It might have to do with perceived management quality of these companies. on the other hand if you compare Kaveri with peers like PI Industries, Dhanuka, Monsanto, Rallies, Bayer Cropscience etc., It seems to be undervalued on PE multiples with better returns ratios, so a probable candidate for re-rating. Also in case of Kaveri, steep earning growth has caught up with valuations so PE multiples looks lower, which is a very healthy sign.
+)compared rate@40 Link: mailto:rate@40 %
With the long term story intact and management guidance of 0.9 millions of cotton seeds for the current quarter, due to spill over effect as monsoon was delayed. The stock looks interesting to be added on declines.
Disclosure:- Invested and added more.
Hell Guys,
I was wondering if there was a conf-call held on the AGM(18th Sep)?
Generally our boarders post the minutes of discussions here, which gives deep insight on future.
If anyone attended, could you please share your thoughts please.
Following are the excerpts from Chairman’s speech:
Cotton: Vision to be market leader. The company plans to launch new hybrids to bag further market share and envisions to be a market leader. Intense breeding efforts are underway at Kaveri to restructure the cotton plant, fortified against sucking pest, leaf curl virus and to withstand onslaught of abiotic stresses.
Maize: Accelerated investment in R&D, helped the company to bag a sizeable market share.
Hybrid Rice: Adoption of hybrid rice in India has been slow. Hybrid rice is on the to of company’s growth agenda.
The company strengthened seed portfolio of other field crops- bajra, sunflower & jowar and vegetable crops - tomato, chilly, brinjal, okra and gourds.
Growth drivers:High density cotton planting can increase cotton market further. Hybrid rice is a biger seed bowl with immense scope to fill the gap. The forecasted demand for maize todouble in a decade are some of theopportunities to growing the future of your company.
Your company is the fastest growing key national seed company in the industry
Responses to Q&A during AGM:
Target of 30% cotton market sharein coming years. Field trials for better cotton hybrids are currently going on. Did not divulge details about the names of these new hybrids.
The company expects market to grow for next 10 years.
Company is also exploring offshore countries like Bangladesh, Vietnam etc for maize. Due to Monsanto licensing agreement cotton can only be sold in India.
Hybrid rice has shown 35% CAGR in last 5 years. The company expects 255- 30% growth in the coming years.
Thank you Anant for your AGM update. It is obvious that management expects growth to continue. At TTM P/E 20 this seems to be one of the most reasonably priced growth stocks in the current market.
Did the management give any guidance about how many packets they expect to be returned back from various channels? Also was there any talk on the trend in collection against debtors?
Discl: KSCL is > 5% of my portfolio.
Hi Ajit,
I was also present in the post AGM discussion which the VP team had with management. I will update the thread with that information too in a couple of days.
Thanks Anant, the much awaited information was really helpful. Did they also comment on cotton sales in July-sept qtr? In Aug they had mentioned spillover of 9 million packets to Q2 due to delayed monsoon.
Many thanks Anant for your useful updates.
VPers,
I have a few basic question on Kaveri’s economics and audit as I am new to the story.
Since they have been grabbing shares from other companies or probably unorganized players, what is the major selling point? Does it have better yields or disease resistance or any other advantage?
I looked up Kaveri’s auditor and found the name of P R Reddy And Company. I looked up the company on Businessweek, MoneyControl, and Linkedin but could not find any other affiliations other than Kaveri.
I am not saying that there is something wrong with Kaveri’s auditor. I just find it comforting if an auditor is well known and has affiliation with multiple public companies. Any thoughts on the auditor?
Thanks!
Another question, why Kaveri's tax rate is so low compared to peers?
| Kaveri | 2009-10 | 2010-11 | 2011-12 | 2012-13 | 2013-14 |
| PBT | 3,119.0 | 4,029.9 | 6,095.5 | 13,365.6 | 21,536.9 |
| Tax | 212.5 | -217.7 | 285.1 | 378.5 | 480.7 |
| PAT | 2,906.5 | 4,247.5 | 5,810.4 | 12,987.1 | 21,056.2 |
| Tax % | 6.8% | -5.4% | 4.7% | 2.8% | 2.2% |
| JK Seeds | |||||
| PBT | 1,057.84 | 1,438.78 | |||
| Tax | 158.6 | 253.0 | |||
| PAT | 899.22 | 1,185.82 | |||
| Tax % | 15.0% | 17.6% | |||
| PBT | 4799.5 | 6780.2 | |||
| Tax | 350.8 | 843.9 | |||
| PAT | 4448.7 | 5936.3 | |||
| Tax % | 7.3% | 12.4% |
The third company is Advanta Seeds.
2009-10 | 2010-11 | 2011-12 | 2012-13 | 2013-14
PBT | 3,119.0 | 4,029.9 | 6,095.5 | 13,365.6 | 21,536.9
Tax | 212.5 | -217.7 | 285.1 | 378.5 | 480.7
PAT | 2,906.5 | 4,247.5 | 5,810.4 | 12,987.1 | 6.8% | -5.4% | 4.7% | 2.8% | | | | |
PBT | | | | 1,057.84 | 1,438.78
Tax | | | | 158.6 | 253.0
PAT | | | | 899.22 | | | | 15.0% | 17.6%
PBT | | | | 4799.5 | 6780.2
Tax | | | | 350.8 | 843.9
PAT | | | | 4448.7 | | | | 7.3% | 12.4%
wherecanifindpostagmdiscussionofvpteamwithkaverimgm
Hi Anant- Could you please share the post AGM discussion which the VP team had ? Many thanks for your help.
results declared
|
(in lakhs) |
Sep-14 |
Sep 13 |
|
Revenue |
1,8163.9 |
9636.4 |
|
PBT |
3259.2 |
900.92 |
|
EPS |
4.73 |
1.31 |
Looking for comments from esteemed fellow members:
since Kaveri now ocuppies over 30% of my PF due to recent run up, the question that I am asking is : can Kaveri’s earnings grow 10 times in the next 10 years?
a wild guess about total accessible market size Kaveri’s product portfolio after 10 years is maximum 25,000 cr. I tried to take into account increase in prices, cotton farmers switching to mechanized farming, and hybridization of rice at over 50%, but did not account for the possibility of GM crops.
Now, to grow earnings by 10 times, assuming NPM of 30%, Kaveri needs to capture a market share of over 40% in all the above products combined. is this a likely scenario?
or did I missing anything?
My suggestion is that no one can predict happenings 10 years out. So, on’t waste your time on such purely academic exercises! Too many probabilistic parameters and multiple things that can differ from projections which can lead you completely astray.
Just think back and see if you were able to effectively able to predict a particular company / industry / sector 10 yrs back.
Focusing more energy towards new trends (upwards trends here) may help in achieving higher return. Trends rule above all and if we can find quality stocks in new trends then nothing like it.
There could be multiple trends at the same time. It is also possible that individual quality stocks perform without trend at all.
So focus your energy there.
Kunal
There have been some concerns raised over Management plans to divest and raise about 1000-1500 Crs for an independent (from Kaveri Seeds) Food Processing Venture.
VP Team spoke to Mithun Chand to understand the developments. Here is a transcript of the discussions held on 11 Nov, 2014:
Q: Kindly explain the new developments. Why now?
1). Today Kaveri Seeds business is in a much more comfortable situation - have established ourselves and achieved leadership position, we are generating free cash, we are able to attract top quality talent
2). There is strong visibility of business performance for next 2-3 years
3). This is the right time we felt for any Strategic/Long-Term Investor to come in NOW, rather than 2-3 years later
4). We don’t mind sharing a part of the fortunes with a long term investor. Even the earlier 3-5% transaction was on this account only
5). We are also making sure to find new buyer - not offered to existing shareholders.We also make sure that we do not handover the complete demand to the buyer. We make sure that the entity has long term interests and to complete the requirement the entity also needs to buy from the market. (50% say promoter holding and 50% from market). That ensures a measure of price stability.
Q: Okay, but why 1000-1500 Crs? What are you going to do with that kind of money?
We are very keen on setting up a Food Processing Unit. You might recall that we always were excited by the prospects of our (Kaveri’s) Kex-Veg division - but also lamented that it is a very capital intensive business - and we were finding it difficult to scale that meaningfully.
This venture we want to do at a scale of a 1000 Hectares. The investment is some 1.2 Cr per Hectare (Land + Greenhouse), but lets say we can do this at 1000 Cr. Another 200-300 Crs for the Processing Unit.
Q: Did you harbour any thoughts of doing this from within Kaveri?
[Laughs]. Yes, we did. But some of the big investors in Kaveri objected, and they are right. The problem is no one in India has as yet made a success of Food Processing business. It is considered risky and investors could rightfully allege - that we were de-worsifying to satisfy Promoter’s whims and fantasy.
Q: Were there no other options of raising Funds for this new venture without diluting stake by as much as 20%? That’s a big big dilution!
1). As mentioned before Food Processing is considered a high-risk business. No Financial Institution is ready to finance a venture of this size. We do not have any large other than the Promoter Holding in Kaveri Seeds
2). We never said that we will dilute 20% or more. Rather we have been maintaining that Promoter stake will not be going below 40%. We will continue to maintain significant stake in Kaveri Seeds
3). Now that we are generating Free Cash, we have enhanced Dividend Payouts. There will be accumulated Dividends that will be coming in tranches, that will fill in some of the requirement too. We may not need to dilute more than say Max 16-17% of Promoter Holding.
Q: But why do we need this all at one go. Surely this can be done in tranches?
Yes, we will need it in tranches. But rather than come back/divest multiple times to raise the money, we thought it better to
a) inform our investors at one go - of the quantum and scale being attempted
b) allow a large/strategic investor to acquire a sizeable stake, as needed
Q: What if you don’t get a large/strategic investor interested? Is that a possibility?
1). It is possible that we do not manage to get a single entity expressing that kind of intent. It could be multiple entities too. Even with multiple entities, it is possible that we do not manage to raise the target quantum.
2). in which case, we will drop the pursuit. our studies/work on this front tell us the only way to succeed is at a certain scale
Q: Kindly demystify what is being envisioned. Is it processing vegetables or fruits or both?
1). One one hand is it growing Exotic Vegetables that fetch premium pricing
2). Process fruits and vegetables
Q: Just to get a sense of how wild is your fantasy, has anything of even 1/3rd the scale of what you envision been attempted from India?
There are a few guys who are attempting this at lower scale. There sis someone in Pune (Green Tokri) who reportedly is doing this on some 200 hectares
Q. One last question, why is this so exciting for you? How long will it take to really establish?
Given what we have seen in vegetable price fluctuations, the increasing demand for quality organic and exotic vegetables, we think this is a business for the future. 10 years from now this is the business to be in. It will not be easy, it will take sustained efforts over many many years.
x
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Q: Now let’s come to the Questions and “Perceptions” such a large dilution like this raises.
It is good to dissect the whole issue in 2 parts. One is the fact of Promoter Selling being attempted in the face of no other alternatives. I think we have addressed that part adequately, above
Q: Yes, so lets come to the business prospects? Is the Management not confident about Kaveri Seeds business in the medium term? Has the business already matured?
1). We have always been maintaining/cautioning - because of the higher base - it will be difficult to grow higher than 15-20% in volume terms
2). We have also been cautioning that who knows we may even de-grow next year, if the climatic conditions are not favourable
3). We have always been pointing out all the negatives in the business
Q: At the same time, while you have been maintaining 15-20% growth are only possible each year, you have been over-achieving by huge margins
1). That we have been lucky. All our attempts have borne fruit. We have also spared no effort on the field in educating the farmer and promoting our top-performing hybrids
2). 15-20% growth is not bad. From a huge base that we have now, it is much more difficult to continue growing the way we have. Does it mean the Management views the business as stagnant, certainly not. We will continue to put in all our efforts to grow
3). Are Promoters still a part of Kaveri Seeds, or are they running away. With 40% plus stake, we will continue to be majority shareholding.
Q: In our view this is again understating in true Kaveri style. Based on our field-work, we see a 20-25% growth rate easily for Kaveri. You have done well not because of luck - but solid on the ground in new markets like Maharashtra - next year should actually be better!!
1). Yes, barring climatic reasons, we should do much better next season in Maharashtra. Our ATM hybrid has got very good response in Maharashtra
2). There could be a year or two of lower 15-20% growth - we should take that into reckoning. But yes, if you talk of a 5year term - yes 20-25% CAGR is also possible
3). Whenever the next price hike comes (likely next year or two), that will straightaway flow to the bottomline
4). BG -RR2 whenever that gets introduced, that will also enhance revenues
5). We are entering/planning for entering newer markets. We are bringing in high-quality external talent
Q. Okay, but there was this view that there is significant intelelctual capital in Kaveri Seeds a) the rich germaplasm bank b) the sustained investments in R&D leading to a chain of successful hybrids. There should be a lot of value for a strategic partner or acquirer of Kaveri business.
1). Certainly there is lot of value
2). But as i has explained in Management discussion last time with you, the chances of a strategic partnership or stake are slim - of the order of 10% or so - because all interested parties already have long-standing relationships with different entities in India. Its difficult for them to engae with us without disentangling earlier
3). We are still trying. Even today we had some discussions on that front. KPMG continues to be the consulting partner and enabler for us in that effort
4). Now whether that will materialise sometime or not, is another matter
Q: But what about Management Bandwidth at Kaveri Seeds? Who will manage the show in the new entity?
Oh! that we can assure you Management Focus is not changing. We will continue to be at the helm of Kaveri Seeds
Q: Are you saying Mr Vamshidhar or you will not take on Executive function/roie in the new entity?
1). Yes, Vamshidhar will have no role in new entity
2). This is basically Rao family initiative. Mr Rao is the only one shifting there
3). There may be a little role for me ( Disc: I do not handle much of Operations within Kaveri Seeds anyways)
Q. So what about the stake sales? Who will be diluting? and how much?
Again it is mostly Rao family. Vamshidhar will not sell anything from his promoter holding and neither will I. Whatever little we seel will be from our personal shares we might have subsequently acquired
Q: Then who else will be in Operational roles in new entity?
There are other people who will come in with small part of the Capital. They are the people from that background forming the Technical Team and have done all the groundwork.
Q: I missed something important. What was that thing about entering new markets?
1). As mentioned before, we have established ourselves and reached a certain standing in the Industry by now. The business nis stable, it is able to generate free cash, we are able to attract top-quality talent
2). We have brought the company so far. We need the right people for taking the bsuiness to the next level
3). We are thinking if MNCs can, why cant we now aspire to replicate our success in newer markets like Africa. Every MNC is trying to do things in Africa.
4). We are now moving concretely in that direction and hiring the right talent with exposure in global markets that we are interested in and think we can address effectively.
Q: Only the other day, we were trying to exemplify Kaveri as a Management with a Growth Mindset, and why it makes sense to stick with such Managements for the long term - because they think 3-5 years ahead and plan for finding the growth that needs to come in. Good to hear that
1). Now we are more concerned about stepping up a level or two. How do we protect our Leadership?
2). How do we behave as a Leader?
3). We have now to invest in systems and processes and talent to build organisation scale that can address opportunities at the next level.
4). We have to become comparable to MNC Management
Q: Some would still argue that you are not able to do reproduce your leadership position and aggressive style in Hybrid Rice as you could in Cotton or Maize, despite trying for a few years now. The MNCs are much ahead. Cotton market is saturated. Maize growth is limited. Why is that not the reason for some loss of aggressiveness/interest and divesting?
1). It is true that we are behind the MNCs. Bayer, Syngenta and even Pioneer are ahead of us. But it is not that they are too far ahead that we cannot catch up in coming years. we are in abetter position than we were 3 years back
2). We have grown our hybrid rice business at 35-40% every year. Lat year we did 45 Cr, year before 35 Cr, 20 Cr before that and maybe 12 Cr the previous year
3). From a market share of 1.5% we have now grown to 6.5% -7% market share. That shows we have been progressing. technicall too we have kept pace with all MNC initiatives
4). We are planning for a 30-40 Cr investment in the Hybrid Rice business. Most of it will go for a Rice Processing Unit.
5). Yes, one can say that there is a Time risk. Significant uptick may not happen before 2-3 years - but that’s true for the whole industry.
6). The competitive picture has not changed or deteriorated for us. we have become stronger every year.
7.Out of a total RIce cultivation area of 44 Mn Hectares,Hybrid Rice penetration was 1.5 Mn Hectares 3 years back. Today Hybrid Rice cultivation is in 3 Mn Hectares. There is discernible progress. we continue to be optimistic.
Thanks Donald for sharing this.
What is the take away from this stake sale by promoters ?
1). If it happens at some premium to CMP, it will be a positive in the short term, also in getting rightvaluationsfor this kind of sustainable business.
2). Mgnt reducing stake can be also seen/taken with pinch of salt, as they are saying, moderate growth, high base effect etc. But they also say we can do 20 -25 % CAGR.
Action reveals more than words !
Any other experts has any other take
