They say half knowledge is always dangerous, Its amazing, not here but in real life, how people without doing any due diligence keep on posting and elongating the conversation,
Friends you should also read this:http://www.moneylife.in/article/post-earning-analysis/29235.html, the same team which is now saying that Kaveri is a bubble, had recommended it some time back,
Looking at the above, I come to a conclusion, that these guys have missed the rally.
An update from Batlivala and Karani brokerage puts up following projections for kaveri…
fy 14 sales 1004 cr net profits 200 crores. eps 146
fy 14 sales 1190 cr net profits 240 crores eps 174.
Now dont ask me how these figures are arrived at…
Personally - Kaveri is a very long term story for me. I remain convinced to stay and keep riding a company with strong Intellectual Property and great execution skills in Production/Marketing - that enables it to take Calculated Risks and pull them off. As per the testimony of competition - there are many with equally good products like Ajeet and Mahyco and earlier Rasi too - but they lack the all-round skills and/or right strategies (artificial demand vs concentrating on building actual farmer pull) needed for continued dominant success.
However, its good to focus first on what the company can do in next 9 months. Also in next 2-3 months we will surely make another visit and go about establishing the Maize and Hybrid Rice opportunity for next 2-3 years - what does the product mix look like and why - the sources of growth and the quality of that growth in coming years
@ Vinod - Thanks. Check the Maize data for Q1 again and let me know, I have it clearly as 65 Cr though. Cotton 5 lakh packets will account for 46.5 Cr @930 MRP (dealer discounts are accounted for in other expenses). So its more like 3.75 lakh packets. Please work on Q3 and Q4 breakups. Let’s do a call and take this further with you and Om and others.
@Hitesh - Agree 125 EPS is a given. My conservative projections show ~130 - that factors in Management guidance of ~25% growth across all crops and margins at 20% for the full year (200 bps lower than Q1, which is roughly the trend for earlier years). That would be a commendable 38% growth over FY13.
This does not factor in the solid Maize outperformance - growth of over 40%. There is every reason for that to get repeated in the expected good Rabi sowing. This needs a different (than Kharif crop) double-cross seed. we will shortly establish Kaveri’s ability to deliver on that. Depending on the extent of that out-performance it can add Rs 2.5 to Rs 5 at most. So its very difficult to see EPS crossing Rs 135. So I will go with your Rs 130 EPS as the realistic estimate for full-year FY14.
You are a real gem with getting things roughly right, with very little work:). So would you say 130 x14-15 or 1800-1950 is the fair price range for Kaveri then.
Meanwhile we should expect a muted Q2 - without any solid growth drivers, looks like. Q3 should again be showing good growth. Those who are mulling partial exists have time till Oct end or so - to catch some of the upsides that should come as the Market digests the super performance and prices that in.
Market doubt - on Taxability/IPR Case and other such stuff will remain. That is why we get opportunities in these kind of companies:). But we believe it is also our job to keep sharing and keep spreading the understanding that we have achieved on this business/industry - and transfer that CONVICTION - to the larger investment community.
Many thanks to everyone participating wholeheartedly in the Kaveri Story unfolding. Special thanks goes to the maximum workers - Team Hyderabad and Omprakash in particular! They have continued to excel - getting to the right folks and then getting the right information out is also an ART. I know of atleast 2 organised groups attempting similar surveys - ending up with different results initially - again prompted by us (with demographic data) to alter the process and focus - before we could corroborate data that reached almost similar conclusions.
Been nice rewarding work!
donald,
thanks for the write up… lucid and concise… thats your hallmark.
regarding the query about valuation part, I feel that EPS of around 130 should be fairly easy to achieve… How much higher than that it can go is dependent upon success of maize hybrid and there is sufficient tailwind in that to provide upside surprises.
About PE accorded to kaveri, I have always wondered and been amazed by the excesses in markets on both downsides and upsides. Ajanta has been an object lesson for me… For me, A guy who bought Ajanta at PE of around 6 I did find it difficult to see Ajanta sustain valuations of 15 PE and it has surprised me… So I think its no use double guessing markets. If you have got hold of a great business, it makes sense to latch on to it like a proverbial limpet. One can consider ocassional profit booking as and when chances arise.
Coming back to PE accorded to kaveri, I think something like 15 should be the norm for a company like Kaveri which continues to grow at 25-30% plus, and pulverising the competition in both cotton and maize… How much high this PE accorded can go is a thing I would not like to guess bcos thats where I have often been caught out. But the catalysts for any re rating would have to be dividend payout, growth shown in corn hybrid and progress made in rice hybrids… Rice hybrid market is humungous… If Kaveri can take on the likes of Bayer etc and grow strongly then sky is the limit…
For the immediate future, as you said, for next 2 quarters at least, it should remain range bound with occasional bump ups as people wake up to the fact that Kaveri is a strong growth engine available at very reasonable valuations.
Thanks Hitesh.
Its nice to keep observing your pace of learning/adjusting to market realities. Being completely OPEN is one of your big skills, we should all learn from.
I agree we need not predict the tops or even a range. As long as we get in with a high Margin of Safety, we should keep enjoying the ride. However to check whether I have adequately high margin of safety I need to know what is Fair Price - with a 2-3 year time horizon. As the company keeps delivering and outperforming say on an yearly basis, we keep adjusting the Fair Price level - and are comfortable allocating more capital (below fair price level if available) with the needed Margin of Safety. Atleast that’s what I do in all high-conviction cases. I have added Kaveri at 850 initially, and then in big chunks at 1100-1200 and again at 1400+ (after good Q4 results) when I thought 1600-1800 is Fair price. Think its time to revise that upwards in view of actual performance!
Sir, you see I need the Fair Price figure:) I am NOT asking you to call the Top! Do you think 1900-2000 Fair price levels, considering the full year prospects?
donald,
Fair price range as you mention seems to be 1550-1650 at around 12-13 PE (applied to fy 13 eps estimate of 130) within which and below which it might make sense to add more. This is after factoring in a better than expected q1 fy 14 results and full year base case eps estimates of 130.
Any positive surprise on earnings front will push it up and any re rating will push it up…
Some data points I gathered from a research report post q1 fy 14 results
Cotton packets sold 61 lacs against 36 lacs for q1 fy 13… AP accounted for 35 lacs and Maharashtra for 12 lacs… That still leaves out 14 lacs from other states… Company had 35-40% market share in AP and 7-8% in maharashtra in cotton hybrids.
Jadoo accounted for 70% while ATM and Jackpot accounted for 10-12% each.
Sales break up is cotton 550 cr (335 cr in q1 fy 13) , corn 80 cr (60 cr in q1 fy 13) and paddy 40 cr (30 cr in q1 fy 13). This accounts for 670 crores which leaves out another 90 crores. (millet, vegetables??)
Management expects cotton to still be the growth driver for next 2 years (targetted market share of 20% from current levels of 15%). For next 3-5 years it expects cotton, maize and paddy put together to contribute to growth…
Earnings expectation is for sales of 930 cr and net profits of 178 cr with eps estimates of 130 for fy 14. (philip capital report)
What could be the growth for Indian seed cos if latest generation seeds in Corn / Soya and other crops as is being done in China & Brazil?
http://www.tribuneindia.com/2013/20130819/biz.htm
An interview with Nuzhiveedu seeds MD Prabhakar rao.He says Seeds is a USD 42 billion worth business abroad.
A slew of MFs have invested in the co. IDFC is an investor since its IPO @ 170 in 2007.Any updates on other MFs & any other institution in Kaveri?
http://smartinvestor.business-standard.com/company/funds-28003-Kaveri_Seed_Company_Ltd.htm
Seems JP Morgan & Tata MFs have made a recent entry in Kaveri.
Donald Yesterday the activist Dr Vanadana Shiva was ranting on TV about heavy subsidy being given to seed cos in India. Is it for govt seeds cos like National seed corps , SFCI n other state govt seed bodies ? Could you throw some light on this aspect n the impact it can have on Kaveri seeds?
Business Standard featured KSCL as part of its Hidden Gems series today:
Last year, kaveri declared the blockbuster results on 14 aug 2012… After that the stock price remained range bound for around 4 weeks before starting its journey… ??? till the agm?? concerns were largely related to whether earnings were real or not and why taxes were not paid…etc etc… Once these were addressed and understood, the stock began its upward journey…
This year results were declared on 13/08/2013…Its almost four weeks since that and again we have range bound moves… till now…this time again there are new type of concerns… how will growth pan out in next 3 quarters…etc etc…Personally I feel the only quarter worth looking is the first only… whatever comes from rest of the quarters is icing on the cake…
As I mentioned before even good news take time to get digested and it seems this currently we are in that phase for stock price…
There is almost a de-ja-vu feeling in the stock price reaction post results…
AGM is on 24th sept this year…could be a significant date…
Is any Valuepicker planning to attend Kaveri Seeds AGM. If so cud we raise some queries?
Some excerpts from a research report from wallfort post AGM…
Company expects to grow at 20% CAGR for next few years.
The company has created a robust and diversified portfolio of productsranging from commercial crops- cotton and sunflower; food crops- corn,rice, bajra and jawar; and vegetables- tomato, okra and chilly.
Paddy research varieties Sampurna, Chintu and Sleek have created aniche market.
Two new rice hybrid KPH-272 and Kaveri 264 were launched during theyear.
Companyâs four maize hybrids and one bajra hybrid were gazette notifiedduring the year.
Companyâs Sunflower hybrids Sunkranti and Champ (virus resistant)were in great demand in rain fed and irrigated areas.
The R&D department is laying trust on hybrid rice; and climate resilient,heat and drought tolerant - maize hybrids; and sunflower hybrids resistantto bud necrosis through conjunct use of hybrid andbiotechnologies.
To improve the scope and efficiency of the Microteck division i.e. KaveriMicroteck Pvt. Limited has been converted to 100% subsidiary ofcompany.
Kexveg, a subsidiary of KSCL, has started commercial production of highvalue exotic Indian vegetable and European culinary herbs.
The company plans to consolidate the ascendancy in cotton, pearl milletand maize, where as scale up position in paddy and sunflower.
Earnings estimates for fy 14 and fy 15 according to the report are
year fy 14 fy 15
sales 998 1199
NP 183 219
eps 134 160
Is best performing Jadoo under threat from new hybrid Bhakti of Nuzhiveedu ?
Views invited.
How to access this?
speech Link: https://docs.google.com/file/d/0B6FOA7QqV1VDeG94WGdwSHl4Vm8/edit?usp=sharing …
thanks
It is an old news dated May 30th. The impact of it should have been felt in the last Q, which was great for the company.
Hi all,
Thanks for all the good work. I got interested in Kaveri mainly after reading this thread and the great work done by everyone. As everyone I was also trying to predict the kind of sales for the next three quarters mainly from inventory side and sales ratio of cotton to non cotton seeds.
Inventory: There is a huge leftover inventory of 282 cr from last quarter. This does include 35 Lacs of cotton packets. Interestingly in last quarter all the sales were generated from 209 cr (decrease in inventory) + 69 cr cost of production. Would it be possible to determine the leftover inventory in rupee terms of cotton seeds vs rest using cost basis approach?
Cotton to non cotton ratio: Assuming the company maintains a 60% - 40% ratio of cotton and non-cotton seed sales. The current cotton seed sales (Q1) stand out at 61Lacs960 = 585 cr. The sales of other seeds stand at 736 - 585 = 151 cr. Assuming no further cotton seed sales for the rest of the year the sale of other seeds 585.4/.6 - 151 = 239 cr and at 18% net margin (FY13) it gives an eps of 35.
