IndiaNivesh downgrade Kaveri Seed to 'Hold' after mixed-bag Q4FY15 results

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Kaveri Sensex
IndiaNivesh Research IndiaNivesh Securities Private Limited
601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007. Tel: (022) 66188800
Result Update
May 27, 2015
Kaveri Seed Company Ltd. (KSCL)
IndiaNivesh Research
Daljeet S. Kohli
Head of Research
Tel: +91 22 66188826
daljeet.kohli@indianivesh.in
Amar Mourya
Research Analyst
Tel: +91 22 66188836
amar.mourya@indianivesh.in
IndiaNivesh Research is also available on Bloomberg INNS, Thomson First Call, Reuters and Factiva INDNIV.
CMP : Rs.831
Rating : HOLD
Target : Rs.908
Rating : BUY
Target : Rs.908
Current Previous
STOCK INFO
BSE 532,899
Nse KSCL
Index S&P BSE 200
Bloomberg KSCL IN
Reuters KVRI.BO
Sector Agri-Seed
Equity Capital (Rs mn) 137
Face Value (Rs) 2
Mkt Cap (Rs mn) 52,299
52w H/L (Rs) 1077/572
Avg Daily Vol (BSE+NSE) 209,384
SHAREHOLDING PATTERN %
(as on Mar. 2015)
Institutions 28.8
Others, Incl Public 13.6
Promoters 57.7
Source: BSE
STOCK PERFORMANCE (%) 1m 3m 12m
KAVERI -14 -7 28
SENSEX -1 -6 11
KAVERI v/s SENSEX
Source: Capitaline, IndiaNivesh Research
Source: Capitaline, IndiaNivesh Research
Downgraded to HOLD with unchanged TP of Rs.908
Rs.mn Q4FY15 Q3FY15 Q4FY14 Q‐o‐Q % Y‐o‐Y % Bloom est Variance(%) Comments
Revenue 399 907 392 -56.0% 1.9% 396 1% Above Est
EBIDTA 85 361 61 -76.6% 39.3% 60 42% Above Est
PAT 13 358 18 -96.5% -29.1% 49 -74% Below Est
Source: Company Filings; IndiaNivesh Research
 KSCL’s Q4FY15 result was mixed-bag; revenue and EBITDA above expectation;
PAT significantly below street estimates. In Q4FY15, revenue went up 1.9%
Y/Y to Rs.399 mn (v/s Bloom Est. Rs.396 mn). The key driver was lint and
other hybrid seed sales.
Standalone Seed‐Wise Revenue break‐up
(Rs Mn) FY13 FY14 FY15 Y/Y Ch %
Cotton 4200 6500 7610 17.1%
Corn 1250 1750 1600 -8.6%
Paddy 400 550 690 25.5%
All-Others 1010 983 1255 27.7%
Total 6860 9783 11155 14.0%
Source: Company Filings; IndiaNivesh Research
 During the quarter, EBITDA went-up 39.3% Y/Y to Rs.85 mn (v/s Bloom est:
Rs.60 mn) led by lower raw-material cost and reduction in employee
expenditure. EBITDA margin expanded 569 bps Y/Y to 21.2% (v/s Bloom est.
15.2%) due to higher realization per pack in Lint, Sunflower and Hybrid seeds.
The total operating expenditure (as % of revenue) stood at 78.8% (v/s 84.5%
in Q4FY14) led by lower material and employee cost; partially offset by higher
other expenditures.
 Depreciation during the quarter stood at Rs.84 mn (v/s Rs.45 mn in Q4FY14).
The company reported other income of Rs.49mn (v/s Rs.16 mn in Q4FY14).
Tax rate stood at 75% (v/s 4.2% in Q4FY14) leading to tax outgo of Rs.37 mn
(v/s Rs.13 mn in Q4FY14). As a result, PAT for the quarter went down 29.1%
y/y to Rs.13 mn (v/s Bloom est Rs.49 mn).
Key Conference Call Takeaway
Robust Outlook…
 The company reported revenue growth of 1.9% Y/Y to Rs.399 mn (v/s Rs.392
mn in Q4FY14). During the quarter, the total seed sale was Rs.290 mn (v/s
Rs.300 mn in Q4FY14). In FY15, the total seed sale went-up 14.0% Y/Y to
Rs.11.1 bn (v/s Rs.9.7 bn in FY14). The key drivers were Cotton (+17.1% Y/Y),
Paddy(+25.5%Y/Y)andothers(+27.7%Y/Y);partiallyoffsetby8.6%Y/Ydecline
in Corn (Maize) sales. The year gone by was very bad year for maize, more
than close to 15% decline was there in the acreages. According to
management, in FY16 Maize acreages is expected to see slight bounce back.
The outlook of other crops like rice and Bajra will also see improvement in
the market. Key markets for hybrid Maize would be Bihar, Karnataka,
Maharashtra, and Andhra Pradesh. Further, management expect huge growth
in hybrid Paddy demand on back of under penetration and new product
launch. Management intend to start commercial sales of genetically modified
cottonseedbyJun-2016.InFY16,themanagementexpect12-14%y/yincrease
in BT-cotton packet sales (1Pack = 450 grams) and +20% growth in Maize and
Rice. On back of strong growth and lower inventory in the system management
also expect increase in the realization during FY16.

2. IndiaNivesh Research Kaveri Seed Company Ltd| Result Update
Result Update (contd...)
May 27, 2015 | 2
Favourable Cotton Scenario…
 The company received advances of Rs.2,250 mn (v/s Rs.2,350 in Q4FY14). As
a result, management does not see any major reduction in the cotton acreages
in FY16. Management expect increase in cotton acreages in areas like Andhra,
Karnataka, and Maharashtra, whereas expect decrease (10-15%) in the
Northern areas. The company also expect increase in the cotton market share
from 20% to 25% in the key areas going-ahead. On account of significant
decline in commodity prices like Soya (down 40%) relative to Cotton (down
30%), the overall agronomics looks positive for BT-cotton.
Other conference call highlights
 Management expects corn seed industry volumes to increase to 150,000 MT
within the next five years from 100,000 MT currently. The hybridization rate
in corn still stands at only 55-60%, leaving ample opportunity for growth.
KSCL expects to increase its own market share from 12% currently to 15-16%
over this timeframe.
 The marketfor hybrid paddy is expected to grow multi-fold from 2.5m hectares
currently to 5-7m hectares within the next five years. The hybridization rate
in paddy remains only ~5%, indicating a vast growth opportunity. KSCL is very
confident of increasing its market share in hybrid paddy, and projected 30%+
growth in this segment for FY15.
 Management sees a fair chance of an increase in cotton seed prices by FY16
due to mismatch in demand and inventory availability. KSCL itself is cutting
down its own production substantially for next year (considering its inventory
balance), and measures like these could help reduce the inventory overhang
in the industry. The company’s management expect to increase its cotton
market share from 20% (9.6 mn pack) to ~25% (12.5 mn pack) in next three
years.
 The company hired the new CEO in order grow the exports business over a
period of 3-4 years.
 Management forecast Rs.1500 mn of capex (Rs.400-500 mn /yearly) for next
three years on following: (1) construction of warehouse for paddy in AP, and
(2) R&D investment in Bio-technology (Rs.200-250 mn/yearly). The company
has total cash balance of Rs.3,013 mn as on 31/3/2015.
Valuation
At CMP of Rs.831, the stock is trading at P/E multiple of 15.2x FY16E and 12.1x
FY17E based on Bloomberg consensus earnings. On back of solid industry
fundamentals the macro outlook for hybrid seed industry looks attractive over
medium-term. Additionally, KSCL’s strong industry position, wide distribution
network, diversified product range, superior R&D capabilities places it well to benefit
from large macro opportunities in sector. However, given the limited upside from
our previous target price to Rs.908 (13.3x FY17E earnings) we downgrade our rating
to HOLD from BUY on stock.

3. IndiaNivesh Research Kaveri Seed Company Ltd| Result Update
Result Update (contd...)
May 27, 2015 | 3
Kaveri Seed Company Ltd (Rs in Mn.)
(Conso.) Q4FY14 Q3FY15 Q4FY15 Q/Q % Y/Y % FY15 FY14 Y/Y %
Net Sales 392 907 399 -56.0 1.9 11612 10,111 14.8
Other Operating Income 0 0 0 NM NM 0 - NM
Total Income 392 907 399 -56.0 1.9 11612 10,111 14.8
0
Cost of Material 1846 267 2320 770.0 25.7 4219 3,813 10.7
Purchase of stock in trade 0 0 0 NM NM 0 -61 -100.0
Change in inventory -1649 38 -2130 -5719.3 29.2 165 282 -41.5
Employee Benefit Exp 78 73 63 -14.1 -19.5 309 3,866 -92.0
Other Exp 56 168 62 -63.1 10.5 3822 - NM
Total Expenditure 331 546 315 ‐42.3 ‐5.0 8515 7,899 7.8
PBIDT 61 361 85 -76.6 39.3 3097 2,212 40.0
Interest 1 1 0 -38.6 -72.2 2 2 -29.5
PBDT 60 360 84 -76.6 41.5 3095 2210 40.1
0
Depreciation 45 22 84 282.2 85.2 149 164 -9.3
Other Income 16 25 49 94.8 212.2 157 97 61.4
Minority Interest Before NP 0 0 NM NM 0 -
PBT 30 363 49 -86.5 64.5 3104 2,143 44.8
0
Tax 13 5 37 634.0 191.3 92 52 79.0
Reported Profit After Tax 17 358 13 -96.5 -27.7 3012 2,092 44.0
Minority Interest After NP 0 0 -3 -962.9 639.1 -2 2 NM
Profit/Loss of Associate Company 0 0 0 NM NM 0 - NM
Net Profit after Minority Interest & P/L Asso.Co. 18 358 16 -95.6 -10.5 3013 2,090 NM
Extra-ordinary Items 0 0 3 NM NM 3 - NM
Adjusted Profit After Extra‐ordinary item 18 358 13 -96.5 -29.1 3010 2090 44.0
O/Shares 69 69 69 0.0 0.0 69 69 0.0
EPS (Unit Curr.) 0.3 5.2 0.2 -96.5 -29.1 43.6 30.3 44.0
EBIDTM(%) 15.5 39.8 21.2 -1862 569 26.7 21.9 121.9
PATM(%) 4.5 39.5 3.2 -3632 -138 25.9 20.7 125.4
Source: Company Filings; IndiaNivesh Research

4. IndiaNivesh Research Kaveri Seed Company Ltd| Result Update
Result Update (contd...)
May 27, 2015 | 4
IndiaNivesh Research is also available on Bloomberg INNS, Thomson First Call, Reuters and Factiva INDNIV.
IndiaNivesh Securities Private Limited
601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007.
Tel: (022) 66188800 / Fax: (022) 66188899
e-mail: research@indianivesh.in | Website: www.indianivesh.in
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or views expressed in this report: Daljeet S Kohli, Amar Maurya, Abhishek Jain, Yogesh Hotwani, Prerna Jhunjhunwala, Kaushal Patel, Rahul Koli, Tushar Manudhane & Dharmesh Kant.
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