Kaveri seeds company limited -- kscl


(Vivek Kumar) #1035

ICICI Prudential Asset Management also increased their shareholding from 3.97 % to 5.17%. Date of purchase - Dec 31, 2015 and source is Secondary Market(public shareholding).

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/CBA922DB_47EE_4375_B775_4D858ACC648B_104703.pdf

Invested.


(Marathondreams) #1036

S Naren from ICICI Prudential Mutual fund is very shrewd value investor. If he agreed to put down around 30 Crores to buy Kaveri Seed shares on 31st Dec , I feel very relieved of having purchased this stock, although at higher price than his purchase price.


(Mukesh Tolani) #1037

With due respect to S Naren of ICICI Prudential Mutual Fund., I personally feel that it makes much more sense to wait for the audit outcome., rather than enter at a time when credibility of accounts is under check.

Rgrds.


(Vivek Mashrani, CFA) #1038

S Naren puts money when there is “blood on the street”. But that’s not always rewarding.

ICICI Pru bought Cairn in the range of 250-300 I believe since Oil prices had dropped to $50…and then eventually they offloaded some of the stake later at much lower prices. Similarly, they had exposure in shipping industry after slump…but that has not given any return since last 2-3 years.


(zulfiqar) #1039

to add my 2 cents , portfolio alloaction that citi made to kscl should be looked


(Vamsi Krishna) #1040

Should we questions our investment hypothesis till now? Yes. And of course one has to focus on the pointers when there questionable issues on serious factors like governance. But, can we really base our decisions only on those pointers which house invests and which doesn’t? I would say, No! Because, they can always go both ways. One should await the results from the forensic audit before making conclusions both ways.

More importantly, if we should focus on collecting some facts from the fields on the earning prospects of FY 17, like done in the past on this thread. This would help us to make a collective fact based decision including the governance issue. Any field indications in this direction would be welcome? I would request other senior contributors to guide the discussion on this thread.


#1041

AS a seed dealer …there are since of farmer will shift from soybean to cotton in coming session.
i am booking more of cotton seeds than soybean.

dis …not invested but thinking off


(Ashish Pandey) #1042

(Varadharajan Ragunathan) #1043

Just reviving this thread - I want to do some scuttle butt and figure out the market dynamics and shift in market share. would request some of the old VP-ers who contributed on this thread to volunteer. At this price, if we can look past the uncertainty, the risk reward looks worth digging into.


(Prashant Vaishampayan) #1044

Does any one have SEBI letter ordering forensic audit? what are the reasons for ordering such an audit?


(Mukesh Tolani) #1045

The rewards can be lucrative., but with any accounting shenanigans, if any, the downside can be dangerous. I think we VP’ers cannot afford to compromise on management or accounting ethics.

IMHO.

Dscl : Tracking, but not invested


(Varadharajan Ragunathan) #1046

I have two data points that give me some comfort

  1. ICICI prudential bought heavily after this forensic issue came out. They own 5 % plus in the company and headed by naren, I assume they are not that stupid to buy something unless they are sure

  2. I am reasonably sure the cash exists as the company has given a split up across FMPs of different mutual funds

  3. I am certain that this year was one of the worst ever for agri inputs

  4. another fund called ashoka PTE run by a capable guy in singapore, has been buying heavily.

So, rhetorically asking, what do they see that we don’t see ? I of course could be wrong, but prefer to get to the bottom of facts.


(Mukesh Tolani) #1047

Thanks Varadha,

Your point no.2 is quite valid. Yes, the cash-in-hand provides some comfort.

Varadha : "I am certain that this year was one of the worst ever for agri inputs"
I am hopeful but not sure., as I dont have enough study or data supporting the same.

Point no. 1 & 4 : Should we buy only because large PE or fund houses are buying the stock ? Or should we use our own metrics ? This choice remains personal. I am, many times, surprised to see the quality of holdings in many mutual funds.

Apart from this, I also havent got clarity on One of my questions. :
What will be the implications on future relations between Kaveri & Monsanto, specially after the legal battle ?
What if Monsanto, in future, refuses to part with its technology to Kaveri ? Can Kaveri then survive and grow without support from Monsanto ? ( assuming Monsanto can survive without Kaveri )


(Amit Mantri) #1048

Disclosure: I have been short this stock for some time and continue to be so and would benefit from any fall in the stock price. Please assume that I am heavily conflicted and that my views could be uninformed/incorrect/biased. Do NOT rely on this to make a buy or sell decision. Come to your own conclusions based on your own analysis.

I did not want to post on this thread due to my conflict but doing so because of @varadharajanr’s recent post. I believe the red flags are way more obvious in the case of Kaveri than the likes of Kitex. So here’s the short thesis -

  1. Does the cash exist? - Kaveri has a fair bit of cash on its books but somehow does not seem to generate enough cash yield. If indeed the cash is invested in FMPs, over a long period this should reflect in other income. However, Kaveri is reporting cash yield between 3 to 5% over the last 4-5 years. This is significantly below the cash yield of other cash rich Indian companies (even other agri-focused companies like Monsanto) and should be ideally ~7.5%+. A large part of this cash yield is from “Profit on sale of investments” instead of interest income - this implies that Kaveri has a penchant for churning its investment portfolio which is just poor cash management. However, it would be consistent with a view that cash on books is only temporary and shows up only when needed for reporting purposes. Is there any other plausible explanation for why cash yields for Kaveri have been so low for so many years?
  2. Unknown auditor - Kaveri’s financials are audited by P.R. Reddy & Co. As per Capitaline database, Kaveri is the only listed or unlisted company audited by this auditor. This raises concerns about auditor independence and reliability of reported financials.
  3. Political linkages - Kaveri has donated 3 crs in FY15 to the Telengana Rashtra Samithi. Using shareholder funds for political donations (this is not from mandatory CSR fund) is poor corporate governance. If this is being done to buy political support for its business, it is an even bigger concern.
  4. SEBI forensic audit - I received confirmation from analysts who have talked to management that the forensic audit is on going. The likelihood of SEBI doing a forensic audit without basis is low. It is likely to be based on some credible data it has received. What the agenda for the forensic audit is unknown. The forensic auditors are Sarath & Associates - the same guys who did the forensic audit in the Satyam scam and the recent Saradha chit fund scam. So if there is something fishy, it will most likely come out in the forensic audit.
  5. High promoter selling - Over the last 2 years, the promoter shareholding has significantly declined. High promoter selling in a fast growing and high ROE business which was not very highly valued seems odd. Promoter’s rationale of selling shares to fund another venture is not consistent with the scale of their share sales. If Promoter’s needed money for other activities, a dividend would make way more sense considering their large cash balance. This raises concerns on sustainability of profits and again on true nature of cash on books.
  6. Aggressive accounting - Kaveri has not accounted for the royalty payments to Monsanto. As per prudent accounting practice, Kaveri should have accounted for the expense. It has instead not even disclosed it as contingent liability in the footnotes to the accounts. Reflects poorly on Kaveri’s accounting standards and also the auditor’s willingness to accept this without a remark shows lack of independence.
  7. Monsanto litigation - Kaveri’s fight with Monsanto along with other seed companies is negative from the long term viability of the business. Whether Monsanto wins or loses, Kaveri is unlikely to be a future partner for technology sharing from Monsanto without which Kaveri will not have the next phase of products.
  8. High receivables - Over the last few years, Kaveri had significantly reduced its receivable days. This has again started to rapidly increase. Despite management claims of only cash sales in FY16, Kaveri saw a 22 cr increase in receivables in H1 FY16. A large part of the receivables are outstanding for a very long time. Should those be considered as write-offs?
  9. High capex - In FY15, Kaveri had a fairly high capex of 90 crs (>50% of Net Block). A large part of this capex was for land and buildings. This size of capex now changes Kaveri from a working capital intensive business to a fixed asset intensive business. High capex is often used as a mechanism to siphon out money. Considering that large part of capex is land and buildings, this is a potential risk.

Risks to the short thesis -

  1. SEBI forensic audit leading to a clean chit. Stock will run up in such an event.
  2. High dividend payout - If Kaveri significantly raises its dividend payout, it would address concerns on whether the cash is something that the shareholders can get and not just for reporting purposes and for the promoters.
  3. Favorable regulations - If courts/govt mandate Monsanto to share current and future seed tech at a lower royalty, it would be positive for Kaveri.
  4. High promoter buying - If the red flags are without merit, the Promoter’s would find the current stock price extremely attractive. And considering they exited a large part at 600+ levels, they have a lot of money to buy their stock at seemingly dirt cheap valuations. Would be a positive signal if its a large stake purchase not so much for minor stake increase.

I wouldn’t base my investment decision on the basis of ICICI Pru and Ashoka PTE buying Kaveri. They have the same information as we. Similarly, the fact that SmallCap World Fund and IDFC have been selling should not matter. The way I see it, for Kaveri to be a good long investment it needs to dodge several bullets over the next 3-12 months. On the short side, the existence of so many red flags suggests something seriously amiss.

To again repeat, please treat the above as the views of someone who could be uninformed/incorrect/biased. Do NOT rely on it.

Regards,
Mantri
@amitmantri


(NNaik) #1049

It is true that this has been a very bad year for the Agri-businesses. Rallis India is also in doldrums

http://www.livemint.com/Money/Sve0i1faiCXBXRs5shecrN/Rallis-India-steep-fall-in-share-price-provides-no-comfort.html


(Mukesh Tolani) #1050

Thanks Amit

A nice thesis.

Rgrds.


(Aksh) #1051

Thanks a lot Amit for the lucid writeup and please keep up the good work. I had long suspected intentions of the promoters and have written of the same on this forum as well. You have nicely summarized all the points which seems quite logical.

Regards,
Aksh


(piggyway) #1052

Anyone here needs a max of 15-20 stocks to diversify their personal portfolio risk.
Would you want Kaveri in that twenty? Can’t you find a safer stock?
You can afford to be wrong with omissions, but not with commissions.
Having said, I am still tracking this only because Sanjoy Bhattacharya had a few good words abt the management. I will be shocked if he is proved wrong.


(sachit) #1053

In the concall, Kaveri management said that they will be selling more on credit going forward. Isn’t this a significant change vis-a-vis their earlier policy of selling mostly on cash? And does this increase the inherent risk in this company?


#1054

its need of time …time have been changed so…dealers and retailers are not interested in booking in advance or buying early .
dint see any harm in policy …if rains go well …vis-a-versa.