Kaveri Seed - Anagram - Sept 2010

7/31/2019 Kaveri Seed - Anagram - Sept 2010

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Kaveri Seed Company Ltd. CMP : 330TARGET PRI CE: 45 0

Source: Capitaline

We in i t i a te cove rage on Kaver i Seed Company L td . w h ich i s I nd ia ' s

p rominen t hyb r id seed p laye r . We be l i eve tha t KSCL i s i dea l l y

pos i t ioned t o cap i ta l ise on th e r is ing demand seen for hy br id seedsl i ke co t ton , sun f lower and r i ce.

A lso w i th a t ime ly expans ion a t Pamu lpa r th i v i l l age , waranga l

M a n d a l , M e d a k d i s t r i c t , t h e c o m p a n y w i l l g e t t h e b e n e f i t o f

i nc reased capac i t y expans ion wh ich w i l l f u r the r boos t ea rn ings

dur ing FY11 and FY12. We ra te t he s tock as a BUY wi t h a Target

pr ice o f Rs 450. A t our Target pr ice Rs KSCL w i l l be va lued a t 1 2x

FY12E.

St ra t eg ic sh i f t i n un ique b us iness mode lThe company is one of the prominent hybrid seed players of India with

huge product portfolio of more than 45 hybrid verities. The top-line of

the company was heavily contributed by Corn and sunflower but after

2007 the company has shifted its focus to the BT cotton seeds and the

contribution of BT cotton to the topline is 25% during FY 10 from 10% in

FY 07. The market share of the company is just 2% in FY 10 while

cotton is contributing more than 25% to the top line. It shows huge

potential for the cotton seeds business.

Capex w i l l f ue l f u tu re g rowthThe company has invested more than Rs 60 Crs in recent past. This

capex is enough to take top line to Rs 400 Crs in years to come from the

present Rs 160 Crs. The capex includes Strategic green field expansion

at Pamulparthi village, warangal Mandal, Medak district with state of

art facility for utilizing cob drying, seed processing and cold storage on

owned farmland of 29 acres.

Valuation

The KSCL has historically traded at 15X earnings. The stock is currently

trading at 9X and 7X on there FY 11E and FY 12E. The company shows

very attractive forward EV/EBIDTA of 7.1X on its FY 12 earnings. The P/

E and EV/EBIDTA of company is trading at discount of 22% to its peers

like Advanta and Camson bio. We recommend a Buy on the stock with a

target price of Rs 450.

PRI CE PERFORMANCE

Initiating Coverage

27 t h October 20 10

Sector Agro Input- Seed

Marketcap(INR bn) 4.56

Marketcap(USDm) 103.63

O/S Share(m) 137.02

52-wk-HI/LO 355/196

Avg 6m vol(ooo) 27698

Bloomberg KSCL IN

Reuters KVRI.BO

KEY DATA

Sources:- Company, Anagram research

BUY

1mnth 3 mnth 6mnth 12mnthAbsolute 13% 18% 17% 38%

Relative 2% 11% 14% 15%

Re t u rn s ( % )


SHAREHOLDI NG PATTERN ( % )


Analyst : Mi ten Chavda, FRM

mi ten [email protected] . in


Y/E Mar (Rs. Crs.) FY09 FY10 FY11E FY12E

Net Sales (Rs Crs) 123 164 229 297

Growth (%) 27% 33% 40% 29%

EPS (RS.) 18 21 29 36

EBIDTA (%) 25% 22% 22% 21%

P/E (X) 18 16 12 9

ROE(%) 20% 21% 23% 23%

EV/EBIDTA 15 13 9 7

ROCE (%) 22% 20% 23% 23%


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4 27 t h October 2010

Kaver i Seed Com pan y Lt d . I n i t iat ing Cov er age

Company Profile

The company is one of the few recognized agri-input companies in India. It

is mainly into the business of production, processing and marketing of high

quality hybrid seeds for different crops like corn, sunflower, cotton, paddy,

grain sorghum, etc. and has recently forayed into micronutrients and

bioproducts. The company also produces non-hybrid seeds, primarily forpaddy.

KSCL is having an experienced and

professionally qualified R&D team

w h o a r e e n g a g e d i n f u l l t i m e

research.

Over time, KSCL has consciouslybeen enhanc ing i ts germplasm

( e i t h e r s o u r c e d f r o m v a r i o u s

universities and global bodies, or

developed in-house) in mult ip le

crops.

Efficient R&D is backbone of any of the seed company. The company is

havingR&D facilities located at Ranga Reddy District are recognized by the

Department of Science & Technology, Government of India. The R&D for

breeding high performance hybrids and also value added micronutrients

and bioproducts. The company is having an experienced and professionally

qualified R&D team who are engaged in full time research.

Germplasm (a seed database, with various combinations of traits possible

in a specific crop) is the key differentiating factor for a seeds company,

enabling it to roll out hybrids far more quickly to respond to a specific trait

required in a crop for a particular region. Over time,Kaveri has consciously

been enhancing its germplasm (either sourced from various universities

and global bodies, or developed in-house) in multiple crops. Today it can

boast of access to a wide range in various crops, thereby providing it with a

competitive edge.

The company try 8 to 10k combination to develop 1 or 2 traits. It takes

almost 5 to 6 years to manufacture seeds commercially.

Seed, being a biological entity has to be grown and cannot be manufactured.

The planning of requirement of raw material for hybrid seeds is done one to

two years in advance based on their own estimates of market demand for

the future trend. After conducting GoT and Germination tests, the seeds are

processed and packed for sale. The basic material is given to the farmer in

the form of foundation seeds and farmer gives back the same upon

multiplication as raw seed to company.

As per chart corn cotton and paddy contribute almost 70% of

the sales.

The company generates most of the revenues during the first

half of the year.

Southern states mainly Karnataka and Andhra contribute the

most in total sales.

Segmental Revenue


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Kav er i Seed Com pany Lt d . I n i t iat ing Cover age

Management Profile

Mr. G V Bhaskar Rao, Chai rm an& Managing Di rector

Mr. Gundavaram Venkata Bhaskar Rao is one of the founder Promoters and

has motivated the Company to succeed in this business. He has been the

Chairman-cum-Managing Director of the Company. He is a Science graduate

majoring in agriculture from Andhra Pradesh Agriculture University. His efforts

towards growth and development have also ripened\through introduction of

high yielding varieties of hybrid seeds in agricultural crops like corn, sunflower,

paddy, grain sorghum, bajra, cotton and other vegetable seeds.

Mrs. G Vanaja Dev i , Execut ive Di rector

Mrs. Gundavaram Vanaja Devi has been an Executive Director of the Company

since its inception. She is one of the founder Promoters of the Company and

along with her husband, Mr.Gundavaram Venkata Bhaskar Rao. She is an

Arts graduate from Osmania University, Andhra Pradesh

Mr. R Venu Mano har Rao, Execut ive Di rector

Mr. Rangineni Venu Manohar Rao is one of the founder Promoters of theCompany and has been an Executive Director of the Company since its

inception. His main responsibility in the Company is marketing of the products.

He has established a strong marketing network and sales management in

the Company.

Mr. C Vamsheedhar , Execut ive Di rector

Mr. Chennameneni Vamsheedhar has been associated with the Company for

the past seven years. He joined the Company as "Marketing Officer" and has

risen through the ranks and was appointed as an Executive and Additional

Director at the Board Meeting held on September 18, 2006. He has been

instrumental in the expansion of sales and marketing efforts of the Company.

Mr. C Mi thu n Chand, Execut ive Di rector

Mr. Chennameneni Mithun Chand is an M.B.A. from Shiva Shivana Institute

of Management. He joined Kaveri Agriteck as 'President' (Agriteck) and has

significantly contributed in sales, administration and management by creating

a core team for its products. He was appointed as an Executive and Additional

Director at the Board Meeting held on September 18, 2006. He travels

extensively, deals directly with field staff and dealers and tackles their

problems and is a key driver of the sales team

Mr. Gundavaram Venkata Bhaskar

Rao i s one o f t he founder

Promoters and has motivated the

C o m p a n y t o s u c c e e d i n t h i s

business.


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Seed Industry & outlook

India is contributing over 17% of the world population and producing over

10% of food grains. Despite of this fact Indian crop industry is account for

just 5% of the global industry. Saved seeds meet 85% of the seed demand

in India while commercial seeds just 15%.its expected that saved seed user

is like to shift to commercial seeds after the great success of BT cotton.

BT cotton is great success story in India to understand potential of seed

industry. Farmers had made $225 per hectare representing 88% growth in

profit and allowed reduction of pesticide sprays by 39%. BT cotton currently

accounts for ~85% of all cotton cultivation across the country. The seed

industry is likely to enjoy growth 15 to 20% in the era of bio tech seeds.

India is contributing over 17% of

t h e w o r l d p o p u l a t i o n a n d

p r o d u c i n g o v e r 1 0 % o f f o o d

grains.

Seeds

Commercial 15%

Public 40% Private 60%

Saved 85%

Apparently the cost of the hybrid seeds is almost double than the saved

seeds but their better productivity is making it better option than the saved

seeds. Farmers can earn 25% more yield by applying hybrid seeds. Hybrid

seeds makes plant pest and weed resistant which is an added advantage.

Cost benefit Analysis of application of hybrid Seed

Sav ed Seeds Hyb r id Seeds % I n cr ease

Seed Consumption Kg/Acre 30 6

Per Unit Cost Rs/Kg 20 200

Total Seed Cost Rs/Acre 600 1200 100%

Rice Yield Kg/Acre 1000 1250 25%

Selling Price Rs/Kg 12 12

Total Revenue Rs/ Acre 12000 15000 25%

Profit Rs/Acre 11000 13800 25%

Source : Company / Anagram Research

Hybrid seeds makes plant pest and

weed resistant which is an added

advantage.

Source : Company / Anagram Research


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At t rac t i ve fundamenta l amongs t a l l pee rs

The company enjoys strong fundamentals against its all peers. All the

comparative multiple analysis parameters like P/E, EV/EBIDTA and P/BV

are showing that company is in better shape.

The seed companies use to offer very few number of seed crops. It is likely

to give very stagnant kind of growth but unlike other players Kaveri Seed is

offering a wide seed in its product portfolio which provides flexibility and

bigger market to sell their product to the company.

KSCL enjoys strong fundamentals

against its all peers.

Financial Analysis

Comparative Multiple Analysis

Kav er i seed Ad v an t a* Mon san t o Cam son b io*

Sales 162.1 154.0 410.0 80.0

EBIDTA 35.2 23.6 74.4 15.8

NPM 29.0 6.0 53.5 13.8EBIDTA% 22% 15% 18% 20%

NPM% 18% 4% 13% 17%

ROE% 21% 2% 15% 18%

EV 477.7 935.0 1760.0 164.0

BVPS 110.2 247.5 406.7 47.0

EPS 21.2 3.8 62.0 8.6

MPS 330.0 465.0 2039.0 166.0

EV/EBIDTA 13.6 39.7 23.6 10.4

P/BV 3.0 1.9 5.0 3.5

P/E 15.6 123.8 32.9 19.4

* TTM Data

2008 2009 2010 2011E 2012E

PAT/PBT (Tax Effect) 58% 84% 93% 93% 93%

PBT/PBIT (Int. Effect) 94% 93% 95% 95% 96%

PBIT/Sales(PBIT Margin) 26% 24% 20% 19% 19%

Sales/T.A(Asset Trnover) 0.9 1.0 1.0 1.1 1.2

T.A/N.W (Fin. Leverage) 1.1 1.1 1.2 1.3 1.2

ROE % 13% 20% 21% 23% 23%


Du-Pont Analysis


9/13


Kav er i Seed Com pany Lt d . I n i t iat ing Cover age

Margins expected to stabilize at 16%

Company / Anagram Research

The company is enjoying good business with the healthy operating margin

of 22% and NPM of 18%. As company has shifted its strategy and

aggressively increasing Cotton seeds sales which will help to increase thesales volume and sales number in absolute term but being a lower margin

business the company is likely to face marginal down fall in operating profit

and NPM.

The top line of the company is likely to grow up to Rs 295 crs in 2012 from

just 97 Crs in 2008. EBIDTA of the company will register CAGR of 34% by

2012 to Rs 60 Crs from Rs 25 Crs in 2008 in absolute terms.

KSCL is enj oying good business with

the heal thy operat ing margin of

22% and NPM of 18%.

Forward EV/EBIDTA BandForward PE Band



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Q1 FY11 Result Review

Kaveri seed company normally records 65% of its revenue in Q1 only. Total

revenue of FY 10 was Rs 162 Crs out of which Rs 100 Crs was contributed

by Q1 FY 10.The company has recently started concentrating on rabi season

as well.

The company has registered robust growth of 48% to Rs 148 Crs against

Rs 100 Crs topline growth in Q1 last year, which is mainly attributed to BT

cotton seeds segment performance which witnessed double volume growth.

The operating profit of the company is also up to Rs 36 Crs from Rs 26 Crs

reflecting the sales volume growth.However there is decline of 200 bps in

operating margin on the back of shift in crop acrage to lower margin product

like BT cotton from maize and sunflower. The company has registered bottom

line growth of 35% to Rs 31 Crs against Rs 23 Crs.


( Rs cr or es) Q1 FY1 1 Q1 FY1 0 YoY Q4 FY1 0 Qo Q

Net Sales 148 100 48% 13

Expenditure 112 74 12

Other op. income 0 0 0

EBITDA 36 26 37% 1

Depreciation 2 1 1

Core EBIT 33 25 32% -1

Other income 0 0 2

Interest 1 0 0Exceptional item 0 0 0

PBT 33 25 1

Tax 1 2 0

Adj PAT 31 23 35% 0

Mat. cost/Sales 29% 42% -31% 39% -26%

Emp. cost/Sales 2% 2% -4% 18% -90%

Other exp/Sales 45% 29% 55% 40% 13%

Tax rate 4% 8%

EBITDA Margin 24% 26% -8% 6% 338%

Net Profit Margin 21% 23% -9% 1% 1473%

Equity 13.7 13.7 13.7

EPS 22.75 16.88 0.12


Revenu Distribution


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Company Financials SnapshotProfit and loss (RsCr.)

Particulars FY09 FY10 FY11E FY12E

Net Sales 123.1 163.7 229.0 296.5

% Gr ow t h 2 7 % 3 3 % 4 0 % 2 9 %

COGS 47.4 65.4 99.4 137.8

Administration Exp 44.5 61.5 78.7 95.4

Misc exp 0.0 0.0 0.0 0.0

Cost o f sales 9 2 .0 1 2 6 .9 1 7 8 .2 2 3 3 .2

EBITDA 31.1 36.8 50.8 63.3

% Margins 25% 22% 22% 21%

Depreciation 3.2 4.1 6.8 8.3

Gr o ss Pr o f i t 2 7 .9 3 2 .6 4 4 .0 5 5 .0

Gross Profit Margins 23% 20% 19% 19%

Interest 1.9 1.8 2.1 2.2

Other Income 1.3 0.3 0.3 0.3

PBT 2 7 .2 3 1 .1 3 8 .9 4 9 .7

PBT Mar g in s % 2 2 % 1 9 % 1 7 % 1 7 %

Tax 2.2 2.1 3.0 3.7

Net Profit 25.0 29.0 35.9 46.0

Net Pr o f i t Mar g in s % 2 0 % 1 8 % 1 6 % 1 6 %

Adjustments -2.0 0.0 0.0 0.0

Repo r t ed Net Pr o f i t 2 3 .0 2 9 .0 3 5 .9 4 6 .0

Balance Sheet (RsCr.)


Source Of f und s

Equity Share Capital 13.7 13.7 13.7 13.7

Total reserves 111.3 137.2 173.5 219.7

Total Shareholders Fund 125.0 150.9 187.2 233.4

Tot al Deb t 2 1 .4 4 5 .6 4 1 .6 3 6 .6

To t al l iab i l i t y 1 4 6 1 9 6 2 2 8 2 7 0

App l i ca t i on o f Fund

FIXED Assets 78.8 109.2 109.1 109.2

Net Current Assets 65.5 85.3 114.6 148.8

Investments 2.0 2.0 5.0 12.0

Foreign currency Trans 0.0 0.0 0.0 0.0

To t a l Asse t s 1 4 6 1 9 6 2 2 8 2 7 0

Cash Flow Statement (RsCr.)


PBT 2 7 .1 3 1 .1 4 2 .3 5 3 .1

Depreciation 3.2 4.1 6.8 8.3

Interest 1.9 1.8 2.1 2.2

Divi received 1.3 0.3 0.3 0.3

Cash f l ow f r om op er a t i on s 3 1 .0 3 6 .7 5 0 .8 6 3 .3

Changes in working capital -20.0 -14.4 -25.8 -20.6

Taxes paid -2.5 -2.1 -3.0 -3.7

Net Cash fr om op er at ion 8 .5 2 0 .3 2 2 .1 3 9 .0

Fix Assets purchase -45.2 -34.0 -6.8 -8.3

Invt sales 19.7 0.0 -3.0 -7.0

Dividend&Int received 0.9 0.3 0.3 0.3

Net cash Flo w f r m I n t Act i - 2 4 .6 - 3 3 .6 - 9 .5 - 1 5 .0

Proceeds from ishue 0.0 0.0 0.0 0.0

Dividends -3.2 -3.2 -3.2 -3.2

Shorterm Loan -4.3 29.6 -1.0 -1.0

Longterm Loan 20.0 -5.5 -3.0 -4.0

Interest -1.9 -1.8 -2.1 -2.2

Net Cashflow from Fin Act. 10.6 19.1 -9.3 -10.4

Net Inc/Dec in Cash -5.5 5.7 3.3 13.6

Opening Cash Balance 19.5 14.0 19.7 23.7

Closin g cash b alan ce 1 4 .0 1 9 .7 2 3 .7 3 7 .9

Financial Ratios


Mar k et p r i ce ( Rs) 3 3 0 .0 3 3 0 .0 3 3 0 .0 3 3 0 .0

EPS RS. 18.2 21.2 28.7 36.1

OPM% 2 5 % 2 2 % 2 2 % 2 1 %

NPM% 1 9 % 1 8 % 1 7 % 1 7 %

ROE % 2 0 % 2 1 % 2 3 % 2 3 %

ROCE % 22% 20% 23% 23%

Book Value's per share 91 110 137 170

P/E Ratio 18.2 15.6 11.5 9.2

P/BV 3.6 3.0 2.4 1.9

EV/EBIDTA 14.8 13.0 9.2 7.1

Leverage Rat ios

Debt-Equity Ratio 0.2 0.3 0.2 0.2

Interest Cover Ratio 15.2 18.2 21.6 25.0

Work ing cap i t a l ra t i os

Debtor Days 116 92 78 80

Inventory Days 147 227 227 227


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Documents

Kaveri Seed - Anagram - Sept 2010