What I find very difficult to digest is, even with so strong perceived business fundamentals and attractive valuations, why the promoters are not able to find a good strategic investors to offload their stack, which makes more sense, and instead selling through open market? Is there something that we are overlooking? any views?
and where is the interview? I was unable to locate it in the Management Q&A. It will be great if you can share a link.
The interview is in the previous page ie 26 below your comment in that page
In my interaction with a couple of fund managers, they tell me that they do not like kaveri Seed because of the huge cash that it is sitting on. They do not buy management’s story on usage of cash for Research. They say its annual cash flows are enough to fund research, it need not accumulate cash. Now that promoters want cash for a new business, it’s all the more important that they pay hefty dividend from KSCL and part fund their new venture with the cash from dividend. If it really pays hefty dividend, the valuations will soar and promotes can then raise part of funds by selling some shares (which will be a much lower number than what they intend to sell now).
My sense is that they suspect there isn’t really the kind of cash that is shown in books with the company.
In last quarter balance sheet cash was 6Cr and current investments of of 174 Cr which is not huge to be sit on. Management have clarified that the new research would be funded by promoters stake.
Can you please clarify this from your fund managers or ask if I am missing something.
Thanks Rakesh for the input, makes lots of sense. I think we won’t find many instances wherein promoters have successfully offloaded so much stack through open market without affecting the valuations/prices. It is against the nature of things.
is this the reason for the fall. gm may just sneak in.!
From what I’ve read so far, Kaveri’s management would be needing cash to:
1). Fund research into newer varieties of hybrid seeds (including 30-40 Cr investment in the Hybrid Rice business)
2). New venture in exotic vegetables and food processing (1200-1300 Cr)
3). Get into Africa/Asian markets by buying out local companies.
From the management interview posted by Donald, this exactly seems to be their idea:
“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.”
Kaveri Seed Company Ltd has announced the following results for the quarter ended December 31, 2014:
The Unaudited Standalone results for the Quarter ended December 31, 2014
The Company has posted a net profit after tax of Rs. 357.370 million for the quarter ended December 31, 2014 as compared to Rs. 367.901 million for the quarter ended December 31, 2013. Total Income has decreased from Rs. 1345.913 million for the quarter ended December 31, 2013 to Rs. 854.111 million for the quarter ended December 31, 2014.
The Consolidated Results are as follows:
The Unaudited Consolidated results for the Quarter ended December 31, 2014
The Group has posted a net profit after tax and minority interest of Rs. 357.860 million for the quarter ended December 31, 2014 as compared to Rs. 365.176 million for the quarter ended December 31, 2013. Total Income has decreased from Rs. 1357.940 million for the quarter ended December 31, 2013 to Rs. 931.960 million for the quarter ended December 31, 2014.
- Expecting market share of 25% over next 3years. Current market share ~17-18%
- Cotton market has expanded
- 5cr packet market. 15-20% growth in cotton.
Promoter stake sale
)- As of now project is shelved and working on viability of the project
)- No fund raising is planned in the foreseeable future
)- Saw 15/20% decline in maize market.
)- Bihar didn’t grow as expected
What could be the effect of this on Kaveri seed’s next year performance. please see the below link. Can this be a red signal .
ICICIDirect report on Management Meet
The report is more historical, then forward looking. They could have published it by studying the financials of the company for the period they covered. Wonder why they met the management.
I raised this point to IDirect research analysts and asked some specific updates. Below reply is received. They should have covered the points in the report itself :
1)Is there is any update regarding promoter’s stake sale for new venture? And how much they might dilute?
Response: The promoter group has shelved off the plan for developing the food park (new venture). Hence the company’s promoter group as of now has no plans to further dilute its stake in the company**. This was precisely mentioned in the recent quarterly con-call and hence the stock price appreciation.
2) The co is generating good amount of cash. Are they planning to enhance dividends? Or expansion in new markets/geographies?
**Response: Currently the company is paying dividend @ 20% payout. However they have guided for increase in payouts once the cash reserves with the company cross Rs 300 crore (which should happen in FY15) an hence the management has guided for increase in dividend payout post FY15 going forward. The company is aggressively expanding in the west particularly Maharashtra. **
3)Maize market share is declining, will this trend continue?
Response: In the case of maize, the entire market shrank in FY15 due to lower maize prices both domestically & globally thereby making it non remunerative for the domestic farmers to grow maize. Therefore due to shrinkage of the entire market pie lead to flat sales at Kaveri (maize seeds) and hence is not a company issue and rather an industry issue. No major cause of concern.
I think promoters were playing games by first announcing stake sale which caused reduction in price so that they may get chances to enter and then announcing no stake sale.
Sounds very naive to think that promoters would do such kind of thing. If its true, need to check how much the promoters actually accumulated during this period.
This news was in Economic Times dtd 1st April 2015
India’s cotton exports to slump 41% as China buys less…
This looks like bad news for seed mfrs and especially Kaveri Seeds.
I am new to value investing.
I can see tax rate for KSCL decreasing every year.
Yes , They are into agriculture sector…Tax rate is v low or negligible in agriculture
Mar-10 | Mar-11 | Mar-12 | Mar-13 | Mar-14 | Tax Rate | 7% | 7% | 4% | 3%
has anybody looked through the nuziveedu red herring:
to my untrained eye, the quality of numbers look a bit inferior to kaveri.