Can anyone share reports on overall outlook on various seed companies ? Looking management commentary and AR, I am invested in Nath Bio-genes, one of the oldest seed company in India. My views on that company is it’s thread.
Can any seasoned investors offer a comparison among these on future prospectus of growth ?
Quite a lot of trading activity over last 2 days (19 and 20 Feb)
Source: Trendlyne
Entities and number of shares traded below:
| Client Name | Purchase | Sell |
|---|---|---|
| ALPHAGREP SECURITIES PRIVATE LIMITED | 1,210,643 | 1,209,439 |
| CENTILLION RESEARCH INDIA LLP | 828,221 | 828,221 |
| CROSSLAND TRADING CO | 1,641,654 | 1,641,654 |
| GENUINE STOCK BROKERS PVT LTD | 493,868 | 493,868 |
| GRAVITON RESEARCH CAPITAL LLP | 1,370,331 | 1,370,331 |
| MAHAVEER COMSTOCK TRADIND LLP | 448,266 | 446,766 |
| N.K. SECURITIES | 480,439 | 480,439 |
| PURITY TRADEMAX LLP | 630,673 | 630,673 |
| QE SECURITIES LLP | 372,664 | 372,471 |
| SHARE INDIA SECURITIES LIMITED | 693,570 | 702,570 |
| VAIBHAV STOCK & DERIVATIVES BROKING PVT. LTD | 1,013,937 | 1,013,937 |
KSCL is going to buyback 28 lakh shares @ Rs 700 per share for a consideration of 196 crores.
KSCL has to pay Rs 106 per share buyback tax to buyback shares at Rs 700. Rs 106 is 20% of Rs 530 (Rs 700 [Buyback Price] - Rs 170 [Issue Price] ).
Total outgo for this buyback exercise would be 225 crores (196 crores + 29.68 crores). Assuming they get 55% of 196 crores, they will pocket 107.8 crores but long term capital gains of 10% on 530 (700 - 170), will be Rs 53 per share which amounts to 8.6 crores. Promoters end up with 99.2 crores.
Instead if they had given Rs 196 crore out as dividends, it would have cost an extra 39.2 crores as dividend distribution tax. Also, the promoters with 55.09% of the holdings will have shelled out another 10.78 crores on dividend tax above 10 lakhs. The promoters would end up getting Rs 97.02 crores without dilution of their shareholding (assuming the company can buyback only 55% of the promoter shares bought back–could be wrong here).
So buyback costs the company 225 crores whereas a dividend of the same amount will cost the company 235.2 crores.
Why didn’t the company try to go via the open offer route. They would have benefited themselves by increasing the intrinsic value. It makes little sense to pay more for something that can be bought for less. Tender offer seems patently value eroding. So is this an example of bad allocation of capital?
Why do very few companies in India choose open offer ? Eclerx is an example of company that went for repeated buybacks at high premiums. Selan exploration is an example of company that went via the open offer route. It seems like Eclerx’s buybacks eroded its value. Not clear whether Selan’s buyback helped or not yet. Why not increase the intrinsic value of the company by going the open offer way?
Also, I am sure I have missed something in my attempt at calculating the payout. Please feel free to correct me!
Finally, buyback tax should have been applicable only on tender offers and not open offers.
You are right though DDT is 15% incase surcharge is added it comes out to Approx. 20% I ha calculated using both 15% and 20.56% the difference is huge approx. 1 is to 2
Disc: Currently no holding I am not Sebi approved analyst This is not any Sell of buy recommendation
Kaveri seeds Q320 very rough call notes
we have grown 55% revenue growth…its from volumes…mainly from hybrid …price increases are 1-2% annually only.
have increased market share…hybrids grown well
we focus on south and rain fed conditions. we are only Indian company…we are competing with MNC cos
slowly getting into Rabi products in last 7 years…gaining slowly
profit is 50-100 rs higher per packet
we were selling 1 cr packets earlier…now we selling much lower
last 3 years been doing buyback
we need 300 cr cash of warchest over that will want to do buyback/dividend…nothing else to deploy…in few cr capex…20-30 cr annually…we can grow 15-20%…
maintain 15% growth…(cotton 10-15%…non cotton 20-25%) growth
rice hybrid market is …43 mn hectares…rice cultivation….3.5 mn is hybrid…10% penetration….
hybrid vegattable seed market 2500 cr market…many players many small players….much lower hybridization…
3-4 years ago…cotton seed …we were taking advances from dealers…as cash discount. farmer was picking up. we have postponed tking advances…now we have restarted…taking advances…industry also doing now… this is only in cotton. ; prices are down so much and production cost gone up…even though our margins are higher than industry….we give low dealer margins versus competition… as we have high demand for our seeds. Dealer is happy to take our seeds without paying advances
Kharif was poor…this year but Rabi has started well…as enough water. sentiment is v good, dams are full. end of day…monsoons arrival…depending for next kharif…if monsoon delayed…will depend on monsoon next year
some cos saying…enough water. for timely sowing of .kharif season as well; Kharif is rain fed… (water is good for Rice as that’s well related cultivation0; cotton …maize…crops need monsoon…most Indian crops are under rain fed
Production cost for cotton …shouldn’t go up…we have changed some techniques…
cost of goods includes …write offs : 4-5 cr in this quarter…regular…and comparable previously.
Cotton inventory : we have enough inventory…9-10 lac/mn packets inventory. Pink ball worm….farmers are v much aware and are spraying pesticdes for the same
employee costs is up…due to one time…this qyarter…we give incentives instead of other…going forward should be 15 cr…we have added more people…that 19 cr…should be 15 cr
Industry wants to increase cotton price…and govt wants to decrease…always…remain such
cost per packet…GMS technologies…pollination new techniques…educating farmers…choosing of locations so that we get good yield…slowly translate…into cost reduction…in 2-3 years…
350-400 rs …cost of produciton ( go down 10-15 rs…)
revenue mix : 50: 50 cotton : non cotton…going forward…40% cotton…in 2-3 years……non cotton : hybrid…Rice, vegatbles…maize, bajra
20-30 cr capex for next 2-3 years
anyone seen the same ? …also they haven’t moved to big 4 auditors already?
This story is very interesting with the recent promoter buying and valuations.
A few longer term questions:
If government approves, GM Mustard and GM Brinjal (BT Brinjal), would Kaveri license this technology from Monsanto and produce hybrids from it?
As of now, I don’t see any movement to fix prices of non-cotton seeds. Anyone aware of any thing in motion that might fix prices in the non-cotton segment?
Cotton prices have crashed globally. How to see the impact on planting activities?
When Kaveri got suspended earlier by Andra Pradesh for selling unlicensed seeds and got unsuspended immediately, do we know what was Kaveri’s fault and what actually happened in this incident? I know they agreed to put some preventative measures to stop this from happening again, but I’m wondering what happened here in the first place.
Hello Friends,
I am new to this forum and would like to share my understanding of this business - KSCL.
Thank you.
Hi guys, i have been following Kaveri seed since last 1 year. came across it when I studied Mohnish Pabrai’s holdings in it.
Means it’s rarely one of the companies which nearly fulfils all the points in my check-list.
and their buyback in month of march & april 2020 is simply mind-blowing.
The only ONE THING which is preventing me entering this stock is the REGULATORY OVERHANG.
Means our government / any government ( being conscious of vote banks) will always favour farmers. If its so, why can’t Government cap on the prices of seeds in the future, just like it did for essential drugs in Pharma industry.
And if Government can cap the prices of seeds, then it doesn’t make any sense in investing it it anyways.
PLEASE SHARE YOUR OPINIONS.
Thanks in advance
Vikas
Dear Vikas,
Let me share my views,
To my knowledge , government controlled price of Cotton seed due to monsanto Royalty issue.
But KSCL is entering it to othere areas like Hybrid Rice and Vegetables which is not price controlled .
Hope it Helps.
Thanks for the quick reply Gautam. But then why can’t government control prices of Hybrid Rice & vegetables?
Vikas
In Telangana, there is some momentum towards such regulation in the name of Comprehensive Agriculture Policy. It seems to be an attempt to align cultivation patterns with the market needs in order to achieve higher profitability to farmers. Such regulations will certainly affect agro companies. Some may reap benefits and others may loose.
Farmers must grow what Telangana govt tells: Experts Read more at: http://timesofindia.indiatimes.com/articleshow/75666121.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
With Monsanto it was about royalty issue and thats why government has to intervene .
Inspite of having no patent on Bt cotton seed, Monsanto started to collected royalties from Indian farmers, pushing up the cotton seed price by about 71,000% (from Rs 5 per kg to Rs 1,600 for 450 gms).
KSCL is not going to collect any royalty as such , they are going to make hybrid seeds and its their product which they will sell. If farmers want they buy it, if they dont they will go to other seeds. There is no royalty involved.
Yes, there is a possibility that Gov in future can control the seed price of Veg and Hybrid Rice. But it depends on how KSCL charges and manages it .
Even if we see the worst which already happened for BT Cotton and KSCL was still able to achieve good profits of around 200Cr/Yr for last 3 Years.
Established players like KSCL will always thrive in this environment irrespective whatever happens. Many unorganized players will go away and only few like KSCL will benefit from this transition . By that time that happens, PE will get re-rated.
P.S -> I am sure Mohnish Pabrai would have thought about all this points we are discussing here . He is such a brilliant guy . To my understanding he has good number of Checklist created for last 20+ Years of his experience. KSCL should have checked all of them to make him buy around 8-9% of entire company.
Why International cotton price is around 90-100 Rs per Kg While Farmer get only 35-40 Rs? Plz Clarify it …
Amazing Q4 results -
Q4 2020 - 7.6 Cr ( Prev Yr (11Cr) ] .
Cash at the end of this year - 778Cr .
Gradually the company converting the dependence on single quarter for bottom line. For the first time, all four quarters contributed positive bottom line. This is great news for the investors in the business.
good nos from kaveri.cotton prices crashing.what cud be the adverse impact due to it ? non cotton business doing well n buybacks also happened.
This is my largest position currently. The market was really surprised (incl me) when the management doubled down on 15% revenue growth with 18-25% profit growth guidance and a 48 EPS for next year. I added more stock right after (at around ~430). Surprise was, even though the commodity prices crashed, management says acreage did not reduce and Kaveri can grow. Where can you find cos that can grow through these environments, recession or not, at these prices?
The stock has really high ROIC, that they can grow despite returning all the cash to the shareholders. At 500/share, it’s at 10x forward PE with 20%/year growth, as well as 200 Cr/year capital being returned to the shareholders in the form of buy-backs or dividends. Still very cheap if the company can deliver like it has over the past 1-2 years.
The cos who can return all the cash back to shareholders and still grow, command insane valuation premiums in the market. Because of the following:
Stock holder returns = 10% earnings yield (with entire earnings being paid out) + Earnings growth rate (20%/year) + PE re-rating.
On a constant PE, without re-rerating it’d create 30%/year kinds of yields on shareholder’s pockets and is too good to be true and unsustainable. Therefore PE needs to re-rate upwards till there is fear of PE de-rating to keep stock holder returns in check.
