Hi,
Any idea why Kaveri Seed is falling? Anything related policy on cotton?
Cheers
Vinod
SOS
Urgent opinion needed on kaveri seed
Is it worth a big position for say next 2 quarters ?
Any negative surprise which could pop up?
What kind of moat do they have? I read somewhere that competitorās can very easily copy the seeds so where is the moat?
Hitesh bhai, Donald can you please take a refresh look on the name?
Thanks in advance
| Feb 2013 concall summary |
| Q-3 was exceptional due to maze season being very good, may not repeat in FY14 Q-3. |
| Kaveri is the market leader in Maze and it contributed 13% revenue in FY13 so far. When cotton acerage goes down as it did in 2012-13, maze and soyabean acerage goesup. |
| Maze has higher margin than cotton. Only cotton has price restrictions and hence low margins. It is partly due to involvement of MNCs in BT cotton. |
| Company bought 70% stake FOR 18 LACS in a small com called Aditya agrotech for its inventory and distribution in non-represented ares and channels. This com is expected to give 25 Lac PAT in FY13 |
| Cotton acerage reduced by 10% in 2012-13 and is expected to further reduce by 10% in FY13-14 due to lower cotton price. |
| Cotton sales is expected to be 3.6 to 3.7 Cr packets in FY14. But the market already has left over packets of 2 to 2.5 Cr unsold. |
| This inventory will not affect Kaveri's sales as better seeds get sold fast. Kaveri and Nuziveedu doesnĆ¢t have any usold packets due to better seeds. |
| Since seeds have a life of 3 years this inventory might be written off or sold subsequently by the respective cos. There are 42 cos in cotton seed bus. 8 players contribute 75% sales |
| Kaveri has already received Rs 180 Cr in advance from dealers inspite of this unsold inventory in the market. Expected advance is 200 Cr. Com says its is not an indicator of 2014 sales |
| Advance will depend on many factors like unsold inventory, expected reduction in acerage etc. Com says inventory is a better indicator compared to advances to predit future sales |
| Inventory as on 31st march 2013 expected to be 25-30% more than what it was last March |
| Management is confident of atleast 20% sales growth in cotton and all other segments including Microtek. 20% sounded like a conservative estimate. |
| Kaveri market share should increase from 10% due to growth when industry declines. Same performance happened in 2012-13 when cotton acerage fell by 10% and com grew by 90% |
| Nuziveedu has 25-30% mkt share, Ajith, Mahyco, Monsanto - 6-7% and rest is with rest of the 42 diff cos |
| Microtek has been converted to a 100% subsidiary instead of a division to give more focus to that business and for taxation purpose |
| Out of 630 Cr reveue in 2FY13, 360 Cr is from cotton, 125 cr from Maze, 40 Cr from Paddy, 32 Cr from Bajra, 16 Cr from Sunflower, 18 Cr from Microtek and balance other crops |
| Current market share in Paddy is 5%, 13-14% in Maze. Rice hybrid penetration is increasing since 2011-12 due to better seeds being intriduced by cos |
| Expect rice acerage under hybrids to increase from 2.5m hec to 7.5m hec in 5-6 years time. Lack of a really good hybrid in rice segment is the main reason for underpenetration so far. |
| Cotton has penetrated to 95% levels in India now - 95% of cotton cultivation is using hybrids |
| Kaveri's blockbuster cotton seeds, Jadu and Jackpot, have not reached their peak sales yet. After reaching peak the life should be 4-5 years before which better seeds have to be introduced |
| 25 Cr expected from vegetables in FY15-16. Com has already introduced the seeds last year. |
| Track cotton price in May to see if there is any big decline. May-June is when seed sales to farmers happen. |
| Current cash+equi amounts to Rs 110 cr This is my version of the con-call, it would be great if you can listen to the Feb 13 concall I see lot of disparity in the market share data of peers compared to our last Q&A. Cheers Vinod |
1 Like
Kaveri Seed Management Q&A scheduled next week in Hyderabad. We will be a meeting a couple of distributors and one or two folks from Competition before the meet. We had the good fortune of interviewing Fmr Director R&D Monsanto recently.
This equips us well to extract the most out of the Management Q&A. The focus this time will be on (to be refined)
a) Pinpointing top markets (geographically) for Kaveri - how much from AP, Maharashtra, and how little for Gujarat, e.g.
b) Establish competition performance in these regions - and thus sustainability
c) establish BT-Rice prospects in 3 years time - Is this really as big as it seems, and where is Kaveri placed today with trials, field data, approvals, yield performance & quality
d) focus more on other key crops like Maize - will the good performance sustain - or it is always at cost of another crop
e) focus on long term scalability challenges - especially on production/supply side
f) gather on-the-ground data - demand/advances situation of competitors/Kaveri for coming season
MS Vinod is walking the talk, and rapidly becoming a value-added asset for ValuePickr community. He is accompanying us for the Management meet, as is Team Hyderabad.
We understand this business pretty well. Go thru the discussions and earlier Management Q&A. We have some time - send in your in-depth questions/pointers/suggestions latest by Tuesday 19th EOD. We will try to assimilate all angles as possible for probing deeper and extracting better quality information.
-Donald
donald and vinod ms
thanks for taking the initiative to get further insights on kaveri. Some questions that come to mind regarding the company
1). What will be the future growth drivers? It seems rice could be that growth driver if the company succeeds to a bigger scale? What is the current situation with regards to rice hybrid?
2). How are the vegetable hybrids shaping up for the company?
3). Inspite of a higher base, cotton is still expected to be the top revenue earner for the company. Is that a correct premise?
4). Regarding corn/maize hybrids, does the company have to pay royalty?
5). Try and get a brief idea about the margins in various seeds-- that should give us a comparable picture for margins in various hybrid seeds. From what I understand maize has higher margins as compared to cotton.
Hi,
As per Management there is a possibility of loweracreageof cotton this time. How does management plan to counter suchcyclicalityin crop sowing?
In case demand for Cotton is low, can company carry forward the seeds inventory to next year? Broadly, trying to understand that is their a big Fixed cost involved in seed production.
regards,
saurabh
Hi Saurab,
The cotton seed has a life of 3+ yrs. As per management all the inventory that they have are fresh inventory being prepared for 2013-14. Hence these seeds can be stored till 2016-17.
Last year the cottonacreagecame down by 10%, but Kaveriās sales went up by 90%. This year again another 10% decline inacreageis expected by management but currently not perceived as a risk as they have ample room to again garner market share from low performance seeds.
If you read the summary of Feb con-call given above you will have a better picture.
Cheers
Vinod
Hi MS,
Thanks for the info :). Got it.
What i was trying to understand was does seed production involve higher fixed costs or higher variable costs. So suppose in a very bad year if KSCL has higher fixed cost model then the chances of them not doing well are high.
In India, with the randomness involved in Agri crops, KSCL can be well positioned if it has Low Fixed cost, high variable cost model. How is the company doing on this front? Any thoughts on this.
regards,
Hello group,
Amazed by overall efforts done by this community. I am currently out of India in US, so cant help much to investogate at field level but wanted to give another perspective as well. Although below does not directly Kaveri business but still wanted to put here for Kexveg subsdiary. Here in US, though not required by regulations, many companies have been putting NO-GMO labels on food items and they are sold at little premium to products containing GMO foods. There is segment of people which does not believe that there is enough research and data available to make sure GM foods are as safe as non- GM foods. in EU, I think foods are supposed to be labelled as GM/NOn gmo (so people have choice to buy what ever they are comfortable with) but not in US, and I think it will not be followed in India as well. Anyways knowing Kexveg does not contribute much to revenue as of now, but thinking of future growth drivers, vegetable hybrids may have long way to develop and to be considered safe for consumption.
Personally, If I have choice, I will not buy GM vegetables.
Hat off for marvelous done here.
HI Saurab Arora,
Thank you for the info onacceptabilityof GM vegetables.
There is a vast difference b/w GM seed and a hybrid seed. Hybrid seeds do not have a GM input. Without GM itself there is huge potential for seed industry. For example the hybrid rice seeds currently being produced are not GM ones. Still they can be a big game changer as and when Kaveri or other seed companies come out with good hybrids.
Cheers
Vinod
Hi Saurabh Shankar,
Seed production is done in about 80000 acres of leased out land. So there is not much fixed cost here. But one has to plan in advance for next years sales and so if planning goes wrong, will be left with inventory.
Company can opt not to produce next year if large inventory is left with them, so the variable cost is not incurred next year.
Hope this helps.
Vinod
Visit to Hyderabad for Kaveri Seed Management Q&A went off smoothly. Thanks to the untiring efforts of Tirumal Rao and Omprakash, we have been able to cross-check data with a couple of distributor/dealers during the visit. More work needs to be done on this front - to nail the specifics - before we can decide where the odds lie:).
Some quick comments/observations on the overall findings, as I take some time to put up the Management Q&A details.
Comments below, relate mostly to the Cotton Market
1). Overall Cotton Seed market is expected to shrink by 10% or so from last year when roughly ~4 Cr packets were sold. So this year is more like ~3.6 Cr packets are expected to be sold.
2). This has not prevented the bigger players from growing ahead with big plans. Most of them (except Nuziveedu) are reported to have doubled or tripled Production from last year levels.
3). It is no secret that the Market has excess Inventory for 2013 season. Carry-over Inventory from 2012 season is ~2.5 Cr packets. And new production expected is like ~4.5-5 Cr packets. So totally ~7-7.5 Cr packets will be available, but Market may not absorb more than 3.5-3.6 Cr packets, as acreage is likely to shrink by 5-10%.
4). On one side the bigger players with performing hybrids seem confident of doing much better than last year - Nuziveedu, Kaveri, Mahyco, Rasi, Ajith, Ankur (all have done upwards of 30-35 lakh packets atone time or other). This CONFIDENCE is on the basis of their performing hybrids!! Even a DCM Shriram has been doing extremely well in North India with 20-25 lakh packets.
5). On the other hand, there are many smaller players with 5-10-15 lakh packets annual sales, some even lesser. For these guys (already carrying excess inventory from last season) its a do-or-die, survival situation. A second consecutive season of carrying majority unsold inventory will mean them going out of business.!!
6). What lies ahead is an extremely competitive season ahead. Where the bigger and smaller players have no choice but to compete very aggressively. Local market promotions, dealer/distribution commissions, credit-sales, et al.
7). Those with the better performing hybrids obviously have a better chance. Farmers already tasted/having exposure to significantly better-performing hybrids are more than likely to stick with the leading hybrid of their respective region/pocket. Mahyco may be able to capture back some of the lost market in last season (due to their excellent reputation in previous years) in certain regions/pockets.
8). Kaveriās āJadooā has been doing extremely well in some regions. It is the number 1 in Coastal AP. Jadoo drives ~70% of Kaveri Cotton sales. Its other hybrid ATM has also done well in 1 or 2 pockets. In comparison Nuziveedus top Hybrids Mallika and Banni together reportedly account for 50-55% of Nuziveedu Sales.
9). Management maintained its guidance/confidence of increasing sales by 20-25%. They are also confident of maintaining margins at similar levels despite higher sales & marketing overheads in coming season, because of higher volumes.
The debate can swing both-ways on the odds of Kaveri being able to maintain/increase its market share in an over-competitive marketplace.
**Views are invited.**Where do you think the odds lie!
I will next be putting up some tables that try to map region-wise/district-wise, the bigger players and their dominance pockets. We are working on getting more precise field-reported data. And encourage everyone in AP and Maharashtra to make that special effort to help us dig-out more information. AP (90 lakh packets) & Maharashtra (150 lakh packets) together comprise 60% of the cotton market in India. Kaveri derives most of its sales from these regions too.
Disc: I hold minimal positions in Kaveri from just before last Management Q&A. I have not been able to meaningfully add to initial positions since then. There seems much higher RISKS this time for Kaveri, but so can be the REWARDS. I certainly feel its worth putting in more efforts, bring out region-wise details, to establish for myself where the odds lie. My gut-feel though goes with Kaveri:). Beware, I am an eternal optimist.
1 Like
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KAVERI COTTON MARKET PRESENCE 2012 (lakh pkts)
2013E (lakh pkts)
2014E (lakh pkts)
Andhra Pradesh
5
16
Maharashtra & MP
5
13
Gujarat
1
2
Punjab, TN, Karnataka
7
10
Total
18
41
50
- Kaveri Management expects most of the FY2014E growth to be driven by AP & Maharashtra.
| KAVERI ANDHRA PRADESH PENETRATION STRATEGY? | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jadoo Hybrid has seen very good acceptance, post Neelam cyclone. The plant is tall with strong stem. Ball-to-Ball distance is less. Makes for easy plucking (just a finger tap is enough), a leading non-Kaveri distributor told us.
Management added that additionally Jadoo has shown some tolerance to Sucking Pest. The best part about Jadoo is its higher yield. The plant rejuvinates and gives a second yield which is 30% of the first. Management maintained Jadoo has shown good acceptance almost everywhere - not just Coastal AP. Adilabad district is the only one where Jadoo has not done well. Even in Telengana Jadoo has done well esp. in Khammam & Mehboob Nagar districts. Also in Medak district.
Hi,
To add to the above - Jaadoo can cater to 70% of areatargetedby Kaveri. So Jaadoo is their big engine of growth. Its sales would have increased 2.5 times this year! This wider acceptance is expected to help it grow further through word of mouth publicity.
Jaadoo is a star while producing seeds too. Because of higher yield during production the farmers who signup for production partnership also benefits from it. Hence Jaadoo could also help Kaveri to decrease cost of production compared to others.
Cheers
Vinod
| Andhra Pradesh Cotton Market Mapping | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Notes:
This is what I understood from discussion with Distributor1: Non-Kaveri. We are looking to cross-check/refine/improve the data/understanding with a Kaveri distributor (4 Telengana districts). I have also been promised field-visits to important district-markets by Team Hyderabad, after identifying more dealer/distributors. Mahyco is reported to have received good advances from most of the big districts except Warangal (where there was the black market issue last season).
Your active encouragement/enthusiasm may actually rub-off on Team Hyderabad and hasten their field visits:)
1 Like
Donaldā¦as usual great work at ground level.
appreciate efforts of TH.
disclosureā¦Major Holding.
Great work again donald and team hyderabad - t rao, omprakash and vinod ms.
From the details given it is as donald mentions a very very dicey call to make on kaveri.
Managements across the board will always maintain optimism for their companyās prospects so one has to take these claims with a pinch of salt.
With such a huge inventory looming over the markets with shrinking acreage, competition should be cut throat. Now it needs to be seen how things pan out.
As usual these kind of situations seperate the men from the boys and I expect Kaveri to emerge winner from all the details of the efficiency of seeds mentioned. No farmer would compromise on quality of seeds especially if it is going to give him 30% extra yield at practically no extra cost.
Question remains how well the management and sales force communicates the facts about their seedsā superiority to farmers.
After all the details one gathers, the key aspect remains on how much allocation one can make to kaveri going forward.
Post june 2012 results it was a no brainer bcos the best quarter results were out and we were getting the stock at around 10 times (9 times in hindsight) earnings for fy 13.
Here the situation is sticky bcos june 13 (first qtr of fy 14) results are almost four months away. With the markets behaving the way they are, I think gradual accumulation should be the strategy of choice.
Hi Guys,
Kaveri Seed Management Q&A, Mar 20, 2013uploaded.
This should give you a more complete feel of where the odds are stacked.
Next, we may like to concentrate on where do we see major RISKS.
a) Given the over-supply situation vs Kaveriās product strength - do we see the company do atleast 20-25%?
b) Do we see Taxataion as a big issue - given that some companies still pay tax at full rates?
Team Hyderabad will continue to feed us more on-the ground data from Telengana and Coastal regions for a better grip.
-Donald
Disc: I have been buying in small quantities, incrementally.