Dear Donald
Thanks a ton for sharing the interview. It was really helpful.Hats off to your dedication and selflessness.
Regards
Samir
PS: A maybe naive question-how does one find out such news of promoter divestment in the first place?
Samir,
They had told about it during the Q2FY15 concall. You can listen it on Researchbytes. Also, the promoter shareholding has come down as on September 30, 2014.
I have been looking for the press release of Kaveriâs fund raising plan but could not find it. Does anyone have the link?
Thanks!
Any thoughts on what could be the impact on Kaveri seeds with cotton prices falling ? Could that seriously the performance of the company going forward ?
falling cotton price is âone anotherâ reason the Kaveri Seed has been trailing in the recent weeks, even though the companyâs performance in the September quarter was strong.
I think one must also look into details of WTO treaty which India has signed recently. Until now there was always a support for cotton in terms of MSP and hence falling international price never impacted farmers. One needs to consider the ramifications of WTO treaty on cotton. This could potentially have long term impact on Kaveri.
Discl. Not invested.
US is the worldâs largest raw cotton exporter while China is the worldâs largest cotton producer. These two countries also happen to be ranked in the top 2 when it comes to providing subsidies. These trade distorting subsidies were never legal in the WTO and they maybe more difficult to sustain going forward. If it all works out like its supposed to, then a big plus for cotton exporters with lower production costs like India, Brazil and Uzbekistan while being negative for US.
First the positive aspect of cotton production in India:
Oldish data from year 2008:
The data from 12 major cotton producing countries representing various regions and productionsystems indicated that it was most expensive to produce seedcotton in Turkey followed by Syria,57 cents/kg and 53 cents/kg respectively. It cost 36 cents, 25 cents and 29 cents to produce akilogram of seedcotton in China (Mainland), India (North) and Pakistan (Punjab), respectively.
The net cost (total cost less land rent and income from seed sold after ginning) of producing akilogram of lint also showed differences among countries. It was most expensive to produce akilogram of lint in Bulgaria. The cost of producing a kilogram of lint was over two US$ dollars inBulgaria and Israel (Pima). The net cost per kilogram of lint in the USA was US$1.42/kg,US$1.52/kg in China (Mainland) and US$1.63 in Turkey (GAP). The net cost/kg was only US$0.67in Pakistan. Assuming the ginning cost in India equivalent to the cost in Pakistan, the net cost inthe North region of India equated to US$0.50/kg of lint. Net cost per kilogram of lint was lower inIndia due to recent increases in yields. The cost of production data from Kazakhstan, Tajikistanand Uzbekistan showed that the cost of producing a kilogram of lint was the lowest in the CentralAsian countries as a region in 2006/07.
And then the sad part of the current yield in India even after the huge growth since 2002:
http://www.indexmundi.com/agriculture/?commodity=cotton&graph=yield
India ranks at 33 in terms of yield.
Just goes on to show the amount of work that still needs to be done by the seed, insecticides/pesticides, fertilizer companies along with farmer education.
Disc: Invested in Kaveri seeds, less than 5% of PF. Intend to increase it in future.
Weakness in stock continues and mostly will be rectified during Q1-Q2 results and promoter stake sell-off completion
Today morning there was news being played on local news channels that farmers are agitating in cotton producing districts of surendranagar and amreli in gujarat because of falling cotton prices (Rs. 800 now) with congressâ supportand two of the state BJP ministers also visited PMâssecretaryin this regard.
Falling cotton prices and promotersâ plans of stake sale are two major short term concerns which seems to be putting pressure on the prices in the short term.
Hi All,
At the current price of 776 its look attractive .Planning to invest.
Spark Capital has provided a reco with target price of 990.
Any thoughts/feedback welcome.
Thanks,
Hari
In this mkt, thr are very few âgoodâ stocks which have been left behind in the run up- KSCL is one of them because of promoter selling concerns.
Cotton price softening seems to be a bit overdone as the cropping pattern shift, if any, is unlikely to be extreme. In any case, this doesnât seem like a structural issue which dents the competitive advantage of the co.
IMHO, these levels provide good entry point from a longer term perspective.
Request others to chip in with their views.
Thanks.
Stock has been discussed on various angles by VP seniors.Thanks to everyone for such a detailed discussion on every aspect of this business. I would like to share a couple of my views:
One of the overhangs on this stock is its short term investments of more than Rs.270 crores in its books:
Look at the companyâs short term investments over the period of 4 years:
MF invesments:(in Rs.crores)
|
2011 |
2012 |
2013 |
2014 |
|
36 |
110 |
129 |
270 |
Average Fixed assets for the last 4 years: Rs.116.5 cores.
Avg. Working capital for the last 4 years: Rs.67.5 crores.
No of outstanding shares: 6.89 crores
If company does not this money to run their day to day operations or no CAPEX planned in the near future, why not declare dividends? Even if they announce Rs.10 per share for the ~ 7 crores outstanding shares, it will be only Rs.70 crores.
Market does not like companies having huge cash pile on their books sitting idle for so long.
I remember reading in one of Donaldâs interview with the management, wherein they mentioned they need such money to avoid taking debts to fund their growth. This was mentioned in 2012.And every year this pile keeps increasing and dividend is not increasing that much (in 2013 total dividend paid was Rs.24 in 2014 Rs.7.5 only).
This is a big concern for market participants apart from growth slowing down. Doubling sales from Rs.500 crores to Rs.1000 crores is much easier than doubling the sales from Rs.1000 crores to Rs.2000 crores because of the higher base. Usually when the growth slows down, company should increase dividend payout if it generates free cash flow.Last year the free cash flow was Rs.160 crores and the dividend paid was Rs.38 crores.
Less dividend payout and slowing growth are the major concerns.May be that is why the companyâs valuation (PE 17x and EV/EBIT 18x) appear cheap compared to its peers like Monsanto.
Management has indicated preparing a reserve of 300 crs for R&D (expected to be capital intensive) and have advised that once that level is reached, they would raise the dividends. FY16 should see them crossing that level, so we should expect a much higher pay-out.
Just could not understand rationale for not giving dividend and linking that to accumulated reserve. Assuming company need to provide for future R&D of around Rs 300 Cr , it shall be looking forward to keep short term investment and not accumulated reserve. However, would still wander whether within a year only the company would use full 300 Cr for R&D, it would be too much for company.
Disc: Was invested but fully exited after recent management plan to set up a new business.
Hi Dhiraj,
What new business is being planned? Is it diversification?
Thanks a lot Donald for interviewing the management on this** STAKE SALE** issue and sharing the interview with fellow value pickrs. It provides lot of insights. I have been looking for something like this from the past 2-3 months 