Kaveri seeds company limited -- kscl

Stock Opportunities Not-so-Hidden Gems
401

Some observations:

1). Kaveri did 125 Cr Maize Sales in Fy13. My notes suggest some 65 Cr in Q1 (Sales for Kharif season) and some 60 Cr in Q3 (Sales for Rabi Season, sown in Nov/Dec). Can someone go through concalls and confirm these numbers?

2). Management maintained a 20-25% growth possibility in our Q&As and all Con-calls. Let’s assume they always plan for a 20% +/- buffer (just like they do for cotton).

3). From this it would look like they could have managed ~90-100 Cr in Q1FY14.

This leads to some more queries:

1). It might also be possible to divert additionally say atleast 30-50% of the Rabi seeds if that inventory was in the pipeline already

2). What are the Maize Seed Harvesting patterns? Since there are almost 5-6 months left for the Rabi season Nov/Dec sowing, it might be possible to plan fresh production in time for the Rabi season

3). Cotton Seeds can be carried forward for next 2-3 years even without cold storage facilities. What about Maize?

4). What are the Inventory levels in the Industry for Maize? How does a Monsanto or Syngenta address/manage sudden demand spurt? Is it likely anyone would have carried 100% more inventory or could manage 50-100% more production in time for next season?

As I said before being more educated on Maize seed market may lead us to more than one opportunity!! Request guys to do some work, post more queries, report back more findings.

I am trying to catch hold of someone knowledgeable, asap.

402

Selected Excerpts from Monsanto 2012 AR

Maize is Indiaâs third-largest cereal crop after rice and directly contributesRs. 15,500 crores to Indiaâs agricultural GDP. India is the 6th largestproducer and 5th largest consumer of maize in the world.

Maize is the worldâs largest cereal crop. Itis not only the third-largest cereal cropin India after rice and wheat, but also thefastest growing. In India, the area undermaize is relatively stable at approximately8 million hectares. Within this area,however, there is a shift from the lowyieldingOpen Pollinated Varietal (OPV)seeds to high-yielding hybrids.

Across the world, Maize is cultivatedmainly for feed, food and industrial use.Around one-fourth of the maize grainharvest is consumed as food. A largerpart, nearly 50%, gets used as animalfeed, mostly poultry feed. This demand isgrowing rather rapidly due to the poultryindustryâs fast growth. The rest is usedfor producing starch and other industrialproducts. The cropâs biomass (leavesand stalks) is used as nutritious fodderfor cattle.

The demand for maize grain in India ison the rise due to population growth,and changing food habits. A greaterrequirement for poultry and processedfood is driving the demand for maizestarch.

Average maize productivity in India isonly 0.8 MT per acre while the same isover 4 MT per acre in US and Spain.Brazil is over 1.5 MT per acre. India needsto increase growth rate of maize to meetincreasing demands.

In India,farmers currently **choose to plant****hybrid seeds (currently non-biotech)**on 45% of maize acres, thus choosing topurchase fresh seed each year for theiryield and socio-economic benefits.

Sale for corn seeds for F.Y. 2011-12 (Rs. 267.36 crore) has stayed at almost the same level as the lastfinancial year (Rs. 269.34 crore). In spite of a lean Kharif season, a bumper Rabi season boosted the corn performance

403

The maize seed market in India is estimated at 750 crores approximately.(As on march 2011 ) Monsanto with Dekalb hybrid is leader in maize industry reported sales 267 in FY12 , 269 crores or 26092 m.tonnes in fy 11 and 272 crores or 21439 mt in fy 10. ( figures for 2013 not released yet ) . Kaveri seeds posted 125 crores or 12000 mt in Fy 13 has estimated market share of 15 percent . ( Figures for previous years not available )

404

Thanks Om, Tirumal, Donald and all involved in keeping us updated on seed industry updates.

405

for full year we are expecting more than 130 EPS

tirumala rao

406

Read in the newspaper today quoting Cotton Federation stated that there is significant shift from cotton sowing in AP, Maha and Karnataka. The shift is to soya in AP & Maha but in Karnataka the shift is to Maize. Meanwhile, they stated that there is 20% more sowing of cotton in Tamilnadu(the shift being from rice due to scarcity of water). Need to find out who has gained market in Tamilnadu.

407

Tony,

Please keep providing regular updates - preferably in the Kaveri Seed Techno-Fund discussion.

It will be interesting to see how the charts proceed on this counter. There may be a month still before results are out? Something has to build up here even before, I assume. If we are getting a picture, others will too:)

-Donald

408

Hi,

Was just looking at the growth achieved by Kaveri in the non-June quarters last year. It had a 76% growth in sales and 165% growth in PAT! This shows that they were already prepared for high Maze growth last year.

But in the May concall the com states that maze grew by 20% last year. Non-cotton growth for whole of last year is no less than 60% and Maze contributes around 40% of the non-cotton sales. There is a rather big disconnect there in the actual non-cotton growth in FY13 and what the company mentioned in the May 2013 concall as growth for Maze. In the Dec concall com mentions that Dec 2012 was an exceptional year for Maze and they expect 20% growth for non-cotton segment except for Maze! What I read from all this is Maze story was to be kept under wraps :).

Some more Maze data from the 2 concalls:

Dec 2012 Concall with my comments in bold

  1. Good rabi sales especially maze.More than 50% contribution from maze -so Maze Q-3 sales comes to 46.5 Cr.

2)Had spectacular maze season. It is an exception. Exception? Lets see…

3)Com was categorical that there will be a reduction in cotton acerage in FY14 - so they would have anticipated high maze growth and planned?

4)125 Cr maze in by dec 2012 -no sales in Q-4, so full year fig should be same.

5)Except for maze, others growth will be 20%. Higher for hybrid rice. Maze growth will be less than 20%?

6)Maze acerage going up due to decline in cotton acerage. Will focus in Maze and rice for next 5-7 years. Again shows they are preparing for good maze season.

May 2013 Concall

1)See good season for Maze and Bajra. Less competition there.

2)Sold off all maze inventory including the buffer 20% in FY13. So I am sure the actual Maze growth was much more than the stated 20% :slight_smile:

3)Maze seed can be stored for 14-18 months -so planning has to be better than cotton to prevent permanent loss of inventory.

4)Non-cotton inventory has gone up by 25%. 100-120 Cr for non-cotton inventory. Now this is interesting. Total inventory grew by 60% but non-cotton inventory grew by 25% only. Again there is disconnect with the amazing Maze sales data we got from dealers.

5)Maze growth expected to be 20-25%. Similar for rice. Last year growth at 20% for Maze. Again from the data we have collected the growth could be in excess of 50%.

6)Cotton will grow faster than non-cotton in FY14.

7)12-13% Market share in maze and bajra.

Views invited.

Cheers

Vinod

409

http://www.thehindubusinessline.com/opinion/columns/harish-damodaran/strange-bedfellows/article4877699.ece

410

Not an unexpected article. Monsanto is known for such blatantly unethical practices. This is the precise reason why I won’t invest in Monsanto even after super duper reco by seniors.

http://www.thehindubusinessline.com/opinion/columns/harish-damodaran/strange-bedfellows/article4877699.ece Link: http://www.thehindubusinessline.com/opinion/columns/harish-damodaran/strange-bedfellows/article4877699.ece

411

Please read the article in its entirety and not jump to inane conclusions.

The central point is about injection of BT gene in open pollinated varietals, so that Farmers can save the seeds and not have to buy fresh seeds every year - following the lead of China and Brazil.

In India Hybrid seeds are established in not only BT-Cotton but Maize and so many other field crops like Bhindi, Tomato, Watermelon and so on (without BT or transgenics). Hybrid Rice is the next big thing. Farmers are happy to buy these Hybrid Seeds every year -for the benefits its bring them over open pollinated varietals - mainly Yield, insect resistance, drought tolerance, and other desired traits. Yes Hybrid Seeds also cannot be saved for re-use, yield drops drastically.

So are we to come to the conclusion that all Hybrid Seed manufaturers are onto unethical practices. Point is media articles - and NGO reports - paint the story with a bias they want to propagate. When you talk to the field - the farmers, the distributors, the scientists working to provide better suited varieties to local conditions - you might be surprised!! And come to more balanced conclusions.

This government BAN may have been motivated - there may have been lobbies for and against - NGOs and MNCs may be have overlapping interests for sure - but don’t get caught in biases that propagate both ways.

A Farmer is happy even if he gets a 10% higher yield and lesser spends on insecticides/pesticides. That difference can make or break his earnings for the season. He is not bothered about paying more for Hybrids (or BT Cotton) as long as he can make a decent living. The biggest culprit for farmer not getting his due - the right price for his produce is the “Trade”. How come the upsurge in market prices (if any) are always so tightly controlled that it happens every year precisely only after the farmer has sold 80-90% of his produce, leaving the Trade laughing away to the Bank. How come the trade practices are never dubbed unethical?

That 10 or 20% better yield for the farmer is a possibility that Hybrid Seeds provide (weather gods and other insect-gods permitting). Certainly the ban precludes/delays a lot whatever little chance OPV-BT injected may have had of catching up ever to well-performing hybrids.

There is a good case for Hybrids in India. There is a good case for BT Cotton in India, no one can deny that. There may be a case for BT/Transgencis in food crops too - though the bio-safety issues may be more critical.

My plea is not to get too biased one way or the other:). If interested read up more, TALK to Farmers/Scientists in the field, to be able to dissect through media/NGO reports for substance/or the absence of it.

412

Someone is trying to get some answers for us from Monsanto/Syngenta/Pioneer contacts. Prepared this question Bank for our use.

If you have any friends/contacts in the Maize Seed industry, request you to seek out answers for following. Feel free to add more from your side:)

Basically for Understanding the Maize Industry issues.

1). Is it true that the Maize Industry size is not more than 800-1000 Cr annually? and 72,000 - 90,000 MT?

2). Is it true that Monsanto, Syngenta, Kaveri, Pioneer are the 4 biggest players? Roughly what is the kind of market share for each player. Are these all pan-India or are there regional dominance?

3). Is it true that this year Maize market in AP has done exceedingly well. 2x or 3x over FY13

4.What is the picture for rest of the country? esp in other big maize markets like Karnataka, Maharshtra.

5). Is it true that Hybrid Maize Seeds share in Total Maize seed Sales is <50%? Do penetration levers differ dramatically across regions/states? How is it in Karnataka and AP? How is it in TamilNadu?

6). What is the penetration levels in next rung of states like Rajasthan, Bihar, Uttar Pradesh?

7). How is inventory planning/build-up done for Hybrid Maize Seed in light of anticipated Sales for coming Year? E.g In Hybrid Cotton we have heard that seed companies prepare for a Plan+20%. So they can atleast supply 20% more if demand exceeds plan. Similarly they are okay if they do 20% less than plan on the downside?

8). Were the Seed Companies anticipating this kind of Maize demand build-up of the order of 2x-3x? Is it likely anyone would have built up double the Inventory over FY13?

9). Which company has benefited the most this year from this Maize upsurge?

10.Is it true that Maize Seed sale is highly Monsoon-dependent? If Monsoons are delayed there is an effect? There are 2 crops in Maize. Kharif (rain-fed) and Rabi (mostly seeped-in groundwater) ? What are the differences in the 2 seasons? If Monsoon is scant, there is a big effect? So if there is scant/deficient monsoon, Kharif (June-Aug sowing) is affected badly but the subsequent Rabi (Winter sowing) season is effected even more?

11). Geographically do different regions sow differently? Is the Hybrid Seed the same for both seasons, or they are totally different for different seasons? When is the Seed production completed for Kharif season and Rabi season respectively? Is there any chance of carry-over/pre-use of Seeds from Rabi to Kharif Season or vice-versa or none at all?

12). Finally, how long can Maize hybrid seeds be stored? Can it stored in the open or does it require cold-storage facilities? Do seed companies have adequate cold storage facilities? Like Cotton Seeds (do not require cold storage) which can be carried forward for 3 years, what is the longest that Maize Seeds are carried over/ What is the practice in the Industry?

413

have contacted someone in kaveri n awaiting the response.

IN the meanwhile cant cotton acreage increase in India due to burgeoning demand for cotton world wide? Indias CAD increasing so cotton exports will be given incentive n rupee depreciating will give it big edge.

Cant cotton be grown in states like UP Bihar where it was grown earlier to make the farmer more happy & RIch?

Kaveri shud thus be a major beneficiary.

Views Invited.

414

Rooted in seeds

NALINAKANTHI V.

Limited arable land and the growing demand for foodgrains hold a big promise for the Indian seed industry. With a well diversified hybrid seed portfolio and strong reach in key southern States, Kaveri Seed Company is well poised to capitalise on this growth story.

Healthy market share gains in the cottonseed business, rising corn acreage and rapid hybridisation in rice should benefit Kaveri over the medium term.

At the current market price of Rs 1,658, the stock trades 11 times its 2014-15 earnings. This implies a 50 per cent discount to its competitor Advanta India, despite Kaveriâs superior margin profile.

Though the 99 per cent jump in stock price over the last one year may limit the near term upside, investors with a one-to-two year time frame may consider buying the stock.

Given the healthy fundamentals, any correction in the stock price may also be viewed as a good buying opportunity.

The overall market for Bt cottonseeds has grown 25 per cent annually in the last seven years. The market almost quadrupled from Rs 920 crore in 2007 to Rs 3,504 crore by 2013.

Cotton, the key driver

In 2012, even as most players struggled due to deficient rainfall and subsequent decline in the area under cultivation, Kaveri bucked the trend and continued to grow ahead of the competition.

The company doubled its market share in the hybrid cottonseeds segment from 5 per cent in 2011-12 to 10 per cent by 2012-13.

Its flagship brands Jadoo and Jackpot helped the robust growth in the cotton segment, enabling the company grow ahead of the market. These brands account for nearly 60 per cent of the companyâs revenues. Given that hybrid adoption is the highest for cotton at nearly 90 per cent, the area under cultivation is not likely to increase significantly. However, higher usage of seeds could help Kaveri improve market share in future.

The company is the third largest player in the hybrid corn seed business with an 8.8 per cent share in the market currently.

A shift in the cropping pattern in favour of corn also aided Kaveriâs performance in the last few years.

Soaring demand for poultry and meat products and the shortage and rising prices of feed are expected to fuel Indian demand for corn, as also the demand for maize as an alternative sweetener.

Export demand too remains robust, given the demand for corn as animal feed and bio-fuel. With the demand expected to remain strong, Kaveri may continue to benefit from increasing corn acreage.

Rice, a game changer?

The next big wave of growth for Kaveri may come from higher adoption of hybrid rice seeds by the farming community. Currently, only 5 per cent of the total rice acreage of 44 million hectares uses hybrid seeds.

Kaveri, being the third largest player in rice with a 6.5 per cent share in the market, is well positioned to benefit from increasing hybridisation in rice.

With an extensive germplasm collection for developing potential hybrids for varied soil types and 5 variants of rice under development, the company targets doubling its share over the next few years.

De-risking via diversification

A diversified portfolio encompassing commercial crop cotton, food crops corn, rice, pulses and millets, puts Kaveri on a strong footing to meet challenges from changing cropping patterns.

An interesting pipeline of over 34 variants across corn, rice, bajra, jowar and vegetables under development will hold the company in good stead over the next 2-3 years.

The company spends 7-8 per cent of its revenues on research, developing new variants which are drought-resistant and disease-resistant with an ability to withstand extreme climatic conditions.

While south remains Kaveriâs stronghold, the company is gradually ramping up its presence in markets such as Chhatisgarh, Jharkhand, West Bengal and Orissa. Currently the company markets its brands through 15,000 retailers present across the country.

In addition to seeds, Kaveri also sells micro-nutrients such as soil enhancers and organic fungicides and pesticides through its Microtek division. Kexveg India Ltd which is a wholly owned subsidiary of Kaveri markets high value herbs and vegetables in India and European markets.

Kaveriâs revenues grew 90 per cent to Rs 711 crore in 2012-13. Strong demand in the corn and cotton segment helped this.

In 2012-13, its operating profit grew 95 per cent to Rs 140 crore compared to the previous year. Net profit more than doubled to Rs 130 crore during the same period.

The company has managed to grow its revenues by over 55 per cent annually in the last five years. Adjusted net profit grew by over 54 per cent during this period.

The companyâs diverse portfolio will help meet challenges from changing cropping patterns.

Buy Gaining share in cotton Rising corn acreage Increasing rice hybridisation

(This article was published in the Business Line print edition dated July 7, 2013)

415

Now that We all agree that Kaveri is bound to give good results, THanks to phenomenal field inputs from Team Hyd and Donald.

Below is the capital allocatoion of kaveri. AT 50-60% capital in business, the allocation doesn't seem to be very healthy. Would like to know what seniors think about it. Should it be a concern or not and why ?

Mar-13 Mar-12 Mar-11 Mar-10 Mar-09 Mar-08 Mar-07
capital emp 59.91% 50.34% 78.70% 80.73% 70.13% 72.00% 67.02%
Investments 40.09% 44.69% 16.95% 3.59% 4.81% 21.06% 18.30%
416

Kaveri’s business generates a lot of Cash and the tempo has stepped up in recent years. Its not a bad thing, its a good thing - given a choice what would a business prefer?

However as rightly pointed out by you - this is a question repeatedly being asked of Kaveri by Institutional Investors - what do you plan to do with the Surplus Cash? Their business model is such that they do not need extra capital, so they must get around to sharing some of the surplus cash with Investors.

And think of deploying more of the surplus in related business/exports?

On top of that they are being chased by PE/Funds for more investment into the company. Someone who is a facilitator for such deals was checking with me about Kaveri Management and the Business a couple of months ago. Post the feedback I asked him, what’s the deal about, these guys don’t need any money, they can rather fund something new:) …there is always the danger of diversifying ionto something unrelated, leading to a de-worsification in Peter Lynch’s lingo.

So far they have been doing the prudent thing. Buy more Land.

417

new:))

Diworseification would make it a turnaround play :wink: But since their core business is doing so well I don’t think they would diworseify.

418

http://www.agricultureinformation.com/mag/2009/11/kaveri-seed-company/

Excerpt from Mithun Chand’s Interview - Kaveri 2009 dated article. Thanks Vivek Gautam for the link.

Shelf Life of Seeds
Speaking about the shelf life of seeds, Mr. Mithun says, aShelf life of each crop seed varies. For example in maize it is 6-8 months, whereas in cotton it can go upto 2 years, but in maize if you take up proper procedure like artificial cob drying, which brings down the moisture level to 8% from a usual 12-13% and storing it in optimum conditions like 11 degree centigrade and maintaining optimum humidity we can store upto 12-14 months.a

He further maintains, aWe have cob drying facility and we have ultra modern cold storage facilities. We have invested to a tune of Rs. 80 crores in past one year in constructing processing facilities which will help in increasing the vigour of seed germination and as well as the shelf life.a

419

microtech division contributes only 3.49% of the total revenue

as part of restruturing of operatios and enhancing the business of micronutrients,this division is proposed for trasfer to its wholly owned subsidary KMPL AT THE CONSIDERATION OF rs. 145263600/-.

420

Some info from a broker report…they don’t track it though-

  1. Our on the ground checks suggest that Kaveri is still gaining marketshare from Nuziveedu (Not Listed), primarily on account of its brandJadoo. The Jadoo brand is very popular among farmers as theybelieve a) germination of Jadoo seeds is much faster, b) yields arebetter, c) the crop grows taller, d) stalks are very strong and stiff, e)flower quality is good, and more importantly f) plants from Jadooseeds have very good rejuvenation ability.
  2. Kaveri distributors we met experienced 50-60% YoY growth in salesduring Apr-Juneâ13.
  3. Kaveri has initiated an aggressive marketing campaign, highlightingthat if a farmer uses Kaveri’s cotton seeds he will earn at leastRs15,000 more per acre as opposed to using competitors seeds.
  4. Farmers are very loyal to Ajitâs (Not Listed) cotton seeds, but due tosupply constraints demand for Ajitâs brand is way higher than supply,leading to Ajitâs seeds selling at over 100% premium to MRP in theblack market.
  5. Nuziveedu has introduced a barter system in some parts of AndhraPradesh, wherein it provides seeds for free and in return the companybuys-back the farmâs output at a marginal premium.
  6. Bayer rice seeds have very high yields but there is still some scope ofquality improvement in hybrid rice.

Of the above mentioned points, I feel points 1 & 2 are fairly obvious by now…thanks to the superb ground work by hyderabad team. Point 4 is new (atleast for me), and if its true…we may be in for more positive surprises.