not take management’s commentary on face value and keep one’s thinking hat on.

Discl: Had a small position, Added more after results and fall.

(manomagg3) #941

Dear Dhwani

I agree with you all the reasons been given for the price down were always there and not new
One thing I would like to mention is that we must not write off completely the company due to one bad quarter
Company even this after should be able to generate close to 300 Cr. cash which gives 12 to 13 multiple at current levels
Cotton pricing movement will remain cyclical and next year an increase in cotton pricing will change the market perception
I am invested and will remain invested till I see next 3/4 quarter results

(Sanjeev Panda) #943

The way stock is correcting, something seems to be more serious than all of us discussing. Correct me if I am wrong. there could be more serious issue than we all are discussing, can the earnings and cash flow be 30-40% down ? or RoE will go down to sub 20% ? At least the price corrections indicating such apprehension.

Nevertheless, some money managers are worried because it has not made provision for 64 cr, which is qualitative concern. With every fall, its getting more thrilling. Lets see, what’s ahead.

(gautham1) #944

IDFC premier equity has reduced substantially from 8.43% in mar 2014 to 2.34% in june 2015…(btw this also could be due to the fact the stock price itself has crashed. hence the holding might look low. dont know how its calculated as)
Kaveri Seed Co. 2.34 3.12 4.63 7.17 8.43
I understand that mfs have their own logic for selling… but still pointing it out considering idfc premier equity is a one of the very few quality mutual funds out there.


I dont own the stock or know anything about the company.

What I do know is that whenever the fund manager changes, the new manager reviews the portfolio and gets rid of all the shares he/she has less knowledge about.

Hence, since Kenneth Andrade has moved out of IDFC MF, all the shars held by them will see weakness. One reason is given in para 1. The 2nd reason is that some fund managers are rockstars in their own right ( Prashant Jain / Kenneth Andrade / Madhu Kela ) and money flows into their schemes on their name. Safe to assum that their exits will see outflows from the schemes, resulting in more sales in their favourite shares which contribute a loarge % of their schemes AUM.

Thus, IDFC MF selling is not a negative.

(Hitesh Patel) #946


You can look up the shareholding pattern of kaveri seeds for both march and june qtr. (available on exchanges esp bse its easy to see) And then see what % holding idfc premier equity fund has in kaveri.

This figure should not change with change in prices.

Regarding correction in stock price I have always observed that markets tend to over react to news/rumours in the shorter term both on upside and downside. Where and when all this pain ends is anybody’s guess.

disc: no position but keenly observing developments.

(Chintan) #947

Ashoka PTE bought 438k shares at Rs 526 as per today’s block deals…already Ashoka PTE holds over 2.86% in kaveri

Ashoka PTE also holds stake in Heidelberg (2.4%), JK Lakshmi Cement (2.4%), Dhanuka Agritech (2.4%), Guj Pipavav Port (3.1%), ICRA (2.96%), Eds Dee Aluminium (2.1%) Bajaj Finserv (2.28%), VRL Logistics (2.28%) and Kaveri Seed (2.86%) as of jun’15

looks like a genuine buyer…stock might find support at current levels

(Varadharajan Ragunathan) #948

Also, franklin templeton MF increased stake during march-june quarter. they have quite a good reputation and being a MNC fund, do a lot of due diligence on cash on books etc.


There are thousand of factors affecting a stock and it is impossible for us to find out a logical/correct answer for each of those factors. One question each investor needs to ask " Whether fundamentals have changed?". Like Rome is not built in a day it cannot be destroyed also in a day. When a Company is having a good market share ( I guess 20% , 90 lacs/450 lacs), can it disappear so fast.

The second question whether I find value and MOS in the CMP. If it is yes, take the risk. If you are proved wrong get out even without blinking or have a SL.

It appears it has found ST support around the levels mentioned yesterday. If this week close is above 533 , a bottom has been established and Rs 533 should be your SL.

(Vikrant Upadhyay) #952


Haven’t seen any recent comments from you, Whats your thoughts on the fall.

(Hardtoget) #953

farmers using better quality seeds & growth in Hybrid seeds usage is bound to get better according to ICRA

(Sanjeev Panda) #954

bro, with price, why the stake will change unless the no of stock holding remains same. they have sold 50% of holding.

(Sanjeev Panda) #955


I am not sure regarding ur comment on " IDFC selling is not negative". Bcos the DNA of IDFC is usually holding stocks for long and it was once one of the top 3 holding of IDFC premier. So, it was dearer to them, u have to agree on that. Further, they were holding since IPO. So, some one like IDFC selling small quantum is fine but offloading 60% holding is something…Had it been any other fund, who have high churning, the concern would have been lower.

(Kunal Patel) #956

Guys, I fail to understand why so much of hullabaloo about fund selling and above that why everyone is just seeing one side of it.

If One is arguing that IDFC Premier is known for holding stocks for long term, that same applies to Franklin Templeton as well. every fund manager takes a call based on his risk potential and returns generated. Selling ~900-1000 price point could have made sense to them. Like for me, Company with 18-20% cotton market share, it could have gone up max to 25%. I would take my call based on risk reward. Upside from 4% to 18% was huge (between 2011-2015) compared to 18% to 25% and then one has to take a call that every new stock that could potentially become a part of the portfolio can generate higher returns or not and it has to dislodge one of your proven gems.

Guys, no two fund managers are same in this world. There is only one Donald, One Ayush or one Mr. D :smile:. The moment you will try to replicate anyone, game is over.

Coming back to KSCL, forget about what Fund managers are doing and start focussing on what could go wrong from here. The great 19th century mathematician Carl Jacobi was fond of saying that when you encounter a tough problem, “Invert, always invert.” This was also endorsed by Mr. Buffett and Mr. Munger in I suppose their 2009 (most likely) shareholders letter. Take a call based on your judgement. Do some scuttlebutt and decide for yourself.

Disc: Holding since 2011, sold half in March