Kaveri seems to at an interesting valuation post correction in the past few days (from almost 700 to 530 Rs - a 25% cut). This was in spite of superb results in 1Q18 (which is more or less 80-90% of full year profits). Excluding other income on cash on the books, the company generated business EBITDA of ~160 cr in 1Q18. Assuming they can add 20 cr more in the coming three quarters, that means a trailing PAT of almost 180 cr (as EBITDA and PAT are almost the same for the company as no major fixed assets except land, no debt and no income tax). They will also have almost ~500 cr cash on books post buyback. Now given the current market cap of just ~3500 cr, this means the market is valuing perhaps the only pure play seed company in the listed markets as just 3000/180 cr = trailing P/E of 16-17 times. I find this very low in a market where so many niche, much smaller, non-scalable B2B businesses are being valued at almost 1.5-2x of Kaveri’s P/E. While there are technology, cotton reliance risks etc. but it seems like a low-downside risk opportunity for a 50%+ RoCE, B2C company with arguably has an opportunity to grow even 10 times of its current size in the long term given abysmally low penetration of high efficacy high value seeds in India and given its track record to reach market leadership in multiple crops. Since the company has already shown where it has invested its cash (mf scheme wise disclosure) and given the large cash buyback etc. I don’t think forensic audit etc is going to come up with anything (don’t know what the heck are forensic audit guys anyways upto its been almost 2 years if I am not wrong).
Not a investor friendly management. two three years back they sold 7-8% share holding at high prices in open market citing reason as they wants to start some food processing business in personal capacity , After sometime , they told that they are keeping that project on shelf considering its viability. Seems it was just an excuse to reduce the stake.
Also they have lost the pricing power as well due to govt control on seed prices. Once it was trading around 1050 levels , never recovered after that. Whenever regulation comes in any industry , it just destroy the value. Pharma sector is one big example.
Disc : Invested since long time
23-May-2018 KSCL Kaveri Seed Company Limit THE PABRAI INVESTMENT FUND II LP BUY 7,79,800 487.29