3 July 2014
Update | Sector: Others
Kaveri Seed Company
BSE Sensex
25,824
S&P CNX
7,715
CMP: INR793
TP: INR930
Buy
Robust growth outlook despite weak rainfall
Shift from soya to cotton and corn to drive acreage growth
Stock Info
Bloomberg
Equity Shares
( )
52-Week Range
( 6,)12 Rel. Per
1,
(%)
M.Cap. (INR b)
M.Cap. (USD b)
KSCL IN
68.9
803/280
15/92/108
54.6
0.9
Though the monsoon in Andhra Pradesh has suffered a two-week delay, this is
unlikely to impact the sale of cotton seeds. Our channel checks suggest that
farmers are likely to purchase the best available seeds.
The sale of KSCL’s
Jadoo
brand has increased ~20-25% and its
ATM
brand cotton
seeds are out of stock in Maharashtra and North India.
With the success of ATM, we remain confident of structural market share gain
and growth in the cotton segment. This should drive a re-rating.
Delayed monsoon unlikely to impact sale of cotton seeds
Financial Snapshot (INR Million)
Y/E March
2015E 2016E 2017E
Net Sales
13,151 16,926 21,126
EBITDA
Adj PAT
EPS (INR)
Growth (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
3,025 4,069 5,218
2,906 3,980 5,140
42.4
39.1
45.0
46.1
18.7
7.0
58.1
37.0
41.7
42.7
13.6
4.8
75.0
29.1
37.5
38.4
10.6
3.4
113.3 165.5 234.6
Though the monsoon in Andhra Pradesh has suffered a two-week delay, this is
unlikely to impact the sale of cotton seeds. The delay has led to farmers
shifting from soya bean to cotton and corn, as these are sturdier crops and
require less water. Our channel checks suggest that farmers are likely to
purchase the best available cotton seeds to ensure strong yields, given higher
selling price for cotton. The sale of KSCL’s
Jadoo
cotton seeds has increased
~20-25%. With monsoon now setting in, we expect sowing to pick up in 15
days, which should lead to lower sales returns for the season.
ATM out of stock; possible indicator of structural growth
Our channel checks suggest that in Maharashtra and North India, KSCL’s
ATM
brand cotton seeds are out of stock.
ATM,
which constitutes 10-15% of KSCL’s
cotton seed revenues, should grow 100% in FY15. KSCL has just 7% market
share in Maharashtra and Gujarat, providing huge growth opportunity. We
believe
ATM
is at a stage where
Jadoo
was four years ago. Its early success
provides visibility for the next round of growth in cotton from non-South
markets (50% of cotton market), which were untapped.
Shareholding pattern (%)
As on
Mar-14 Dec-13 Mar-13
Promoter
Dom. Inst
Foreign
Others
63.6
10.4
10.9
15.0
63.6
10.5
9.6
16.2
65.0
10.4
6.4
18.2
Higher acreages, hybridization to drive corn growth
Delay in rainfall leads to shift from soya to cotton and corn. We expect corn
acreages to increase in FY15, driven by increase in hybrid penetration from the
current ~60%. We also expect the share of single cross to improve from 50% in
FY14 to ~60% in FY15, leading to margin expansion for KSCL. We expect KSCL’s
corn portfolio to post a robust 34% CAGR over FY14-17 on the back of strong
industry demand and market share gains.
Stock Performance (1-year)
Kaveri Seed
Sensex - Rebased
880
710
540
370
200
Revising estimates, target price upwards; Buy
We raise our EPS estimate for FY15 by 4% to factor in higher margins. We
expect revenue CAGR of 27.8% and net profit CAGR of 35.4% over FY14-17.
With the success of
ATM,
we remain confident of structural market share gain
and growth in the cotton segment, going forward. This should drive a re-rating.
The stock currently trades 18.7x FY15E and 13.6x FY16E EPS. We revise our
target price upwards to INR930 (16x FY16E EPS) from earlier target of INR825.
Maintain
Buy.
Niket Shah
(Niket.Shah@MotilalOswal.com); +91 22 3982 5426
Atul Mehra
(Atul.Mehra@MotilalOswal.com); +91 22 3982 5417
Investors are advised to refer through disclosures made at the end of the Research Report.

Kaveri Seed Co
Delayed monsoon unlikely to impact sale of cotton seeds
Cumulative rainfall for the whole country stood at 40% below long period average
(LPA) as at 25 June 2014. This reflects the 7-10 days’ delay in the advancement of
the monsoon. IMD expects the monsoon to revive by the first week of July.
Though the monsoon in Andhra Pradesh has suffered a two-week delay, this is
unlikely to impact the sale of cotton seeds. The delay has led to farmers shifting
from soya bean to cotton and corn, as these are sturdier crops and require less
water. Our channel checks suggest that farmers are likely to purchase the best
available cotton seeds to ensure strong yields, given higher selling price for cotton.
The sale of KSCL’s
Jadoo
cotton seeds has increased ~20-25%. With monsoon now
setting in, we expect sowing to pick up in 15 days, which should lead to lower sales
returns for the season.
Kaveri has posted strong growth with minimal impact from variable weather conditions
Source: Company, MOSL
ATM out of stock; KSCL on track for pan-India leadership
Our channel checks suggest that in Maharashtra and North India, KSCL’s
ATM
brand cotton seeds are out of stock.
ATM,
which constitutes 10-15% of KSCL’s
cotton seed revenues, should grow 100% in FY15. KSCL has just 7% market share in
Maharashtra and Gujarat, providing huge growth opportunity. We believe
ATM
is
at a stage where
Jadoo
was four years ago. Its early success provides visibility for
the next round of growth in cotton from non-South markets (50% of cotton
market), which were untapped.
Higher acreages, hybridization to drive corn growth
Delay in rainfall leads to shift from soya to cotton and corn. We expect corn
acreages to increase in FY15, driven by increase in hybrid penetration from the
current ~60%. We also expect the share of single cross to improve from 50% in
FY14 to ~60% in FY15, leading to margin expansion for KSCL. We expect KSCL’s corn
portfolio to post a robust 34% CAGR over FY14-17 on the back of strong industry
demand and market share gains.
3 July 2014
2

Kaveri Seed Co
Financials and valuation
Income statement
Y/E March
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Min. Int. & Assoc. Share
Adj Cons PAT
2012
3,724
59.4
770
20.7
100
670
33
26
53
610
29
4.7
581
631
48.7
0
631
2013
7,120
91.2
1,393
19.6
122
1,271
15
49
13
1,292
38
2.9
1,254
1,268
100.8
0
1,268
2014
10,111
42.0
2,212
21.9
164
2,048
2
97
0
2,143
52
2.4
2,092
2,090
64.8
0
2,090
2015E
13,151
30.1
3,025
23.0
189
2,836
1
146
0
2,980
75
2.5
2,906
2,906
39.1
0
2,906
(INR Million)
2016E
16,926
28.7
4,069
24.0
208
3,860
1
218
0
4,078
98
2.4
3,980
3,980
37.0
0
3,980
2017E
21,126
24.8
5,218
24.7
234
4,984
1
284
0
5,266
126
2.4
5,140
5,140
29.1
0
5,140
Balance sheet
Y/E March
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
2012
137
2,277
2,414
247
0
2,661
1,269
326
943
131
1,175
3,635
3,033
285
96
220
3,225
3,130
95
410
2,660
2013
137
3,311
3,448
31
0
3,479
1,813
439
1,374
81
1,318
5,902
4,912
686
143
161
5,196
5,039
157
705
3,479
2014
137
5,022
5,159
9
0
5,168
2,156
603
1,553
0
2,783
5,947
4,972
653
67
255
5,114
4,882
233
832
5,168
2015E
137
7,625
7,762
9
0
7,772
2,456
792
1,664
132
2,783
12,016
8,763
1,261
1,661
331
8,822
8,489
333
3,194
7,772
(INR Million)
2016E
2017E
137
137
11,200
15,935
11,337
16,072
9
9
0
0
11,346
16,081
2,756
3,106
1,001
1,235
1,755
1,871
169
211
2,783
2,783
17,733
24,793
11,159
13,752
1,623
2,026
4,521
8,457
430
559
11,094
13,577
10,651
13,127
443
450
6,639
11,216
11,346
16,081
E: MOSL Estimates
3 July 2014
3

Kaveri Seed Co
Financials and valuation
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
2012
9.2
10.7
35.2
0.8
11.0
2013
18.5
20.3
50.3
3.2
20.0
2014
30.5
32.9
75.3
2.4
9.1
26.0
24.1
10.5
3.7
17.0
0.3
29.3
28.6
1.4
27.9
297.3
386.7
0.1
43.3
43.0
2.0
35.2
251.8
321.2
0.0
48.6
49.6
2.0
23.6
179.5
225.6
0.0
2015E
42.4
45.2
113.3
3.8
10.4
18.7
17.6
7.0
2.7
11.9
0.5
45.0
46.1
1.7
35.0
243.2
306.0
0.0
2016E
58.1
61.1
165.5
5.1
10.2
13.6
13.0
4.8
2.0
8.2
0.6
41.7
42.7
1.5
35.0
240.6
302.4
0.0
2017E
75.0
78.4
234.6
5.1
7.9
10.6
10.1
3.4
1.4
5.6
0.6
37.5
38.4
1.3
35.0
237.6
301.2
0.0
Cash flow statement
Y/E March
OP/(Loss) before Tax
Depreciation
Others
Interest
Direct Taxes Paid
(Inc)/Dec in Wkg Cap
CF from Op. Activity
(Inc)/Dec in FA & CWIP
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2012
610
100
0
33
30
357
1,099
-108
-783
0
-892
0
-60
-33
-64
-157
51
45
96
2013
1,319
122
0
15
36
-262
1,099
-420
-162
0
-582
0
-208
-15
-256
-471
47
96
143
2014
2,143
164
0
2
0
-201
2,109
-262
-1,464
0
-1,726
0
-21
-2
-191
-459
-76
143
67
2015E
2,980
189
0
1
75
-767
2,329
-432
0
0
-432
0
0
-1
-302
-303
1,594
67
1,661
(INR Million)
2016E
2017E
4,078
5,266
208
234
0
0
1
1
98
126
-585
-642
3,605
4,734
-338
-392
0
0
0
0
-338
-392
0
0
0
0
-1
-1
-405
-405
-406
-406
2,861
3,936
1,661
4,521
4,521
8,457
E: MOSL Estimates
3 July 2014
4

Kaveri Seed Co
NOTES
3 July 2014
5

Disclosures
Kaveri Seed Co
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Disclosure of Interest Statement
1. Analyst ownership of the stock
2. Group/Directors ownership of the stock
3. Broking relationship with company covered
4. Investment Banking relationship with company covered
KAVERI SEED CO LTD
No
No
No
No
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3 July 2014
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6