Kaveri Q2FY21 Concall Notes:
Was a good concall and all of the issues were addressed including the tax/legal issues. Posting my notes below.
- On tax/audit issues:
Direct question was asked about this and finally a direct answer too. No pending litigations or notice against the company confirmed. Concall was a bit inaudible here but from I understood there’s no issues anymore(there was some inaudible audio here that mentioned a case that Kaveri has filed that’s in court but they double downed on no litigations and notices VS kaveri) - On AP and Telangana:
Company dint seem too bothered about Telangana since it’s only a few districts in Telangana that cause issue with seeds and pricing competition and they lost market share to some new players . The same were well received in Maharashtra , Gujarat and a couple other states so they don’t care at all about Telangana and it won’t affect them since growth elsewhere is huge. Also, no more loss in market share expected. Infact in 2 years Telangana will pick up again. Volumes will be maintained and market share will increase all across India except the 2 districts in Telangana - On Long term Guidance:
Nothing changes for the long term guidance ie the 7 year guidance that was given ie 10 to 15 topline and 20 bottom line even if cotton stays flat or de grows - On buybacks:
Will be done next year after 12 months pass from last buyback. No capex needed as of now for growth to be maintained so it will be distributed to shareholders. Buyback over open market since they want shareholders to benefit more. - On Inventory:
Cotton sales were not as expected so inventory is up. Sales for cotton will be muted rest of year too. So inventory will continue to be high. Inventory will be used next year though so it won’t be an issue next year. Small inventory write-offs will be there as per usual. Entire year write off should be 15 to 20 crores which is the usual every year - On Maize:
Prices are low (13 to 14 instead of 20) and this year won’t be as good as last year. But rice, vegetables and wheat will cover the deficit here so overall no issue this FY. Going forward expecting it to be the preferred crop for farmers going forward. So long term no worries here. - On receivables:
No collection issues seen and most money will be collected. Can’t see any bad debt here. Better than most companies - On other income:
Investments mature and they book. Nothing untoward and historically has been similar and they’ll continue booking as and when required - On employee benefits:
First quarter benefits have been added in this quarter. Esops have been added too. Will go down back to normal next quarter - On exports:
Already exploring. Nine countries in the pipeline. Majority in Bangladesh. Pakistan affected due to covid. However export market is for the long term and over 5 years expect it to come to fruition. - Overall Market share and next quarters:
8 to 9 percent across India in hybrids.
Coming quarter will be similar to last year quarter. Even with maize cut down better placed than most in market due to product mix. H2 could be flat due to maize but could compensate with vegetables ,rice, wheat. Will grow faster than the industry next 3 to 5 years - Other expenditure decline reason:
No royalty this year. Also, travel expenses decleined in Q1 due to pandemic. But overall mix that gets covered due to other expenses. - If no good rainfall in next few years what happens in southern states?:
Improved ground water etc will help even if monsoon isn’t as good as this or last year. So sentiments have improved. But good monsoons will always be key. - Can paddy be the next big growth crop and beat cotton?:
Can beat cotton going forward. Top 3 in paddy and will grow above 25 percent next 2 to 3 years. Cotton is double paddy right now. Overall non cotton will be 58 to 60 percent soon and cotton will be 40 to 42 percent in 2 years - On vegetables:
Huge market and very positive about the future in chilli, okra and peppers. Will grow at 25 to 35 percent in vegetables. Should be at 100 crores in 5 years.
Disc: invested. I may have misheard some parts. Overall, all red flags were cleared and the audit worries don’t look present anymore. Guidance for 5 years looks good. Growth engines are in place. Cyclicality has been neutralised with product mix. Dependancy on cotton will continue to reduce. Shareholders will get benefit of the cash in hand. And it’s still at a single PE valuation 