Kaveri seeds company limited -- kscl

(Rupesh Tatiya) #1120

Yes, for those who do not participate in the buyback, there is some loss.

These buybacks are on pro-rata basis and in this case only 4% shares of the investor would be eligible for buyback. Also, generally shares are bought back at a premium to market value to represent two things -

  • Reward shareholders with some additional profits
  • To send a message that, management thinks the fair value of share price is higher.

e.g. eClerx announced buyback at Rs. 2000 when share price was trading at around 1600.

(newbie_4ever) #1121

Isn’t it better for a company to structure their buyback offer like Berkshire. Berkshire never committed to buying back at a premium price. They just committed to buy as long as the price was below a certain value. Following is an extract from a Fortune article,

Warren Buffett on Saturday said the odds were “extremely high” that his Berkshire Hathaway (BRK.A, +0.28%) would buy back “a lot” of its stock if the price fell below 1.2 times book value, a level it recently approached.

Here is an excerpt from Berkshire’s 2012 letter,

But never forget: In repurchase decisions, price is all-important. Value is destroyed when purchases are made above intrinsic value. The directors and I believe that continuing shareholders are benefitted in a meaningful way by purchases up to our 120% limit.

Also, following are a couple of excerpts from Michael Mauboussin’s article on buybacks

The value conservation in each of these scenarios belies a fundamental point: management’s objective should be to maximize the long-term value for ongoing shareholders.

Executives should follow the golden rule of share buybacks: A company should repurchase its shares only when its stock is trading below its expected value and when no better investment opportunities are available.

Eclerx now is trading at around Rs 1300. This would have been a better time for buyback. If they were willing to buy back at Rs 2000, assuming it is now more than 6 months since the last buyback, what is preventing them from buying back at the new lower price. Is it lack of excess cash or eroding of intrinsic value (contributed to a certain extent by the buyback at a premium)?

(Rupesh Tatiya) #1122

Maybe we need separate thread to discuss buybacks.

Please note that promoters are trying to distribute the cash on balance sheet to shareholders including themselves. At the same time they want to pay as little tax as possible.

The difference between buybacks you mention above and this one is, promoters are participating in this buyback i.e. 4% of their shares will also be bought and extinguished by the company. Because of this, it is not a true buyback as you are mentioning above.

e.g. Imagine that, there are 100 shares of company, 50 are owned by promoters and rest 50 are owned by 5 shareholders 10 each. Now company decided to do 10% buyback and promoters will participate. In this case, there will only be 90 shares of the company after buyback, 45 to promoters and 9 each for rest of the 5 investors. Please note that, if everybody participates - their share of ownership does not change in the company e.g. promoters still own 50% of the company. In case of buybacks you are mentioning, promoter’s ownership will go up.
If someone does not participate, yes his ownership of the company will go down.

So again, this is not a buyback at all but a dividend payment in my view. Also when we are looking for multi-bagger gains in stock market, I don’t think we need to spend a lot of energy on 2% here, 5% there.


(Akbar Khan) #1123

I someone does not participate in the buyback his/her ownership of the company will go up, not down. After buyback the total number of shares outstanding reduce and you still own the same number, so your percentage ownership increases.

Warren Buffet loves buybacks because he does not participate and his ownership increases without putting in additional investment.

Not participating will hurt if the shares will never be worth the buyback price in future or if you have no intention to hold on to the shares as you may not get the same price in the short term.

(Rupesh Tatiya) #1124

Thanks Akbar for correction :slight_smile:!

Meanwhile this is on the front page of businessline ->

(Sarvesh Gupta) #1125

Hey, let me give you an overview of the basic concepts of buyback and dividend because I think they are needed at this stage:

  1. Buyback at a high price hurts the interest of the existing non-promoter shareholders (those who don’t participate because of ignorance, lack of time or are long-term oriented) - basically the small retail investors as well as long-term oriented investors (retail or institutional) - Now this is exactly the kind of people any company shouldn’t harm which is precisely what the company is doing by this buyback at a much higher price even though the intensity of damage is low because the buyback is small. And the logic to buy back at a high price to show you are worth more is spurious - one shouldnt spend a double digit % of your networth just to communicate to your investors that you are worth more - there are many more cheap ways of doing it - how about hiring a smart CFO for instance (comes at just 1-2 crore per year vs 200 cr buyback)

  2. The share price of Kaveri was as low as 300 bucks last year - the company would have done their continuing shareholders a lot of favour by buying back then - this is a serious mistake of omission on the part of company’s management to not buy back the shares in a year when cotton sowing was down and stock was in dumps and now trying to do that in a year bull market is raging and cotton sowing prospects are great - which means they will end up paying more than double of what they would have paid.

  3. The company has been carrying cash far in excess of its requirement and is averse to debt - debt per se is not bad and should be used judiciously - managements using zero debt and being too cautious also commit a big mistake of omission in terms of their capital allocation. The company’s business is too seasonal and they should use working capital debt rather than stupidly carrying so much excess cash full year only to put it in paltry 7% liquid funds - this is plain stupid and shows how ingenious (a euphemism for the word that one would otherwise use) the top management and CFO is.

Overall, the company’s financial managers and the CFO have a history of acting stupidly, to say the least and don’t know the basic principles of when to do what. Recent decision to have a small buyback at a price much in excess of the current price is another glaring example of the same. Also, a buyback is no substitute for a dividend and promoters are too rich to need a dividend urgently in the form of an expensive buyback. And other investors hardly care (as some said, 2% here or there).

(Rupesh Tatiya) #1128

There will be a cut-off date till which shares will be eligible for buyback. There are traders who are trying to buy the shares at a lesser price than 675 and make some money via buyback. Similar thing happened in eClerx where share price spiked from 1400 to 1600-ish when buyback was announced. It corrected after the buyback was complete.


Many cash-rich companies are following the buyback at a high premium (with promoter participation) route to avoid paying tax on dividends. The list is long:

  1. Vardhman Acrylics
  2. Cheviot Company
  3. HCL Technologies
  4. TCS
  5. Kaveri Seed Company
  6. eClerx Services
  7. Sun Pharma
  8. Wipro
  9. ICRA
  10. Mphasis

Its probably a safe bet that cash-rich companies will continue to use this route to reward their promoters. Here’s my Screener.in query to get a good list of cash-rich businesses:

((Cash end of last year + Investments ) / Market Capitalization ) > 0.4 AND
Debt to equity < 1 AND
Market Capitalization > 10 AND
Book value > 0 AND
Promoter holding > 50

Short-term traders (with some arbitrage experience) could make use of it. Buybacks at premium hurt long term investors. I personally don’t do or recommend short term trading.

(newbie_4ever) #1130

Just found this.

(Mukesh Tolani) #1131

Any news / update on the outcome of the intrinsic audit being conducted of the company ?

(dj_moneymaker) #1132

Any update on Maharashtra ban as well?

(BreakingBad01) #1133

If there were issues with the audit, they would have long since come out. At the end of the day, the cash balance has continued to rise and the proof that it is real is the substantial buyback.

As Hitesh once said in another context, people are always looking for reasons not to buy various stocks, whereas the game is much more about why to buy.

(Suraj) #1134

Hi - My father have a seeds and fertilizer shop in Buldana district in Maharashtra. There is an increase in sales in Jadoo and ATM in this part of Maharashtra. Do we have folks from AP, Telangana, Karnataka who can check if Kaveri is gaining market share there? Overall cotton sowing is increasing or decreasing as those are the top markets for Kaveri cotton seeds?

(csteja) #1135

Whats the use of buyback when intrinsic value is less than market value ? Also, B.V decreases after the buyback. I don’t see any advantage with buyback except that they don’t want to pay dividend tax. The only hope is good monsoon and revival in rice, cotton crop. What do you guys feel about growth prospects after buyback ?

(nikhil pai) #1136

Hey Sarvesh,

Thanks a lot for the detailed explanation. Could you elaborate a bit more on the above. My understanding was if a retail investor doesnt submit his/her shares then his ownership in the business rises post the buyback. How is that negative for a long term investor.

Best regards,

(Shashi) #1137

Kaveri Seeds looks interesting. the monsoon has been very good in Telangana and AP, with the cotton prices ruling high it’s going to be most sought crop this season. As per the last concal of the management 2016 seed production was better in quantity and quality. Last year they have sold 5.4 million packets, this year they can manage to sell more than 6.5 million packets with improved margins. Also, they have been working on decreasing the dependency. If they can post Profits of around 300 crores for FY 2017-18, with 400 Crores cash in Balance sheet. Stock can provide a return of around 50% in next two years.
Risks involved Dependency of Monsoon
Cotton Prices and acreage

(Shashi) #1138


(Ketan) #1139

Q1FY18 results are out.
On Y-o-Y basis, revenue up by ~20%, EBITDA up 29% and PAT up 31%. Overall this looks good, and with good season going on, better prospects ahead.
Investor presentation can be found here: http://www.bseindia.com/xml-data/corpfiling/AttachLive/6856b670-a755-4765-b6a8-46bda3a09243.pdf

Disc: Invested from lower level. Except for buyback participation, no fresh transactions in last 6months.

(Vivek Mashrani, CFA) #1140

Any updates on the forensic audit that was being done sometime back?

(Ketan) #1141

Nothing is mentioned in the presentation, as such.