Mind blowing stuff from Valuepickr team, especially Donald, who goes deep into research for any company his works on. Truly inspiring & this may be pinnacle of excellence in quality of time & effort Donald puts in. I think its inspired me , not only in the way I should research the businesses but also in my regular day-to-day activity as how to bring quality in our works by deep understanding of anything we do.
Thank you Donald to be inspiration to me and everyone who come across you.
Hi Guys,
Managed to update the Industry Primer, and the Main players primer tables above. Please revisit them to check what you might have missed - new updates, etc. We will move stuff like this to a Wiki-like resources page, which can be maintained by ValuePickr volunteers.
Hemant & other enthued im-patients:) - I wish I had ten hands:))Most of your top-of-mind questions should get covered in the primers above.Next I will update the Kaveri MAnagement Q&A. Sorry, I prefer not to answer pointed questions at this stage. a) I may not have all the information/or full understanding b) there is a tendency to get lost in unnecessary details without getting the big picture right. c) Some of these need to sink in, for deeper insights.
Raj, Dhwanil,Akbar, Bhatia, Rudra, Krishna,Sukhvinder,& others - Thanks for such gracious words/compliments to the Team. Itâs YOUR inherent generosity that you can easily, fulsomely praise efforts of others. The Team is delivering - I believe - because ValuePickr recognises, respects, and encourages complimentary skills. I firmly believe ten average minds working together are better than brilliant (but isolated) individuals! Letâs enlist more & more like-minded folks to join our efforts. I am always happy to play the catalyst role - thatâs my dream anyway:)
Hope Team ValuePickr remains a place for encouraging folks at every stage of evolution (as investors) to contribute and work together - for better-informed investment decisions. Novices, mature investors, analysts, fund managers, industry professionals, everyone has a role to play.We grow and add value by sharing - no two ways about it. Juniors can work hard, seniors can guide, industry professionals add perspective, analysts and fund managers can only get better and better at our jobs - learning faster from folks smarter than us:). That there are plenty around, is evident.
Cheers
)- Donald
As one senior Mr S suggests, its time to take two steps back now, and try to answer stuff like the following: (I am trying to work and come back to you all with a comprehensive framework for the same).
Is it a good industry?
Is management competent and with high integrity?
Is it an outstanding business?
Is there an moat identified?
Can I see sustainable growth for 5- 10 years?
Is there a threat to the business ( industry dynamics, competition intensity, changing fortunes, govt regulation âŚ) and what are the key monitorables?
What key variables drive the business? ( new seed introductions, âŚ)
What is my thesis on the company? ( meaning is it a good cheap business to be sold after 3 years, potential outstanding business to be held for long term âŚ)
What is your âfeelâ on the investment?
What does this translate into investment action? ( sell, hold what I have, backup the truck )
Hitesh - this is right up your territory. You can do this exercise even without all the groundwork we have done:). Please have a look at all that we have put up so far, and take the Lead - have a go at answering questions such as these put up? You might add a few of your own?
Others, once Hitesh starts the ball rolling, you may also like to pitch in with your observations, inferences and views. Letâs see what emerges!
-Donald
Fantastic work Donald and team Hyderabad. It really is a fantastic initiative you have taken, and thanks for helping us all out by taking out so much of your time.
From what I can see from your feedback, that there seems to be more bullishness towards nuzuveedu, do correct me if I am wrong.
A senior made me summarise key takeaways:
1). Kaveri Management Integrity is unquestionable
2). They have the Products (50-60% of the picture)
3). Their ability to execute on the Supply Chain (balance 40%) is a given (they can scale and supply all demand that the market can absorb, they will probably be not found wanting on that front)
4). Do their products have the BLOCKBUSTER ability - can they do it a 3rd year in a row?
This is what we need to concentrate on - PRODUCT ACCEPTABILITY - to find the key to the Kaveri puzzle. Can their good hybrids like Jadoo and ATM prove to be blockbusters??
The same senior pointed out - this was the same question being asked of Kaveri in the first year of Jadoo sale, and in the second year too (2012) when they doubled market shareâŚand is being asked again:) By the way, as per the company their next Hybrid ATM is proving to be better than Jadoo (among the new Cotton hybrids introduced).
There are a couple of ways to investigate Kaveri Product acceptability )- especially Jadoo and the new ATM hybrid.
a) **Go to the gatekeeper - Monsanto **)- they collect royalties from all licensees; their business is dependent on the best performers, so they should have a good view on the real performers, potential top performers for the next 2-3 years
Can everyone interested in Kaveri get on to the job of connecting us to someone senior in Monsanto? I am willing to make the trip to MUmbai at a weeks notice (Oct 9-18 I am travelling, and then the Puja week where I will not be allowed to travel:)
b) Collect more market feedback from dealer/distributors )- This is not as big a task as it may seem. The top 3 cotton producing regions are AP, Mahrashtra & Gujarat. we need to sample a couple of dealer/distributors from each region.
We have connected folks like Tirumal Rao in AP, we have farmers (or with links to farmer friends) like Gaurav Chandak and Saurav Srivastava and atleast 4-5 more farmers on ValuePickr, I will need to hunt out. We have other friends connected with the Agri chain. And we sure have lots of friends in Gujarat & Maharshtra!!!
We can solve this comprehensively and finish this off in October, if a couple of gyuys from each region put their hands up.
Time for a show of hands. Letâs crack this - just the final step, remains:)
-Donald
Queries on Nuziveedu vs Kaveri
1). Nuziveedu is in the proverbial bush. Kaveri is in hand.
2). Nuziveedu IPO (when it comes) is likely to be richly priced. It wonât be a bargain. They will find it tough to grow. They cant grow cotton segment (90% Sales) much - they are already leaders and the market is flat, if not de-growing.
3). They donât need the money. Why are they doing the IPO??
4). Their IPO when it comes can add lot of zing to Kaveri:)
hi donald, great work as always. someone doing this kind of work and sharing it for the benefit of others (without charging a single penny) is truly great work. In these days when every third person wants to be a stocks advisor and charge hefty fees, its rare to come across selfless people like you.
Coming to the questions you put up --please find my answers in bold.
Is it a good industry?
Seeds business is indeed a great industry. In fact i would call it a sunrise industry if one were to compare hybrid seeds penetration in India and other developed/developing nations.
**
**Is management competent and with high integrity?
Management till now seems to be very competent and with a lot of integrity. I think anyone who has set up the business like Kaveri and the manner of growth speaks volumes about the promoter competence and integrity. (You have First hand contact with them so it might be better to get your viewpoint after having met them.)
**
**Is it an outstanding business?
Yes it is an outstanding business.
**
**Is there an moat identified?
Germplasm, genebank and distribution setup are the moats. Establishing a gene bank, distribution setup and having govt regulatory approvals are probable entry barriers for any new comers.
**
**Can I see sustainable growth for 5- 10 years?
This is a dodgy question to answer. I would like to take things as they come year after year rather than think about next 5-10 years. (past track record does suggest continuity of growth but thats a rear view mirror opinion)
**
**Is there a threat to the business ( industry dynamics, competition intensity, changing fortunes, govt regulation âŚ) and what are the key monitorables?
Every business will have threats and so will this one. Biggest one is about competition. Govt policy interventions also could be a factor. Consistently poor monsoons for 2-3 years in a row might affect growth. Sudden alarming drop in cotton prices might shift farmers away from cotton cultivation.
**
**What key variables drive the business? ( new seed introductions, âŚ)
I think introductions of successful brands in newer categories will drive the business. e.g success of rice hybrids, vegetable hybrids etc. Kexveg successs could be big plus for the company as it could be a high margin business. (would like your feedback on esp this one.)
**
**What is my thesis on the company? ( meaning is it a good cheap business to be sold after 3 years, potential outstanding business to be held for long term âŚ)
Initial thesis when I bought this one was gross undervaluation with stock being available at historically attractive 10 PE for a company growing at minimum 25% cagr. So upside of 50% as I mentioned somewhere was almost a given provided earnings were real and management was honest. Now I think this is a stock which could be in for major re rating esp if they hike dividends.(even though the purists may not agree, dividends are a big sentiment boosters in re rating)
**
**What is your âfeelâ on the investment?
I think with the nuziveedu issue coming up this could provide good fireworks going ahead. As an investment bet, this could occupy around 12-15% in a 8-10 stock portfolio.
What does this translate into investment action? ( sell, hold what I have, backup the truck )
I think it remains an accumulate or for an aggressive guy even a buy even after recent run up.
I came across this news item http://www.agrimarketing.com/s/77788
Syngenta makes public offer to acquire DevGen, a loss-making Belgium company whose claim to fame is Hybrid Rice technology.
http://www.devgen.com/index.php
Devgen is shaping the field of hybrid rice in India and Southeast Asia and helps farmers meet the productivity increases needed to grow more food on less land using less water, labour and agro-chemicals. Thereto, Devgen uses advanced biotechnology and molecular breeding technology to develop the Next Generation Hybrid Rice (NGHRa) seeds:
Hi,
I am from a farmer family and we have a seeds shop at home. Yes,Nuziveedu is a leader by far in the cotton in our district(Buldhana, Maharashtra) at least. Having said that, I will also like to point that, yes, the seed selection depends on the type of soil, how much it rains in the area, if it gets cotton too early even before rain stops or its a bit late. There are lots of things to be factored in.I will update more as soon as I gather this information.
Thanks.
First of all thanks to Donald, Tirulamala Rao and Om Prakash for letting me attend meeting with Kaveri management, I never thought that itâs possible to meet management while working independently with no high profile connections. I have worked for almost five years in an equity research firm (Captive KPO of a MNC co.) and let me tell you, itâs very rare even on sell side to do this kind of in-depth research for a small cap company. If at all this kind of research is done its generally for a multi-billion dollar market cap company. So great job Donaldâ
Below are the two factors which continue to worry me on Kaveri Seeds:
Historical growth more because of luck factor, right company at the right place but future growth visibility is poor: I suspect that Kaveri seeds will fall into those companies which were both lucky and competent. Lucky in the sense that over the last five years (2006-11) 1) Area under cotton has increased at CAGR of 6% (1950-2007 it was less than 1% CAGR) 2) Cotton prices have increased at a CAGR of 20%+ over 2006-11 3) Area under BT cotton has increased from 40% in 2007 to 90% by 2011. 4) production of cotton through BT Seed has increased at a CAGR of 20% over 2007-11 (rough approximation applying area under cotton to overall cotton production assuming same yield from both BT and non-BT cotton). Management did indicate that atleast for next 2-3 years Paddy and other hybrid seed cannot replace BT cotton as growth drivers.
**Growth driver is market share gains and not growth in overall market: **Growth drivers for next 3-5 years will continue to be BT cotton. Now is there a possibility that BT cotton market size will grow even at 5-10% CAGR over next five years? In my opinion itâs highly unlikely, unless luck favours them again. To be fair to management, they did indicate that majority of the growth will come from market share gains. Now if we had no restriction on market price of BT cotton, I am still comfortable with a company which will grow merely from market share gains, but here price is fixed and cost inflation is not ruled out. Everyone will be competing for the same market size at the same rate, where the only difference is the timely availability of seeds and product quality. I am not saying that Kaveri seeds cannot gain market share, but when the growth is only at the expense of market share gains, we need to have conviction on lot of factors and there are lot of unknown factors which can result in a stagnant market share.
Conclusion: I think for a period of 6-18 months, this stock can give substantial returns if company continue to grow gaining market share, but if they fail to do, share price can decline steeply. I have not yet made up my mind, but more likely I will not invest into this company.
First of all congratulations to all for doing such a stellar job. Hitesh identified the opportunity when it was available at around 330 rupees. It did not generate any interest from other member and whoever commented thought it was overpriced. Surprisingly people start showing interest when stock price ran up to around 800 or so.
Lot has already been said about the company and there is no denying that it has done steller job so far but as an investor we have to take a call on future by looking at past. Initially I did not pick up this thread as I donât really understand agri business. But seeing the interest it is genrated I also took a plunge to understand the business and analyse the company. I primarily have follwoing concerns about Kaveri
a. Growth Strategy - it has adopted aggressive growth stratgey by focusing on high volume sales. Which I suppose is the reason its selling expense has risen steeply. It has worked so far as it has been able to increase its market share in cotton hybrid space but will it continue to work it something we need to ask.
b. Hybrid seed for Rice - it is betting on increased penetration for hybrid seeds for rice. It is very difficult to say becasue it has worked for China it will work for India? Rationally it should and it will happen in all probability but when - 1 year, 3 years or 5 years etc?
c. Low tax - it is paying very low tax. In understand its income is classified as agriculture income but can we depend on that? If we assume Kaveri Seeds has to pay 30% of its current income as tax all calculaiton will change dramatically
d. High Inventory - its inventory turnover is around 1. In fact has come down from around 3 to one in last 4-5 years. There could be valid reason for that and it can be obstacles for anyonetrying to enter into seeds business. But it is something needs to looked at and analysed more carefully.
e. Focus on R&D and continuous development of new germplasm - to continue growing it has to keep developing new germplasm which could be significant risk. It has done good job so far and probably has most comprehensive list germplasm but can they continue doing that.
As I understand only small farmer with upto a stipulated number of acres of land are exempt from income tax and not a corporate with 600 acres of farm
This is one of the main reason cited for corporates not getting into farming (therefore corporates prefer contract farming)
Any tax expert we have here who could clarify the tax issue?
Spoken to one of the dealer in Parbhani (Maharashtra): Here is the summary
Reason for increase in sales of Kaveri seeds BT cotton over the last two to three years is that Kaveri seeds variety suitable both for rain-fed and irrigation but Rasi seeds variety suitable only for irrigation fed.
Nuziveedu seeds commands high reliability in the market and their variety is far superior to Kaveri seeds. Even if Nuziveedu launches new vaiety farmers will buy relying on their brand and there is no need for marketing etc, but for Kaveri its not same. Very difficult for Kaveri to gain market share from Nuziveedu.
Most of the farmers will use atleast two to three variety of seeds from various manufacturers to hedge his risk.
Dear Suraj,
Glad that you spoke up and offered to help. Your (farmer community) feedback can prove to be vital info on sustainability of Kaveriâs progress.
Please mobilise more friends, across regions if possible. We have some feedback from AP, now you will cover Maharashtra. Try top get smaple feedback from deifferent regisions within Gujarat - especcially if they differ in water conditions - rain-fed, vs, coastal, vs irrigated land vsâŚ
Anyone from Gujarat belt??
-Donald
Yes,Nuziveedu
Dear Donald and team Hyderabad,
Really happy to see you guys doing a fantastic job. Power ofcollaborationis big. We need to replicate this model in different cities andexpediteour research work.
Having gone through the updates, I think our entry point post Q1 results at about 10 times earning was a good price. Going forward we need to get updates on how the next season will shape upâŚprobably after Q4 results and take a call. One shouldnât extrapolate the past growth 
Another key thing to look would be the investments on Balance sheet at the end of SeptâŚwe should be having it in a month. If the investments swell up to say 150-175 Cr+, it will be a very good sign and comforting factor going forward.
We should also try to check the impact/liability of crop failures on the company. While going through the red herring prospectus of the co, in past also they have had some cases of crop failure and this is not a good sign.
We need to have more feedback from the ground level to develop higher comfort.
Thanks a lot, once again
Ayush
What is companies policy ondividend?Any thing company said during discussion?
A good article from Mint.
http://www.livemint.com/Politics/LoGoMERwbaK4uc7pw5kogP/As-cotton-fields-thrive-so-do-concerns.html
Regards
Thanks Raj for the very informative article. Some important points made there
a) Gujarat leads the country in BT cotton. 1/4th the area under cultivation, but 1/3rd the total production
b) Yields in Gujarat far higher than say Maharashtra. increased from 353 kg cotton lint/hectare in 1990 to 659 kg/hectare in 2011-12. In Mahrashtra this increased from 136 kg/hectare to 310 kg/hectare
The difference lies in better initial conditions in the state, contrasting records of respective governements in irrigation, conservation of water, power and finance schemes, and better availability of seeds
c) 40% of Gujarat cooton cultivation is irrigation-fed. Rest is rain-fed, but micro-irrigation efforts led by Government and community efforts have have had a huge impact of water conservation and micro irrigation schemes.
d) also amost everyone in Gujarat has access to cheap farm loans. more members of the family have alternative employment. whereas in Vidharbha, Maharashtra - money lenders enjoty a roaring business
The article also makes a point about illegal seeds. unofficial estimates say uncertified BT seeds account for 25-30% of Gujarat Seeds market
Thanks Raj & TCx,
This is excellent stuff! Gujarat, Maharashtra & AP account for 90% of cotton produced in India. This excellent article made me understand the broad specifics of 1/3rd of the market - Gujarat! and contrast it with another Maharashtra.
Can you trace some articles on Maharshtra and AP, or other rel;ated matters like the illegal Bt seeds issue, and the like? That would make us all come up to speed quickly.
Thanks
Donald
