There is some kind of protest. Do not follow the language so cannot make out what the issue is. Read in Business line of 2 days ago about Cotton Seed companies not asking farmers in AP to plant the seeds since they are sitting on 4 cr packets of inventory.
Kaveri has been quite weak off late. Fallen sharply in last few days but none of us has much idea about the reasons of the fall.
Many guesses are going on here- 1) BJP is -ve on GM Crops 2) El Nino effect & poor Monsoon predictions 3) Farmers protest in Andhra against Kaveri 4) Too much cotton inventory 5) Better products than Jadoo (heard that dr brent is better than Jadoo)
Request one of you guys to educate us on the ground realities and the reasons for the fall and what is the expectation for this year for Kaveri.
Final results and dividend declaration is on 29th May.
But the recent Motilal Oswal report states that company has 12 m inventory compared to 7 m sales of packets last year. Isnât the inventory data released at time of result.?
Things on the ground have not changed! Prospects of Cotton Seed Industry in AP & Maharshtra - and prospects of the major players - is as usual.
Please wait for our annual surveys/field-trips in AP & Maharashtra which is currently on! Will be completed by end May. Reports may be submitted within a week of the surveys getting completed.
Many folks have commented/reported on many variables)- GM crops, El NIno, Protests, et al. Our considered view is that these concerns are mostly out-dated (issues 6m to a year old) , irrelevant (GM crops) or ignorable (El NIno, etc).
Those who are seriously tracking/invested in Kaveri seeds MUST familiarise themselves with the REAL issues - as covered extensively in our field-reports, Management Q&As and Stock Story - else, you run the risk of being ill-informed or mis-informed!
67 lakhs packets sold in FY14. Have inventory of 1.2 cr packets now. Company expects 15-20% growth in cotton. Most of this incremental growth with come from Maharashtra & Karnataka.
Market situation is better in cotton this year as compared to last year. Acreage will increase this year by 3-5% & industry inventory is lesser. Branded players will have a good year.
company is looking to gather 300 to 400 crore cash for purpose of biotechnology research which is capex intensive. These cash levels should be achieved by Mar 2015 or by Dec 2015. After this there will be increase in payout ratio.
EPS 30.43 for FY14,Sales were lower in this quarter as most of the traditional sales of Q4 this year was booked in Q3 itself. H2FY14 has grown >20% as compared to H2FY13
Advances for this year was estimated to be lower by 40% as compared to last year due to huge inventory in the market but company has managed close to last year advances. Advances of 245 cr vs 253 cr last year. Inventory is same around 490 cr, 1.2 cr packets now, will cut down on excessive production from next year. Trade receivables and payables lower than last year
Margins may be higher in Q1 as advances/probable sales ratio is lower this year although expansion in margin may be capped due to higher inventory in the market this year but margins wonât come down for sure
Investments + Cash 270 cr vs 129 cr
Revenue breakup FY14:Cotton 630 cr; Maize 175 cr; Paddy 55 cr; Pearl millet 42 cr; Microtek 30 cr; Sunflower and others below 20 cr including vegetables 2 cr
FY14:67 lacs cotton packets; Andhra Pradesh 42 lacs; Maharashtra 10.5 lacs; Karnataka 7.5 lacs; MP & others 1.8-2 lacs. Will be No 1 in FY15 in Karnataka
No price hike in cotton this year, volume growth to drive. Margins may expand 2-3% in next 2-3 years. Only need 2 first showers to be good for cotton, not much dependent on rains, dealer play advances and farmers use cash and carry for seeds
Cotton acreage grow by 3-5% and cotton hybrids grow 15-20%, good traction from Maharashtra, Karnataka and central India. Gujarat 3% market share in FY14, will need 3 years for Gujarat and northern areas to contribute significantly. Copper is much more attractive for farmers compared to other crops even at MSP
Monsoon expected to be normal, may hit shores by mid June
Market share cotton 16.5-17%. Plan to increase it to 20% accordingly packet sold can be around 82 Lacs. See good traction in the current season. Majority of market share has been gained from Nuziveedu seeds.
12 lacs incremental Maharashtra and Karnataka in FY15 (From 70 lacs FY14 to ~82 lacs FY15 this year)
Maharashtra 7% market share, Maharashtra contribute 40% to India cotton, plan to capture it to 17-20% in next 3 years. More than 60% market share in Telangana part
3-4 years expected market share 25% in cotton by FY18. Market is saturated and hence no increase in industry size. Ideal is 2 packet/acre but currently its around 1.6 packet/acre in India. Increase in number of packets/acre can give small volume boost in future. Increase can occur due to increasing mechanisation due to high labour rates
Jadoo: Major till FY17, after that ATM may be possible, Jackpot & ATM lower. Going forward ATM can be higher after FY17
In 3 years, nothing much to change in product mix. Probable chance of increase in cotton.
Last year total inventory was around 7.5 cr packet which would be similar this year in the market, demand is around 4.1-4.2 cr each year. Good situation for branded seeds maker, not so good for other marginal players. Most seeds sold this year would be branded seeds.
Non branded have reduced the prices and volumes have been reduced. Most marginal players have stopped producing seeds and hence the demand for producing seeds from captive farming have reduced and hence reduced the cost of production from farmers by 2-3% for Kaveri which can aid margins, production cost reduced by 20-30 Rs/packet. Further reduction in production cost difficult.
Paddy to grow by 25-30%. Single cross hybrid in maize grow more than double cross, 15-20% growth in maize. 50-50 breakup in volume between 2 types of maize, 70-30 in terms of value.
Possible 17-18% from 13% MS & Paddy 10% MS from 6% in 4-5 years
Rice, Maize, Cotton contribute 60% to seeds market
30-40 cr capex warehouses and cold storages, from this 5-15 cr is for research, required but cash on balance is 270 cr. Will keep increasing payout, but have currently not increased it because money is required for biotech research (for hybrid crops, not GM crops) which is capital intensive requiring 400-500 cr in future which can be gained by next year post which dividend payout would be increased. Not looking for any inorganic opportunities. After that most capex will be for R&D , around 30-40 cr
Not working on GM crops as of now, possible allowance by agriculture ministry in Paddy and Maize possible in next few years
Regarding accounting policy, sales are recorded when seeds is liquidated by dealers and not when seeds is sold to dealer by the company.
For Kaveri, Q1 is everything. Rest of the quarters hardly matters.
Reply to your query:
(âŚfrom above concallâŚ)
EPS 30.43 for FY14,S_ales were lower in this quarter as most of the traditional sales of Q4 this year was booked in Q3 itself_. H2FY14 has grown >20% as compared to H2FY13
Thanks Utkarsh for extensive notes from the Concall. Its great that you take the trouble to bring everyone on the same page.
So guys letâs drop all the extraneous concerns and concentrate on what Kaveri can realistically do in its key markets AP, Maharashtra, and now Karnataka.
We have just completed surveys in AP & Maharashtra. This time Maharashtra was exhaustive work - across most regions - 1500 Kms - in 3 days. Good that we had a hunch and decided to go all the way tfrom Akola-Jalna-Beed-Parbhani-Nanded districts apart from Yavatmal, Wardha and Hinganghat that we covered last year.
As usual there were steep new learnings - on the overall industry - which I am keen to share. Will compile/provide more details by next week. Am on a short break with friends family/kids. So only a brief on the numbers first (thatâs what most folks are waiting for, right? :-))
AP - Company is set to do better than last year. They should do 50+lakh packets (up from 42L last season).Mahararashtra - They should do atleast 15+lakh packets (up from 10-11L packets last year). Overall acreage is expected to go up by 10% in many areas (non availability of soya seeds) and marginally in other areas.
Karnataka - Management is on record on the bright prospects. If you take out Maharashtra, they are set to double there - up to 15 L packets or an additional 7-8 L packets. This is also in line with some of our 3rd party surveys in Karnataka.
Additional growth = 8 (AP) +5 (MH) + 7 (KN) = 20 L. Last yr 67L
So this season looks like 87L !!
This doesnât mean one should jump in and buy at current levels. With an expected EPS of around 40+, Kaveri is at fairly priced levels of ~15x+ - not cheap - certainly not with a great margin of safety - as was the case last season
Disc: Kaveri is a significant holding for me; > 5% for more than last 2 years
Com is hopeful of 25% market share in cotton and 18% in Maze going forward.
For 25% growth in cotton in FY15, com needs to sell 12 lac packets incremental. 6-10 lac incremental packets will come from Karnataka+Maharashtra as per management. (This is interesting, as we think 10 lacs incremental will come from AP too, so don't be surprised if they do 20 lacs more in FY15).
Here is the FY14 figures given by management and our rough estimate for FY15:
2014
Mkt Share
2015 P
AP
42
40%
55
Maha
10.5
7%
15
KA
5.5
7
MP
1.3
2
Others
6
6
Total
65.3
20%
85
What was surprising is that company received advances amounting to Rs 240 Cr this year too. Last year company received around Rs 250 Cr as advances. This means that distributors want to book adequate quantity at lower price (discount schemes for advance payment) this year too contrary to what we thought. The realisation may not improve much due to this.
So here is the overall projection:
FY15
Rs Cr
Maze
228
Others
254
Cotton
791
Total Sales
1273
PAT @ 21%
267
EPS
39
Numbers can be better if relisation is higher than Rs 790/cotton packet and NPM is higher than 21%.