Kaveri seeds company limited -- kscl

MH govt planning to cut seed prices by INR 100 a packet. Considering that MH is a big market, and cutting rates in a state, will typically mean that prices in neighbouring states also go down (farmers just acquire the seeds across the border). This can potentially hit Kaveri a bit hard, right?

KSCL should stop selling seeds in maharashtra. If farmers want a particular brand of seeds, they will buy it from neighbouring state at higher price. There may be some loss of sales but pricing will be maintained and that’s much better for protecting profits. Once a company acceeds to such requests from government, there is no end to it. Small farmers are perennially in distress. Instead, government should offer a direct benefit transfer to small farmers to alleviate their condition.

Maharashtra and gujarat are the largest cotton markets in india, and currently untapped by kscl. Kaveri is looking at maharashtra market share gain as the key growth driver for this year. So i dont think they will have any other option but to comply. The big risk i see is low prices spilling over to ap, telengana, and karnataka, which is the bread and butter of kaveri. This move is quite a departure from the long-held view that cotton seed prices are due for revision upwards, since the prices have been fixed at 930 for more than 3-4 years.

It may lead to consolidation in seed industry leading to elimination of weaker players.It may also lead to quality players growing at cost of weaker players.

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EBITDA margins have improved in the last 2 qtrs June qtr can be a blockbuster qtr. Further investment can be considered at this level. With the tremendous improvement in EBITDA margins, a good result can be expected in June qtr.

Kaveri Seeds – Expect 15-20% growth next year, cotton seed pricing issue can be an overhang - Concall highlights

• For FY15, of the total sale of Rs 1160cr, Cotton seed sales were Rs 761cr, Maize Rs 163cr, Rice Rs 210cr and Microtek Rs 26cr. Company sold 85 lakh packets of cotton seed, 10800MT of Maize and 1500MT of Rice this fiscal.
• Increase in receivables – In FY15, Company’s total debtors increased to Rs 153cr vs Rs 63cr yoy on standalone basis. The increase was attributed to delay in collection from farmers by the dealers leading to debtors build-up at year end. Company has already recovered Rs 50cr in past 2 months and another Rs 30cr receivable is from Govt. bodies which they are confident of recovering.
• Guidance – Company expect to sell 95 lakh cotton packet and expect 20% growth in Rice and Maize sales in FY16.
• New products – Company launched 2 hybrids in cotton (3/1 and Superduper) which has got good response in the market. 3/1 has been for Maharashtra market and while Superduper is for both the market. Company also introduced 7 hybrids in Rice and Maize during the fiscal.
• On Cotton seed outlook – For FY16, management expect cotton seed sales will be 5cr packets of which company targets 95 lakh packets, a share of 19%. Over the medium term, company targets market share of 25%. Company don’t see overall acreage going down – North India to see some decline in acreage while AP and South to see increase this fiscal – so volume growth to come from market share gain for the company.
• Cotton seed pricing issue – In Maharashtra, as per media article, Govt wants price cut or royalty cut to support farmers. Management has not received any order regarding the same as of now. And in AP, Govt intends to reduce the Royalty for which Monsanto got the stay order. Overall, Management says there is no scope of price cut as this will lead to low supply of cotton seed if being implemented. Can be an overhang.
• Capex & R&D – For FY15, company did capex of Rs 50cr towards warehousing, processing plant and cold storage. For FY16, company plans another Rs 50cr (on higher side) towards some plant and machinery, warehousing and for bio-tech lab.
• Cash balance of Rs 300cr. No plans for any buyback or increasing promoter stake as of now. Cash won’t be utilized for related agri business but will be used for Seed and Seed related technology. Will certainly look at higher payout or buyback but have no plan at this point in time.


Regarding seed price overhang management said that if the government doesn’t win case against reducing Monsanto’s royalty they wont have any option but to increase prices. In worse case scenario if seed companies are squeezed from both sides with Rs 20 increase in production for farmers from next year and no increase in prices or decrease in royalty many small players will be wipe out and there would be intense shortage on supply side.

Besides they plan to come out on stated dividend policy of 20% and possible buyout strategy in Q1. Enough positive triggers for rerating in next few years given its very high Return ratios and asset light model along with ever increasing market share by venturing into newer states.

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Thanks @csheth3650 for the crisp conf call summary.

One interesting thing discussed is the market share in Maharashtra. Kaveri has 3rd position in Maharashtra after leaders - Ajith Seeds and Nuzeevidu. The new sucking pest resistant High Density variant from Kaveri “3/1” along with the other one “Super Duper” is getting good traction in Maharashtra in the field trials.

While Nuziveedu had been working on high density variants as early as 2013, neither Ajeet or Nuziveedu seem to have a market ready challenger in HDP in Maharashtra. This would help Kaveri gain further traction in Maharashtra next year (FY17).

The other interesting thing discussed is the Mechanized farming in cotton beyond the next two three years. With widespread mechanized farming, the cotton acreage will increase significantly. Kaveri sees this improving to packets/acre towards 3 (currently at 1.6), thus providing good opportunity for seed manufacturers.

Already this year in Punjab, sowing of cotton over 1,000 acres is being done using a pneumatic planter.



Just to clarify, Kaveri are 5th in Maharashtra region…and mgmt did mentioned improving packets/acre thing in Concall which i couldnt actually grasp that time…

on seed pricing, they sounded not much worried about it…but given last year farm situation specially in cotton and Govt hving big hole (2500cr loss) in their cotton procurement while seed companies like monsanto, kaveri making good money…i have some reservation for it…

Based on annual results, the inventory as at the end of Mar 2015 was 494 cr, vs 497 cr in FY 2014 end.

Does that mean that sales in FY 16 are going to show marginal to flat growth. In the concall they have mentioned about 15 to 20% growth !

As per management in the past, inventory levels do provide a decent indicator of sales in the next year (as majority of sales happen in Q1).

Bihar: An unlikely corn revolution
Indian Express trace Bihar’s recent emergence as a maize powerhouse with farmers harvesting yields comparable to Midwest US levels.

Salient observations from the article:

  1. Major market share is with MNC’s - DuPont-Pioneer and Monsanto
  2. Market share of Domestic players - Kaveri and Nuziveedu - 18-20%


Cotton acreage to bloom on drought

Low water requirement could draw growers in central and southern India - (Key market for Kaveri, however, too early to gauge the impact)

Cotton, a drought and heat tolerant crop, is set to emerge as the preferred choice of farmers in parts of central and southern India this kharif season as the arrival of monsoon has been delayed amidst the Government’s revised forecast that rains would be deficient this year.

“Going by the previous experience, cotton acreage has gained whenever the monsoon has been erratic or delayed. It does not require water on a weekly basis. We are hoping that the acreage would gain, but it all depends on the arrival of monsoon and the spatial distribution of rains,” said M Ramasami, Chairman and Managing Director of Rasi Seeds.

The onset of monsoon this year has been delayed by about five days and is expected to hit the coast of Kerala on Friday.

The Indian Metrological Department (IMD), in its latest forecast last week said that rains will be deficient by about 12 per cent over the long period average of 89 cm.

Low prices
“Drought is positive for cotton. However, prices have been low last year and that may be a deterrent,” said Dhiren Seth, President, Cotton Association of India.

The Government procured 90 lakh bales (of 170 kg each) at the minimum support price.

“Prices were bad during the peak season but have recovered during the end season and that may change the farmers’ perception,” Sheth said.

CICR propaganda
“Farmers are aware of a deficient monsoon and are looking at planting cotton. The acreage may gain, but it is too early to predict. Cotton may emerge as the preferred choice for farmers, because it offers relatively better returns when compared to other competing kharif crops,” said KR Kranthi, Director, Central Institute for Cotton Research (CICR).

In fact, a cost and profitability analysis of kharif crops during 2009-10 and 2011-12 by the Commission for Agricultural Costs and Prices (CACP) has revealed that the rate of gross return and net return was the highest for cotton when compared with pulses, oilseeds and cereals.

CICR has begun gearing up as part of the contingency plan to deal with the projected deficient rains advising farmers in the Centre and South to go in for early maturing varieties and that are resistant to sap sucking pests.

Kranthi expects overall acreage to be around 12 million hectares. Last year, the cotton acreage had touched an all time high of 12.97 million hectares.

Inter cropping
Also with the prices of pulses ruling high, farmers are expected to take up the cultivation of red gram (tur) even though if there is a delay in sowing by few weeks. Kranthi expects that intercropping of red-gram with cotton to make a come back this year, particularly in Maharashtra and Karnataka. Red gram was a popular intercrop with cotton till the advent of Bt hybrids in 2002-03.

Meanwhile, planting of cotton in Punjab, Haryana and Rajasthan, which got delayed due to the late harvest of wheat, got extended this year by a couple of weeks. “It has just come to an end and we are expecting the acreage figures from the states by early July,” Kranthi said.

However, the seed companies feel that acreage is lower in North India because of poor prices that the fibre crop fetched last year. “We feel that the acreage is lower by about 25 per cent this year,” said Rasi Seed’s Ramasami. Cotton was planted on about 1.5 million hectare in North India last year. In Karnataka and Tamil Nadu cotton should see good demand, Ramasami said adding that planting has already begun in some parts of these States that have received good pre-monsoon rains.

Any opinion about this news item about lowering of cotton seed prices in Maharashtra?http://www.financialexpress.com/article/markets/commodities/maharashtra-govt-reduces-prices-of-bt-cotton-seeds/82401/

Many boarders know management well. Do you think they will use this to expand market share in Maharashtra or fight with the govt?. Do you think this decision will have no impact as most of the seed is already sold to dealers?

number of bt cotton seed packets kscl sells in MH is a small % of its total sales and will no impact profits materially. it affects its growth plans though. As management said in concall if the price is reduced, the seeds will go where the price is higher. This effectively means that bolgard-2 seeds (most sought after variety and where price reduction has happened in MH) will probably be withdrawn from MH dealers. MH farmers then will have to travel to bordering states to buy bogard-2 seeds! (effectively increasing their cost) or dealers may surreptiously sell underground stock at 'ON" with cash component. govt is making life for farmers further miserable. i am sure if the seed companies use ‘game theory’, they will withdraw their bg-2 seeds from MH and divert them to bordering areas of other states. due to delayed monsoon, most of the seeds are yet to be sold. Boarders in touch with dealers may corroborate this…

2015/16 cotton acreage seen down by the most in 13 years

I would not get distracted by this kind of news as this noises are regular feature pre monsoon like last year. I would rather focus on Kaveri management recent commentary during con call. They expect increase in acreage during current year in south where they are dominant and have strong hold. As far as reduction in price in Maharashtra is concerned the impact would be minimal on overall margins and profitability as they mentioned that they would divert their sale to other states.

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Maharashtra state govt notifies companies will have to sell BT cotton-II seeds at 830 rupees a packet versus 930 rupees earlier.

If other states also started following Maharashtra, it may become a big issue for Kaveri.

It seems all seniors who used to copiously write positive views here and do scuttlebutt have already exited stock or exiting!! :blush:

Stay on course despite volatility my friend. Patience pays. This price reduction may lead to consolidation n may adversely impact Ajeet n Mahyco who r stronger in Maharashtra.

I am staying invested.Kaberi is a fast grower in a slow growing sector .

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