Kaveri seeds company limited -- kscl

About kaveri seed in hindu business line: kaveri-seed-company-a-good-time-to-sow


Disc: Invested

Source: Phillips Capital Agri Sector Monthly Update
PC_-Agri_Inputs_Monthly-__July_2015_20150715143451.pdf (797.0 KB)

Kaveri Seeds ā€“ Lowers cottonseed volume guidance to 85mn packets in FY16 from
95mn packets earlier based on a faulty batch of seed inventory, disruptive trade
practices by peers, and the Rs 100/packet price cut imposed in Maharashtra.
Maintained that 80% of sales so far are on cash & carry. Gained market share in
MP, Gujarat, Maharashtra, and partly in nonā€credit part of Telengana. However, the
company retains 15%+ volume growth in nonā€cotton portfolio. Kaveri has cautioned
and lowered guidance mainly due to (1) shortage of inventory (faulty batch of seed
inventory that had germination issues and had to be discarded) and (2) its strategy
to refrain from higher credit sales. In nonā€credit markets such as MP, Gujarat, and
Maharashtra, Kaveri expects to have gained market share in cotton in FY16. Since
cotton is a relatively lowā€margin product, we see earnings impact to be <5% in FY16
(thus cautious FY16, intact FY17). Valuations are attractive, visibility on growth
remains.

Disc: Invested.

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Mgmt. interview on ET Now: the heading is as cheeky as it as it getā€™s , do watch the interview.

http://economictimes.indiatimes.com/et-now/experts/case-for-a-chat-realisation-on-cotton-seeds-down-by-25/videoshow/48109324.cms

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As per the interview, 70% of total sales is from cotton, of which 15% is from Maharashtra, this makes 10% of total sales from Mh. Price drop of 25% will mean 2.5% reduction in margin as % of total sales. Given that the ban came late in the season, and the farmers have a option to buy seeds from neighouring state, I would suspect impact would be around say 1% of sales, and therefore not substantial. The price fall from 1000+ to current levels probably already factors this in.

Backed by Bombay High Court order in favour of Maharashtra govt fixing price, cottonseed firms to seek a cut in royalty fee from Monsanto

http://www.thehindubusinessline.com/industry-and-economy/agri-biz/backed-by-bombay-high-court-order-cottonseed-firms-to-seek-a-cut-in-royalty-fee/article7457083.ece?homepage=true

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Today spoke with farmer from vellampalli village,palekala mandal, Varangal district.
1.Rain fall in Varanagal district is as good as last year. All the small water reservoirs(lakes) in varangal district are full. Most of the land in varangal is irrigated.
2. Main crop in varangal is cotton, maize,taurmeric,chilliand paddy. cotton accounts for 50 to 60% of cropping.
3.land in varangal is suited for cotton and maize. they get good yield per acre.they get 15 to 20 quintals cotton /acre and 40 to 50 quitals maize /acre. The avg profit for cotton is 10k per acre and 20k for maize last year.
4. cotton will be grown between june to december.From december to april they grew maize.
5.cotton seeds companies which they use is kaveri (zadu,jackpot,atm),rasi seeds( new company from chennai)ankur seeds.
kaveri seeds is first choice for them.
6.Maize seeds they use kaveri and paras seeds.Here also kaveri is the most preferred.
7.Most importantly according to him cotton growing has increased by 10% this year(compared to last year) at varangal district.
I was able to get the above information with my limited telugu speaking ability :smile: . Can somebody get more information from other districts of telangana and andhra? one important thing was increase in cotton growing by 10% in varangal. Need to know abt other districts.In most parts of karnataka the cotton growing has reduced by avg 10 to 20% this year. (I have spooken with farmers from hubli and bagalkot also.Information was same as in my previous postings)
Seniors like @Donald can through more light. @Donald thanks for your kind and encouraging words. Really inspired by you guys.

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Kharif Crop Sowing Crosses 693 Lakh Hectare so far
http://pib.nic.in/newsite/PrintRelease.aspx?relid=123737

      The total sown area as on 24th July, as per reports received from States, stands at 693.83 lakh hectare as compared to lakh hectare at this time last year.
        It is reported that rice has been sown/transplanted in 188.52 lakh ha, pulses in 72.64 lakh ha, coarse cereals in 135.77 lakh hectare, oilseeds in 143.02 lakh ha and cotton in 99.52 lakh ha.
         The details of the area covered so far and that covered during this time last year are given below:

SS: weather watch 24.07.2015

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Second source of confirmation from MOSL.

Water levels now stand at 37% of the total reservoir capacity, and are 15% higher than last year and 8% higherthan the 10-year average. However, water levels failed to progress much during the last week and remainedlower in the western and southern regions.

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Interesting insights on rainfall and cotton this year from Rallis Q1 Investor presentation -

Cotton prices for 2014 and 2015

Source : http://www.rallis.co.in/imagesInvestorRelations/8ef7329c-05ca-4ad9-9f51-3ebf411d71ae.pdf

Disclosure : Invested in Kaveri Seeds

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Not sure how to interpret this news

Global cotton output to decline 9% in 2015-16
http://www.business-standard.com/article/markets/global-cotton-output-to-decline-9-in-2015-16-115080501451_1.html

On one hand it seems cotton prices may have bottomed out and expected to rise in future with gap between demand/supply decreasing while it may also mean that farmers are shifting to other crops

Some extracts

The Washington-based International Cotton Advisory Committee (ICAC) has forecast global output at 23.83 million tonnes (mt) in 2015-16 as against 26.2 mt the previous year. In 2013-14, a bumper global cotton output was reported at 26.28 mt.

Against that, however, global consumption of the natural fibre was forecast at 24.9 mt in 2015-16 as compared with 24.35 mt the previous year. With an import and export global balance at 7.7 mt, global carryover stocks are estimated at almost 21 mt in 2015-16 against 22 mt the previous year. ICAC forecasts Indiaā€™s output at 6.4 mt, a dip of two per cent from the previous year.

I donā€™t think we should keep changing our perceptions on every news appearing in media.
a 2% reduction in India should not have any significance impact

You can refer usda report they are more reliableā€¦

Just to give perspective on cotton pricesā€¦

Next year world cotton production 2015-16. Is close to 24 mn tonsā€¦ Consumption is 25 mn tonsā€¦but stocks are 23 mn tons ā€¦ Out of that 14 mn ton held by China ā€¦ They keep auctioning it every year ā€¦ But it needs price to go up very high for local mills to buy more of this otherwise it is difficult off load these stocksā€¦ China production is slowly reducing as support price coming off( unlike earlier years ā€¦ Now Govt dont mention particular priceā€¦ It just gives difference between mkt price and the price they decide as subsidyā€¦ Instead of procuring cotton from growers)ā€¦they produce around 6 mn tonsā€¦ Consume 8 mn tonsā€¦ And import around 1.5 mn tonsā€¦from other countries ā€¦so very little can be liquidated from their stocks unless price rallies higherā€¦ Current local Chinese price is 90c/lbā€¦ And Govt gives another 20-30 subsidy for farmersā€¦ Lot of production already shifted to Vietnam as lot of mills become unviableā€¦at those high pricesā€¦

Coming to india ā€¦ Prdnā€¦ 6.5mmtā€¦ Consumption5.6ā€¦1mn is exported ā€¦ Govt supports prices by buying cottonā€¦ But Indian stock is not highā€¦ Just 3mn tonsā€¦local price is close to 69 c/lb

World price is currently decided based on solely US Supplyā€¦ As only us cotton is deliverable against current contract traded on iceā€¦ So if us faces supply issue due to drought as happened in 2013 (when it went to 100 from 63)then us prices will go up pulling up prices in india as wellā€¦this year due to elnino lot of rains in U.S. Cotton area ā€¦ So the production is goodā€¦just that it will be little delayedā€¦also us has loan program ā€¦ Which essentially a put at 55 ā€¦ So prices canā€™t go below 55c for long ā€¦
Also dollar strength makes us cotton unattractive for the world in next few yearsā€¦so unlikely low price triggering strong demand ā€¦
ā€¦
Overall stocks are almost equal to one year of demand ā€¦ That is even if work donā€™t produce any cotton for a year there is still cotton available to consumeā€¦ But that is not going to happenā€¦
Min production figuresā€¦ China /5mnā€¦ India-6mnā€¦us -2mnā€¦all others-6mnā€¦ So u really need extreme bad weather for 3 years in a row to get rid of stocks and let price resume strong up move ā€¦

Only risk is China decide to get rid of all its stock at massive lossā€¦which has not happened so far ā€¦in which case that year prices will go to 30c/lb

Polyester demand has gone up significantly post 2011(when cotton prices zoomed to 220c/lb)ā€¦ And since then maintaining and increasing mkt share as a% of overall fibre demandā€¦ Since it is crud byproduct and crude is down 60% ā€¦ Itā€™s share is expected to increase even furtherā€¦
Also crude price fall impact fertiliser and other costs for cotton productionā€¦ Which makes cost of production to go lower ā€¦

Overall cotton prices expected to stay lower for next 3-4 years.and China policy be strong currency coupled with wage inflation pushes industry outside. That might be one of reasons why smart money offlate started moving to textile stocksā€¦

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Participated in a Webinar on Agri Sector Supply Chain, by a respected research institution some key takeaways relevant to this thread-

  1. Agri input basket will see increased utilization in farms especially seeds, slated to grow at 14-16% CAGR (Higher than any other input) over next 3-5 years.

  2. Most of the growth will come in the High Yielding Varieties, even in this segment the crops which will lead are Paddy, Maize, Pulses & Potato.

  3. Players with high exposure to HYV will benefit most. Parallel focus on irrigation will expedite this change.

  4. Distribution network is going to be a differentiator.

  5. Govt schemes like Soil Health Card and Direct Benefit Transfer will be a game changer as it will encourage effective use of inputs for yield maximization starting from quality seeds. 14 crore Soil Health Cards are envisaged to be issued over the next 3 years.

Much beyond cotton for Kaveri!

Disc- Invested hence could be biased.

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An interesting video which shows the current problems faced by cotton farmers.

It talks more about growth of polyster fibre industry leading to lesser demand for cotton worldwide

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Thanks - this is useful. The one good thing is that when urban consumption picks up and branded goods like arvind, madura garments do well, it leads a lot of incremental demand for indian cotton (although itā€™s blended with egyptian, turkish cotton). So, an urban consumption recovery bodes well for cotton, given that India is a tropical country and polyester consumption is driven by rural areas, primarily.

very useful - keep up the good work

GRAPHIC: Cotton vs polyester: link.reuters.com/pyr44w By Henning Gloystein SINGAPORE, April 7 Bulging cotton inventories in China and slumping oil markets have triggered a race to the bottom between cotton and polyester prices. Both fibres compete for buyers in the textile industry, and cotton seems to be gaining the upper hand for the first time in years.

U.S. cotton futures have fallen by a third since early 2014, and in January, hit a six-year low around $1,260 a tonne. Futures prices in China, both the worldā€™s largest producer and importer, are also down a third. Prices for polyethylene terephthalate (PET) polymers TP-PTNWE-PU, the main petrochemical used in polyester, dropped in 2014 as well, but have bounced by 16 percent since the start of the year along with steadying crude prices, to about $1,000 a tonne.

The price slide for PET polymers began in June last year when soaring global crude production was met by a slowdown in demand, pushing oil prices down by more than half. But the forces driving down cotton have been stronger. In September, Beijing said it would cut back its fibre import quota to help spur domestic production as well as wind down a massive stockpiling programme. That significantly reduced U.S. exports to China, and added supply to a global cotton market already facing bearish fundamentals, including rising world production and a surging U.S. dollar.

Although the price falls hurt producers of cotton, which remains more expensive than PET, the narrowing gap may finally halt a protracted slide in demand. For years, polyester made inroads against consumer preferences for cotton, in part through the development of advanced fibres.

After a sharp fall in cotton use from mid-2010 to mid-2012, driven largely by polyesterā€™s price advantage, cotton consumption is again edging up. The U.S. Department of Agriculture said in its latest monthly outlook that, while stocks would remain high for years, for the 2015/16 July-June crop year, ā€œworld cotton projections anticipate that consumption will exceed production for the first time in six years.ā€

http://www.reuters.com/article/2015/04/07/cotton-petrochemicals-idUSL6N0WX0IR20150407

even though above article talks of demand increasing - but it wont be enough to change on anything on pricesā€¦and demand cant increase as people are more accustomed to polyester products over the yearsā€¦due to improvement in fibre technology these products are finding their way into niche segments. it is very difficult for cotton to get back this shareā€¦as it cant maintain same price stability is polyester which is a by product( and always priced just lower than cotton priceā€¦given the sharp fall in crude prices and they are expected to stay lowerā€¦unlike cotton which might be subjected to weather concerns in medium term)

http://www.reuters.com/article/2015/07/22/column-russell-cotton-china-idUSL3N10219W20150722

http://www.usda.gov/oce/forum/2015_Speeches/CSkelly.pdf
good presentation from USDAā€¦which shows general outlookā€¦also highlights polyester prices will never be higher than cotton irrespective of crude pricesā€¦and cotton share as % of fibre demand kept going downā€¦despite price correcting more than 65% in 4 yearsā€¦

http://www.agrimoney.com/news/cotton-price-to-fall-to-nine-year-low-next-season--8029.html

since cotton doesnt require much rain compared to other cropsā€¦so u will see some shift to other crops when rainfall is goodā€¦and more cotton acreage when rainfall is badā€¦

if you have good rainfall and low prices- then that is worst combination-which is true somewhat thsi year(as rainfall looks okā€¦but initial fear son droughtā€¦somewhat negated that)ā€¦
u can check here the exact sowing areas for all cropsā€¦

as per latest report- the area is 11% less than last yearā€¦

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Nuziveedu Seedsā€™ IPO

Read more at: http://www.moneycontrol.com/news/ipo-news/sebi-clears-nuziveedu-seeds39-ipo-total-number-reaches-24_2451701.html?utm_source=ref_article

New 52 week low today before results tom. Need to understand the incentive for farmers to cultivate cotton when already inventory levels are very high. IPO of Nuzi will also have an impact. Stock is available at the lower end of the p/e

Sales down by 20% but impact on profits have diminished because of improvement in EBITDA margins from 28% levels to 34%. Profit down by only 5%. Would be interesting to see managements commentary specially on gain in market share, impact of slowdown in Chinese procurement, effect of price cap by Maharashtra and most importantly increase in dividend or buy back as by now they must have filled their war chest of 300 crore.

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/8FCADD08_FF25_4D43_A59E_3666121388F7_132306.pdf

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Sales appears down largely due to lower RM prices. The important thing is OPM has improved while OP is down only marginally.