article on Kaveri in latest outlook business magazine
http://business.outlookindia.com/article.aspx?285285
Regards
Coverage by value research
There is an article in business standard today, saying that cotton prices are falling, which means there is an expectation of lower sowing by around 10-15% for cotton.
http://www.business-standard.com/article/markets/cotton-sowing-to-drop-10-15-113052201093_1.html
regards,
saurabh
There is an article in business standard today, saying that cotton prices are falling, which means there is an expectation of lower sowing by around 10-15% for cotton.
http://www.business-standard.com/article/markets/cotton-sowing-to-drop-10-15-113052201093_1.html
regards,
saurabh
Another report from Business Line, need to compare the data
result out… 1st impression not good…
Inventory rose 62%
but customer advances rose only 25% yoy
Inventory 491cr (303cr) and advances 254cr (203cr)
Impression : it is saddled with inventory and unable to garner advances as in ealier years.
Wow!491 Cr inventory, exactly in the range we had assumed. Now that they have made public their intentions for another great year it would be interesting to see how the market perceives this.
A 62% growth in inventory which should translate into atleast 40-50% growth in sales in Q-1.
RsKm, advances are not the right indicators as emphasized my management multiple times and as we understood when we spoke to the people who pay them advance.
Kaveri looks all set for an encore
Cheers
Vinod
Dicl: I have highest allocation in Kaveri
Vinod,
I’ll appreciate if you can refresh my memory by explaining why advances are not right indicator. Co had said it receives 30% advances in jan/dec and supply begins in jun. Hence, isn’t there a direct link between amount of advances and likely sales.
Why could have advances not grown in same proportion as inventory? (Pls remember there are reports of over supply in bt cotton)
Last year, both advances and inventory had grown by around 80%.
fantastic results from kaveri.
At 12-13 times trailing, kaveri seems a great buy.
another dividend of rs 8 so total div of rs 16 for the year which is another good sign.
Hitesh bhai,
What is your interpretation of 25% increase in advance, but 65% increase in inventory. My concern is that can they sell all of their inventory this time??
RsKm, pls read the posts after our management Q&A and also read the Q&A if you haven’t done that already.
Advances are roughly 20% of actual value of quantity to be picked up by the dealers this year. The overall market dynamics of oversupply has lead to the ratio coming down. This advance system as explained by Donald was partly created artificially by Mahyco and previous leaders by creating scarcity perception. Going forward the seed industry might also gradually become like other agri inputs where there is no advance payment by dealers to companies.
Inventory is built-up based on company’s expectations which are inturn based on ground feedback from dealers and farmers. Yes, there is a risk of plan not going as expected, but considering various factors the odds seem to favor Kaveri for atleast 40-50% growth.
Hope this helps
Vinod
i am a newbee as far as reading balance sheets is concerned. do they take Trades Payable to show the advances taken but sales not done ? if thats the case then we see 100% jump in advances y-o-y
Advances are in Other current liab.
The results are great!!!. EPS growth of approx 300%. The positive sign i can see here is they are growing non- cotton seeds segment very well. when Q3 results were announced, the EPS growth was 282%v(YOY) and was doubtful whether this can be sustained. With the current quarter results and increase in dividend( which shows the company’s confidence to grow) and good cash balance, i am more bullish now.
If kaveri grows by 30-35% for FY 14 and declare of dividend of Rs 22-25 , the current PE should improve.
@subash – regarding the query of inventory and advances, I think vinod ms has explained the logic in it. I think one has to consider fy 12 as an extraordinary year in BT Cotton seeds history where they had a historical demand and hence a lot of pull without too much effort and thus leading to advances going to very high levels.
Regarding high inventory, here I am not too worried as the cost of inventory is not too high and the life of seeds is close to 3 years. What people fear is that growth may not materialise but with our ground level research taken up by donald and team hyderabad, it seems company wont have too much problems doing the promised 20-25% growth. There also remains the pleasant prospect of upside surprises. I think worst case scenario could be no growth and that seems to be reflected in current prices.
Overall, if one sees the bigger picture, the lacklustre quarters-- the second, third and fourth quarter also seem to show good traction and with NPMs of above 10% which is a good sign and needs to be monitored going forward.
Coming to growth for fy 14, I think even if what management indicated – 20-25% growth comes about, it should be enough to provide decent returns.
Currently if one considers growth in earnings for fy 14 to be close to 20-25% then stock is available at around 10-12 PE and there again remains a scope for expansion of PE to around 15 or so and even upto 18-20 in a bullish scenario.
If u look at the company’s growth from fy 03 – the data available on screener.in, it should provide enough confidence to infer that management knows what they are doing.
I cant find too many companies with such a track record (of close to more than 20% consistent growth) over the past ten years available at such valuations of 10-12 PE. If company continues its track record there are huge chances of strong rerating.
Con call transcript available on Researchbytes… Mgt seems confident of atleast 20% topline growth even in the shrinking market.
Looks attractive at current prices.
Would like to ask seniorshow to know in advance the timings & contact no of concalls?? Why isn’t it mailed to shareholders in advance or available on website??
just heard the concall …
mithun is very confident of ATLEAST 20% growth this year. every time the analysts mention the figure 20%, he would immediately say ATLEAST 20%. that means they are confident of doing more but want to be careful in front of the analysts. the nonchalant manner in which he repeatedly mentioned the ATLEAST 20% growth and the concluding remarks (LOOK FORWARD TO BETTER RESULTS) clearly shows their confidence. having said that no one can guarantee any thing considering the ground realities
someone asked how the plan is going on till now for Q1, mithun mentioned its going as per plan
higher advances = lower realization. mrp 930 rs but actual realization last year was 790 rs. this is one of the reasons why management doesnt want to allot more packets in advances. they allot 1 out 4 packets. last year dealer applied 4 packets even though he needs only one packet. this year dealers didnt apply more than they want. company wants to sell more packets in spot (a possibility of small discount not ruled out) to get more realization. this might slightly improve margins
the total acreage for cotton may not decline much considering the current high cotton prices.
most of their growth is going to come from AP as expected.
no capex plans for fy14
Key extracts of research report on Kaveri Seed by Phillip capital with a target price of 1600
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A strong beat: Higher byproduct sales and write back of excess provisions helps: Kaveriresults bettered our and street estimates; largely led by a much stronger topline growthand lower than estimated overheads. In the lean season Revenues improved by about78% yoy to Rs 740 mn; largely led by higher cotton seed byproduct sales (cotton lint) anda write back of excess salesâreturn provision in the previous quarters. Ebitda at Rs 128 mnimproved led by write off excess provisioning on dealer discounts. Overall Profits at 102mn has been way ahead of our estimates of Rs 700 mn. The board declared a finaldividend of Rs 8/sh translating into a total dividend of Rs 16/sh in FY13 up from Rs 4 inFY12. At CMP the stock offers about 1.3% yield.
Key conference call takeaways: 1/ Management indicated excellent sales of currentquarter are likely one off; following higher maize sales as extension of season inKarnataka/ sale of cotton seed lint at costs (Rs 400 mn) and a writeâback of excessprovisions of prior quarters 2/ Microtech division suffered in FY13 following droughtsituation in AP, Karnataka its home markets; expects to make up for the revenue loss inFY14 3/ FY13 Revenue mix (Rs 7.12 bn) â Cotton about Rs 4.2 bn, Maize Rs 1.25 bn, PaddyRs 0.4 bn, Bajra Rs 0.35 bn and rest from sunflower/oil and other seeds and Microtechdivision 4/ Kaveri expects to inch up market share in maturing cotton segment to about20% levels over the next 2â3 years; cotton seed advances have increased by 15% howeverthis is less in comparison to its expected increase in thruput of 20%; expects discounts toincrease by Rs 10/pckt in FY14 to Rs 200/pckt. Cotton seed inventory is alarmingly high atabout 650 mn pckts against annual consumption of 450 mn pckts; however Kaveriindicated to have sold out its stocks entirely. Due to better prices/MSP for Soya bean it isanticipated that sowings of soya crop would increase and that of cotton would reducesomewhat 5/ Guided that Maize, Bajra would grow at 15% in FY14E; has been accreditedwith best hybrid researcher in Maize in India as four its hybrids were notified in a singleyear 6/ Two of Kaveriâs Rice hybrid are notified for higher trials; management holds apositive outlook 6/ Aiming at increasing payout to 20% next year
Reiterate Buy: Kaveri is a proxy play on the emerging high growth seed opportunity inIndia. The seed space is attractive considering the macro opportunity, high entry barriers,assetâlight model, superior return ratios and less regulatory intervention. A stronggermplasm base; huge land bank, sound relationship with growers, brand image andbalance sheet strength makes Kaveri a formidable player in the seed industry. Growthnear term would be led by cotton (accounts 60% of overall revenues); maize and bajra;however a breakthrough in hybrid rice would drive long term growth. Kaveriâs cash andinvestments forms almost 42% of its total balance sheet, has asset turn’s comparable toFMCG (3.9x), free cash flow yield is 3.1% (Free cash flow per sh). It has parked its cashin MF units, giving greater conviction in its real growth. We reiterate a Buy with a PT ofRs 1600.
Corporate action in Q3FY13: Kaveri has acquired 70% stake in Aditya Agri Tech for aconsideration of Rs 8 mn. Aditya Agri Tech (AAT) trades in seeds and Kaveri could likelyuse its network to push Kaveriâs products. AAT earns topline/bottomline of Rs 100/5 mnand thus the acquisition price seems very attractive at about 2.3x Earnings. We awaitdetails on the inventory/debt in the books of AAT. Kaveri has divested stake in MicroteckDivision to a fully owned subsidiary for better transparency and tax comparabilitypurposes. Microteck accounts for 10% of Kaveriâs topline and likely a less focus as well.
is Kaveri paying MAT or being an agricultural co exempted from that also?
What abt one off gains in 1st qtr of cotton lint sale n reversal of excess provision done earlier? hence shud we tone down the expectation of next year EPS slightly.