Following post (originally from Kaveri Seed thread) is copied here, for better segregation and discussion focus.
The above post was from a long-term perspective on Kaveri. And I certainly invite views/critique on the same from all. However, would venture to say anyone who has invested in Kaveri post the call in August 2012 (and updated ValuePickr Scorecard Dec 2012) anywhere between 800-1200 levels, has a good margin of safety built-in, and can sit pretty for next 2-3 years, and keep enjoying the ride!!
But there are some more adventurous amongst us, who also have a quest to understand Markets better - how they operate & why they operate so - in a bid to keep getting better at the game - especially better Capital allocation. Where is the best bang for my buck?? I can only echo Hitesh's words -We must learn to RIDE different businesses, differently.
Kaveri is sure one unique business to have in our Portfolio to take advantage of. Q1 does anywhere between 65-70% of the whole year business. A High quality (intellectual Property) Business where you keep getting better (once you have 1 highly successful hybrid, chances of producing the next successful hybrid is much higher, 1 hybrid you can ride for 5-6 years) unless you goof up on execution - calculated-risks while scaling up production/marketing. Sure, its a very attractive bet for the long-term.
What amazes me (when I think about it) that it is also a very very good opportunistic bet, for 3 months every year. just 2 months - May & June decide, what happens to the near term prospects for the company. What is even better, if you think long & hard about it, the Variables are only 2. a) Demand for its leading Hybrids, b) Production planning/execution by the company. All other factors - Monsoons, Competition intensity, etc do not affect performance by more than 5-10%, amazing, but that's how it is!!
So cutting the long story short, I would like Market Experts to comment on how they would play the stock from here on, in the Short-term. (neglecting any long-term allocations by you). Hitesh, Ayush, Nooresh, Hemant, Bala, Safir, Tony, Others??
What actions would you take pre and post Q1FY14 results?
a) Given the perceived high uncertainty over Sales, if your avg price is ~1200, and price crosses 1600 before results (we probably have a month for that), will you be happy to pocket a cool 33% (since this is in the bag, and you reckon this wont sustain if company does below company guideline of 20-25%
b) Would you do this for 50% of allocation, or more?
c) If instead of consolidating at CMP (~1500) for some time, price crosses 1600 very fast, what would change in a) & b) above
d) Say couple of more reports come out, and If it crosses 1800 before results?? What actions will change wrt above
e) Will your actions completely depend on the Technicals (that your read for next 3-4 weeks)
f) What if I told you (forget the Skeptics) the company will easily do 60 lakh packets this year (50% higher Sales)- our dealer survey has a margin of error of 5% or less, and you fall for that - would you allocate less sales pre-results? By how much?
g) How much minimum allocation, would you keep for post-results? or none at all, given above possible price actions?
Please feel free to substitute/add to my questions with those that make sense,any that will enrich us in understanding Opportunistic Capital allocation, better!
Cheers. Keen for some insights from you guys
Long time ...on Kaveri. Been pre-occupied last few weeks with health issues of elders in extended family.
Here's my quick take on valuations front. Revised upwards post the Q4 results, butfactoring in a 1% drop in OPM to 19% levels(higher competitive intensity).
|Numbers||Base Case||Best Case|
|Sales (lakh pkts)||50||60+|
Feedback from the ground:
a) Kaveri may do very well in AP. While it dominates in Coastal region (20-25 lakh packets), it is reportedly equally in demand as Nuziveedu in most of Telengana (60 lakh packets) except Adilabad district.
b) Feedback from Maharashtra remains mixed. Hingenghat (Wardha region) reports lacklustre activity dealers fear Kaveri share may fall even, but Amravati (Wardha region) reports encouraging feedback for Jadoo, Jackpot, ATM. Yet to get through to Yavatmal, another very important region in Mahrashtra.
Maintain as before, that Maharashtra Sales is unlikely to impact overall Sales figures, either way. (2-3 lakh packets up or down may not matter).
Net Net, the investment premises haven't changed. Re-iterate Kaveri is a long-term story. If they do well this year, next year will be much easier ride for Jadoo-ATM-Jackpot which look good to continue for next 2-3 years.
By that time Rice Hybrid story will start kicking in, where again Kaveri Seed is one of the leading players. Our next Management meet with Kaveri (around AGM) will look to focus on the longer-term Rice Hybrid Story.
Disc: Accumulated significant holdings in Kaveri Seed. Pre Q4 results, had completed all my buying till ~1200. Post Q4 results, revised estimates upward and continued accumulating till ~1400. My views are certain to be biased. Above data does not point to/recommend buying at CMP (~1500). Please do own due diligence.