Kaveri seeds company limited -- kscl

[Prdnt_investor]

Media reports also points towards lower sowing:

http://in.reuters.com/article/2013/06/10/india-cotton-idINL3N0EM2C420130610

“Cotton is seen extending gains due to concerns over lower acreage. Farmers in Maharashtra and Rajasthan are seen shifting to soybean and guar for better returns,” said Chowda Reddy, a senior analyst at JRG Wealth Management.

http://www.business-standard.com/article/markets/cotton-sowing-to-drop-10-15-113052201093_1.html

According to projections given by theTextile Commissioner of India, the area under cotton cultivation is likely to be around 11.77 million hectares in 2012-13. In 2011-12, the area under cotton cultivation was reported at 12.17 million hectares.

Added Piyush Kotecha, a Gujarat-based indenting agent: "Farmers have no option but to sell their produce below the MSP prices as they need the money to buy cotton seed for the upcoming kharif season. CCI and Nafed (National Agricultural Cooperative Marketing Fedration of India) have intervened in Maharashtra and Andhra Pradesh, and have managed to increase the price of kapas, but have not done so in Gujarat and thus farmers here have sold their produce below the MSP."

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[bandlab1]

today local newspaper reported completely different picture on cotton acreage. last year the acreage went up by 22% (can someone confirm the actual pitcure) from 17 lakh hectors to 22 lakhs. and this year its expected to go up by 10-15%. since other crops and mirchi are not profitable, farmers are favoring cotton. this is in AP. in rajastan, punjab, haryana it may go down to 14 lakh hectors from 16 lakh. in maha, gujarath same acreage

[Donald]

2nd Maharshtra Update: 18 June, 2013

From a really authoritative source, someone who has much more of a birds eye view:)

1). Yes there is a shift away from Cotton to Soyabean & Maize. Cotton Season is almost over, Soya/Maize season is still on for about a week more. At the start, the shift away from Cotton was expected to be more severe ~20%, but probably that has not played out. It’s still premature to give a precise figure - more likely in the range of 7-10%.

2). Ajeet 155 has been the biggest gainer - smart placement/marketing. They ensured adequate supply (with a perception of not enough supply) ably supported by the Trade. Nuziveedu and Ankur will maintain stable last year levels. Mahyco sales would have been stable or very marginal growth. Kaveri is the other company to have improved its position from last year levels.

3). Margins picture - Cotton is no more a “margins” play. Only Ajeet might have held margins this year. Everyone else will have to contend with lower margins atleast for the next 2 years - till inventory oversupply lasts with the big companies. But field crops like Bazra, Maize, Sorghum - they are all having a great year with high margins.

[Donald]

Key takeaways from the 2 reports: (in the context of Kaveri Seeds)

1). While estimates about shift away from Cotton may differ, that is not really material. What is material though, is that there is clear agreement that Kaveri will improve its Maharashtra sales over last year

2). Margins (cotton) will be hit.

3). The counter-point to this is there are regions (especially in AP, Telengana) where Maize has been preferred over Soyabean. There are reports of 2x-3x Maize Sales than last year which should help Kaveri shore up on margins. (Kaveri is #3 in maize Sales)

All in all, all eyes on AP!

[rajpanda]

Thanks for the fabulous updates Donald, it feels like, we are watching a suspense movie

Any updates from Hyderabad team would be really great to add more substance to this story.

[DAVULURIOMPRAK_]

ANDHRA PRADESH UPDATE :

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First on acreage : Small percentage of farmers shifted to maize and soya . In districts adjoining Maharastra this trend is clearly visible . In northern telangana districts like Adilabad farmers are in cues for getting subisidised soya seeds counters . If we consider telangana only then we can say it’s ten percent around but in all over Andhra pradesh its little less than ten percent .

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Crop shifting patterns :This year rains came in perfect time and majority of districts eighty -ninety percent of sowing completed . In telangana districts there is great demand for maize and soya. We spoke to couple of people involved in business and they informed us that they are selling two to three times quantities of maize last year ( We get to know that company stopped supply of maize from last fifteen days due to completion of inventories. # # this news is from person involved in seed business although we have to confirm it from company ) … Such huge demand for maize is really good for kaveri prospects and will boost margins .Maize is second product occupies twenty percent of last year sales and it is low volume high margin segment .

Volumes : Last year Kaveri sold 18 lakh pockets .This year we assumed that Kaveri will do 30 lakh as base case and 35 lakh in optimistic scenario . Really they did extremely good job and reached our estimates . Although we can say they did thirty lakh confidently but at this moment we cant comment on final figure as some more sale is left and have to collect more data from more more reliable persons ( just for cross checking ) … In coming days we will update that data .

But on other side even though they have monopoly status i.e… eighty - ninety percent market share in coastal andhra districts like guntur , prakasham they slashed retail prices to 800 rupees . Although to pare competition we expected that they will slash prices but this much of reduction in retail prices is really surprise for us . Last year average pocket price after all discounts for distributors and dealers is 790 so after all discounts and commission to dealers it will fall to 750 rupees . In addition to that this year company incurred advertising expenditure . But two to three times growth in maize will compensate the margins . But as a base case we can reduce 1-1.5 percentage opm of last year for fair estimates .

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[anil]

@DAVULURIOMPRAK_

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First on acreage : Small percentage of farmers shifted to maize and soya . In districts adjoining Maharastra this trend is clearly visible . In northern telangana districts like Adilabad farmers are in cues for getting subisidised soya seeds counters . If we consider telangana only then we can say it’s ten percent around but in all over Andhra pradesh its little less than ten percent .

**
**

Crop shifting patterns :This year rains came in perfect time and majority of districts eighty -ninety percent of sowing completed . In telangana districts there is great demand for maize and soya. We spoke to couple of people involved in business and they informed us that they are selling two to three times quantities of maize last year ( We get to know that company stopped supply of maize from last fifteen days due to completion of inventories. # # this news is from person involved in seed business although we have to confirm it from company ) … Such huge demand for maize is really good for kaveri prospects and will boost margins .Maize is second product occupies twenty percent of last year sales and it is low volume high margin segment .

Volumes : Last year Kaveri sold 18 lakh pockets .This year we assumed that Kaveri will do 30 lakh as base case and 35 lakh in optimistic scenario . Really they did extremely good job and reached our estimates . Although we can say they did thirty lakh confidently but at this moment we cant comment on final figure as some more sale is left and have to collect more data from more more reliable persons ( just for cross checking ) … In coming days we will update that data .

But on other side even though they have monopoly status i.e… eighty - ninety percent market share in coastal andhra districts like guntur , prakasham they slashed retail prices to 800 rupees . Although to pare competition we expected that they will slash prices but this much of reduction in retail prices is really surprise for us . Last year average pocket price after all discounts for distributors and dealers is 790 so after all discounts and commission to dealers it will fall to 750 rupees . In addition to that this year company incurred advertising expenditure . But two to three times growth in maize will compensate the margins . But as a base case we can reduce 1-1.5 percentage opm of last year for fair estimates .

ANDHRA PRADESH UPDATE :

Hi Om,

30-35 lakhs packet are for just cotton?

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[Vedant]

Hi Om,

Thank you for the update. Great to get some real ground level data from you (Tirumal Rao and Om) and Donald.

30 lac packets in AP, Around 20 from rest is a high probability scenario. So that is 50 lac packets against 38-40 they did in Q-1 last year for cotton.

Maze is the joker in the pack! Need to understand whether com was prepared for high maze sales. If they had stocked enough inventory then the margin fall may be negligible. But remember they had outstanding maze sales in Q-3, so I doubt if they had enough time to replenish the stocks.

Will come back with some numbers on the probable scenario.

Cheers

Vinod

[DAVULURIOMPRAK_]

@anil

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First on acreage : Small percentage of farmers shifted to maize and soya . In districts adjoining Maharastra this trend is clearly visible .

Hi Om,

30-35 lakhs packet are for just cotton?

ANDHRA PRADESH UPDATE : I

Yes .

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[rushme]

Agriculture minister for saying bye-bye to Bt cotton

[Mahesh]

Post Conference Notes from Edelweiss Agri Conference held in mumbai on 21st June 2013 where Kaveri was a presenting company :

Organised hybrid seeds market size is INR100bn (including vegetable seeds market size

INR20bn) and is expected to post 12â15% CAGR in coming years. Of this, domestic

cotton seed market is worth INR40bn and is expected to be same over the next twothree

years account of declining cotton acreage in India. But Kaveri Seeds (Kaveri)

believes that per acre consumption of cotton seeds in the country is likely to jump

from 1.6packets/acre to the global standard of 2.0packets/acre. Kaveri has increased

its market share from 5% in FY12 to 10% currently, and will enhance it to 15% in near

future on back of a differentiated and high yielding seeds portfolio.

India has ~2m ha (of total 40m ha) under hybrid seed in rice crop, which is the next big

opportunity for the industry as well as Kaveri. The company expects area under rice

hybrid seed to grow to 4â5m ha over the following threeâfour years. Kaveri has ~7%

market share currently (Bayer has ~50%market share) in India and expects to post

robust growth in rice crop, going forward. Kaveri is likely to launch two rice hybrids in

near term.

Despite revenue and PAT CAGR (FY08â13) of >45%, management believes the company

will continue to grow 20% in cotton crop during FY14 despite industry carrying higher

than normal inventory; other crops are likely to register 15%â20%.

Kaveri has set up a 100% subisidiary Kexveg India (Kexveg) with an initial invetsment of

INR64m in FY12. Kexveg is a new initiative for producing high value exotic Indian

vegetables and European herb for domestic and export markets. It could post strong

growth in the long term.

The company does not have major capex over the next two years. Annual capex will be

in the INR50â100m/p.a. range.

Key risks

The seed industry is extremely competitive. Hence, success of any competitorâs

product could impact Kaveriâs growth. Climate change drastically affects patterns of

crop growth as well as cropping systems. Delayed or adverse monsoon could affect the

collection of receivables adversely.

[tirumal]

From Team Hyderabad.

We spoke to couple of distributors in AP last few days . Based on that interaction with them and again we cross checked that statements with others , we can conclude that this year too kaveri guys did extremely good job .

~ Cotton numbers:

TOTAL POCKETS in AP : 38-40 lakh

At first glance we did’t believe these figures .We cross checked with couple of distributors and all of them unanimously said Kaveri did more than 40 in Andhra Pradesh .

** Above figures includes the stock with dealers. In most of Andhra Pradesh sowing completed may be in ten to fifteen percent area sowing is going on .

~Maize: All of sudden demand spurted. None of the companies, distributors expected this. All the companies did extremely good sales . All over Telangana ( main kharif area ) Kaveri stands at number one position followed by Monsanto, Dupont Pioneer, Syngenta.One distributor from one of the biggest districts said last year he sold 9 trucks this year he already sold 30 and if stock available he will do more. Similarly distributor from other region said last year he sold 140 this year he sold 300 already and can do more. Sudden spurt due to increase in maize price from 1100 to 1500. All the people unanimously said Kaveri did more than double this year.

~MARGINS PICTURE: Company fixed average farmer selling price of each pocket @ 850. expenditure on dealers, distributors discounts will not exceed by 50 rupees. Its dealers / distributors risk not at all company risk. Lot of dealers / distributors in expectation of good demand booked other companies seeds unfortunately there is no demand at all for others. So they have to liquidate at any cost. So they sold Kaveri at 800 -820 bundled with other companies pockets. for example lot of them insisted to sell 3:1 or 4:1 of Kaveri to others . Only Kaveri and Mahyco sold at 850 and all others even Nuziweedu sold at below 750. In coastal districts there are huge number of distributors so there price fell due to competition among themselves. In Telangana, ayalaseema they sold at 850 and in coastal districts it is 800 . So according to them it is trade at that time fixes price. It doesn’t have any impact on company margins. All of them said company will get money at what ever price they booked .

)- As per info from one distributor they did good sales in Karnataka. We felt that as company will get its margins (They are relaying good number of ads in various channels so advertising expenditure will be there). And at 60 lakh pockets, double maize they will do more than 130 eps. Its conservative figure as per our internal discussions.

with contribution from OM Prakash, Dr Ramakrishna,Bala,Tirumala rao

[manish962]

@tirumal

OM Prakash, Dr

** Wow! That’s a great performance amid a lot of competition/inverntory. Thanks Ramakrishna, Bala & Tirumala Rao for all the hard work and especially for sharing those information with the fellow valuepickrs. Thanks to Donald also for all that groundwork motivation.

**

[piy_sharma]

Thanks a lot for the information team Hyderabad.

[Donald]

Thanks Team Hyderabad. You are an inspiration to all ValuePickrs!

Also everyone at ValuePickr should start seeing the value in focusing on a few highly probable winners every year and going the whole hog - putting in 100%+ efforts in knowing all that we can about that business. If Kaveri has indeed done much better than expectations, that’s a bonus - that often accompanies honest effort:)

This is a company with a difference. Learn to to RIDE it properly!

Let’s put some more efforts at cross-checking the data from other posts and what this implies in terms of realisable FY14 performance for the company.

[onlycastel]

Donald,

You had asked me to send my analysis on Kaveri, which i did sometime back. The stock has already touched its target once again at 1600 and now trading at 1619. At 1650, it will give a BUY SIGNAL once again. One can look forward to a new high from here. This should happen with the quarterly results announcement considering the inputs received from Team Hyderabad.

Great work guys!

[sinhalgaurav]

Hi Tirumal/ Team Hyd

Can you confirm whether you mean 120 eps for year/june quarter. ( i think you mean yearly eps, but just want to be clear).

[Vedant]

Hi,

Here is a projection for Q-1 and full year EPS and stock price.

	2012	2013
Packets	0.35	0.6
Vol Growth		72%
MRP	930	930
Discount	140	160
Net Price	790	770
Gross Sales	325	558
Non Cottn Sales	157	220
Oth Income	1.22	1.22
Total Income	481	779
Tot Expenes	378	622
Non Cottn Exp	122	171
Cotton Exp	255	450
Fin Cost	0.50	0.50
Tax	1.50	2.3
PAT	101	155
PAT Margin	21%	20%
Q-1 EPS	73.8	113
FULL YR EPS	93.43	138
CMP P/E	17.02	11.2
Tgt Price 13P/E		1793
Tgt Price 15P/E		2068
Tgt Price 18P/E		2482

Assumptions:

1) After discount price is Rs 770, though reports from team hyderabad points to Rs 790-800.

2) 40% growth in Q-1 from the non-cotton segment. Team hyderabad report points to much higher growth.

3) Rest of the year sales growth will be 25%. Maze story should give higher growth than this in the next 3 quarters too, especially Q-3.

4) 60 lac packets will be sold in Q-1. I suspect it will be around 65 lac packets :)

Discl: I Have huge exposure in this stock and views will be biased.

Cheers

Vinod

[Donald]

In order to have more objective discussions, we need to get better educated on Maize!!!

Maize always was a significant contributor for Kaveri, but contrary to Management Talk (see earlier Q&As) looks like this is becoming very important in Kaveri's scheme of things. Huge volume increase in a high-margin (price-uncapped segment unlike cotton) can provide a big kicker to results today ,and in the future:).

I dug out some initial data. And will be listing some questions for us to probe this further.

2011-12 India Maize Production
Sr No.	State	Production	Share(%)
1	Karnataka	4,090.00	18.94
2	Andhra Pradesh	3,760.00	17.42
3	Maharashtra	2,300.00	10.65
4	Rajasthan	1,670.00	7.74
5	Tamil Nadu	1,570.00	7.27
6	Bihar	1,520.00	7.04
7	Uttar Pradesh	1,310.00	6.07
8	Madhya Pradesh	1,290.00	5.97
9	Others	820	3.8
10	Gujarat	770	3.57
	Total	19,100.00

Monsanto, Syngenta, Kaveri, Pioneer are the leaders in Maize Hybrid Seeds. Kaveri has a 13% market share which is puny as compared to the top 2. Monsanto's Dekalb hybrid is a 100yr old hybrid and still going strong and the biggest brand.

The only way Kaveri's Maize product(s) could have overtaken the top 2 in AP and emerged no#1 (and this is a pretty plausible scenario) is when all seed companies where taken by surprise, and caught somewhat on the wrong foot by the upsurge in Maize demand. But Monsanto could supply only 20-30% more over FY13, same with Syngenta, whereas somehow Kaveri could supply 50-60% and higher over last year!!

And here's a Maize Industry primer (though more than a decade old), but is good to quickly bring you upto speed on main issues - enabling us to quiz industry professionals better:)

Request others also to examine the Maize market ASAP, and point to latest stats/publications and/or research data. We might suddenly find (as Hitesh has already pointed out:) trust him to be a step ahead, always) Monsanto may also prove a good opportunistic bet.

[hitesh2710]

From most of the posts I can make out that all the guys are very bullish on maize this year. I dont know much about maize but I think for maize two crops a year are taken…

With Monsanto being the market leader with its products of dekalb range, it might make sense to have a closer look at monsanto india. dekalb is a product from monsanto india stable and not its other unlisted subsidiaries.

Key question would be whether monsanto had enough inventory to cope with the increased demand for maize hybrids.

Looks like a win win for both kaveri and monsanto.

thanks team hyderabad and donald.