Kaveri Seeds: Seeds of success

14 March 2014

Initiating Coverage | Sector: Agri

Kaveri Seeds

BSE SENSEX

S&P CNX

21,810

6,504

CMP: INR535

Seeds of success

TP:INR730

Buy

KSCL's cotton seed brands deliver; expect ~33% PAT growth over FY14-16



Bloomberg

Equity Shares (m)

M.Cap. (INR b)/(USD b)

52-Week Range (INR)

1,6,12 Rel. Perf. (%)

KSCL IN

68.5

36.6/0.6

559/220

-5/63/99



Financial summary (INR b)

Y/E March

2014E 2015E 2016E

Sales

EBITDA

EPS (INR)

EPS Gr. (%)

BV/Sh. (INR)

RoE (%)

RoCE (%)

Payout (%)

Valuation

P/E

P/BV

EV/EBITDA

Div Yield %

10.4

2.3

2.2

31.8

71.9

50.7

52.0

21.9

16.8

7.1

15.3

1.1

13.6

3.1

2.9

42.5

33.6

46.6

48.9

24.6

12.6

5.0

10.7

1.7

17.4

4.1

3.8

56.2

32.1

43.7

45.9

24.8

9.5

3.6

7.6

2.2



KSCL is one of the leading players in seeds industry with dominant positioning in most

of the key crops: cotton (17% market share), Corn (~13% market share), Bajra (13%

market share) and Rice (~9% market share).

Kaveri has 60% market share in Guntur and Krishna but has only 25% market share in

Varingal and Karimnagar and 13% in Adilabad thereby providing significant opportunities

to improve market share. Kaveri introduced ATM in 2012 to tap Gujarat and North

India market, given initial success of ATM it expects to double its sales in FY15E for ATM.

Kaveri has 33 hybrids of corn of which 50% is single cross. Increase share of single cross

to lead to margin expansion going forward.

With 80% of the market of rice in Eastern India the company plans to sell it to state

government and participate in the subsidy business, thereby driving growth.

One of the fastest-growing seed companies

KSCL is one of the leading players in seeds industry with dominant positioning in

most of the key crops: cotton (17% market share), Corn (~13% market share),

Bajra (13% market share) and Rice (~9% market share). Its two key cotton seed

brands, 'Jadoo' and 'Jackpot', introduced in FY08 saw exceptional success as cotton

seeds sales increased from 0.5m packets (~INR400m) in FY10 to ~6.5m packets

(INR6.5b) in FY14, value CAGR (4-year) of 90%. Kaveri over the years have

developed one of the largest germplasm bank one of the key entry barriers in

the business. It has access to research institutes like ICRISAT, IRRI, CYMMIT, etc.

75.2 107.2 149.5

Vision to be a leader in cotton segment

Kaveri sells different brands in different market Eg:- Jadoo and ATM in

Maharashtra, ATM in Gujarat, Jackpot in MP depending on the traits and climatic

conditions suiting them. Around 50% revenues comes from Jadoo, 10% from

Jackpot and ATM and balance from Singha, Barood etc. Since launch of Jadoo in

2008 the company has gained 40% market share in AP (60% market share in Guntur

and Krishna each) from large players like Nuziveedu. However it has only 25%

market share in Varingal and Karimnagar and 13% in Adilabad thereby providing

opportunities to improve market share in AP.

Kaveri has 7% market share in Maharashtra and Gujarat where players like

Nuziveedu, Ajeet and Mayco have more than 20% market share proving huge

opportunity for increased penetration. Kaveri introduced ATM in 2012 to tap

Gujarat and North India markets, given initial success of ATM the company expects

to double its sales in FY15E for ATM. It also plans also launch 6 new hybrids in

FY15E to further gain market share. Higher inventory in the system for cotton in

FY14 has helped Kaveri to bring down its cost of production by INR 25 per kg and

also lower discounts in FY15 will lead to margin expansion.

Shareholding pattern (%)

As on

Dec-13 Sep-13 Dec-12

Promoter

63.6

65.0

Dom. Inst 10.5

10.1

10.6

Foreign

9.6

8.8

5.2

Others

16.2

17.5

19.3

Stock performance (1 year)

Kaveri Seed

Increase in share of single cross corn to drive growth and margin expansion

Kaveri has 33 hybrids of corn like Ekka, K 50, Super 224, 244, K55 to name a few.

Around 50% of them currently are single cross. And almost 6-7 brands in corn

contribute around 50% of Kaveri's corn revenues. In 2008 around 85% of the corn

sales were in kharif season while now it contributes around 65% and rabi contributes

35% of volumes and 50% of value. The current selling price of single cross hybrid

corn is around INR 200/kg as compared to 80-110/kg for 2 way and 3 way crossing

hybrid corn seeds, thereby enabling companies selling single cross corn enjoy 55-

60% EBITDA margins. We believe that with increase in Rabi hybrid corn share the

share of single cross is likely to increase complimented by increase in contribution

of single cross for Kaveri seeds (50% currently) leading to margin expansion.

Rice - a huge long term opportunity

Rice is the most important staple food for a large part of the world's population. The

total crop area under Rice in India is ~42mhectares, while area under hybrid seeds is

only ~2m hectares, hybrid seed penetration of ~5%. While in China hybrid rice is 65%

of the market, most of the current hybrid seeds have drawbacks such as cooked

hybrid rice become soggy, has distinct smell, does not retain original taste etc. Bayer

Crop Science is currently the market leader in this segment with a market share of

>50%, while other players like Pioneer have 15-20% , Nuziveedu have ~5-6% and

Kaveri have 9% market share. Kaveri currently has portfolio of 6 hybrid seeds and

has recently got notification for its 2 new hybrid namely KPH 371 and KPH 199.

Notification is precursor to participation in the subsidy business. While 80% of the

market of rice is in Eastern India the company plans to sell it to state government

and participate in the subsidy business, thereby driving growth.

Pan India distribution network

KSCL has a wide distribution network of ~15,000 direct/indirect distributors (15 key

Indian states) and strong marketing of ~350 professionals on a pan India basis as

compared to 11,000 distributors 4 years ago, it also claims to have around 90,000

loyal production growers and ~60,000 acres (across 12 different agro-climatic centres)

under seed production. It also has ~57 out-reach trail centres and seven plants spread

across the country. It has 8 own plants spread across 10 key locations in India which

has an aggregate processing capacity of ~145 MT per hour. Kaveri has 26 warehouses

at strategic locations with combined storage space of ~500,000 sqft.

Valuation and view

Over FY11-14, KSCL's revenues and net profit increased by 65% and 71% respectively

and is likely to post a revenue growth of ~29.4% and net profit growth of ~32.8%

over FY14E-16E. Given that Kaveri is on track to become the market leader in cotton

segment complimented by higher growth in higher margin corn and rice we expect

growth visibility to remain high going forward. We expect it to increase dividend

payout from current levels of ~20% to 25% in next 2 -3 years which should further

help multiple expansion. It trades at a PE of 12.6x/9.5x FY15E/FY16E EPS. Initiate

coverage with a 'Buy' valuing the stock at 13x FY16E earnings, arriving at a target

price of INR730.

14 March 2014

Kaveri Seed

Story in charts Seeds of success

Population is increasing, while agriculture crop

area/production has been stagnanting, leading to

declining area/person.

Hybrid penetration in rice and corn to improve

going forward.

Meeting increased demand for food to be difficult

unless crop yields improve sharply.

Stagnant land area leading to sluggish production.

Use of hybrid seeds very low in India. Increased

use of hybrid seeds shall increase production.

Increase in key crop MSPs to attract capital and

induce use of hybrid seeds.

#1 Declining hectare/person globally

#2 Hybrid penetration to improve

#3 Yields in India among the lowest

#4 Stagnant land area leading to sluggish production

#5 Limited use of hybrid seeds in India

#6 CAGR in MSPs to boost hybrid seeds usage

Source: Company/MOSL

14 March 2014

Kaveri Seed

Cotton, a success story: Evolution of BT cotton in India

Introduction of BT cotton hybrids



Bollworm was a major pest which could wipe out as much as ~50% of the crop, and hence

a 'risky' product. After Monsanto introduced the Bt gene (prevents bollworm) in FY03,

yields went from 322 kg lint / Ha to 535 kg lint / Ha.

Post introduction of BT gene the production of cotton has jumped from 17.9m bales in

2003 to 35.3m bales in 2011-2012.

Monsanto has given license to ~30 players in India for BT cotton hybrid. Key players in this

segment are Nuziveedu, Mahyco Monsanto, Kaveri, Rasi Seeds, Ankur Seeds etc.

Yield per hectare has seen dramatic jump from 300kg/hectare in 2002-03 to ~485kg/

hectare in 2011-12 marking a staggering growth of ~62% in 9 years.

Cotton - Evolution of BT cotton hybrid seed industry

Dominant Seed Tech

Yiled Range

Cotton Acreage

Est % Area under Hybrid (%)

1950-60

Local/ Desi

85-120

5.5-8

1970

Public Varieties

120-160

6.8-8.1

1980

Public &

Comm Hybrid

160-200

6.5-8.1

1990

Public &

Comm Hybrid

200-250

7.3-9.3

2003+

Commercial Bt

Hybrids

300-550

8.7-9.5

Source: Company, MOSL

Cotton seed price regulated

The prices of official Bt

cotton seeds in India are

regulated and stand at

INR 830 and INR 930 per

450 grams for Bt I and Bt II

respectively

The prices of official Bt cotton seeds in India are regulated. Prior to 2006, the prices

were exorbitant (roughly Rs.1,600 per packet of 450 grams which included MMBIL's

royalty of about Rs.1,250). However, two price reductions took place in 2006 & 2008

which brought down the prices to level of Rs.650 and Rs.750/- per packet for Bt I & Bt

II respectively. However these rates have now been increased to INR 830 and INR 930

per 450 grams for Bt I and Bt II respectively, thereby improving margins.

Cotton Seed Rate (Packets/ Acre)

Source: Company, MOSL

14 March 2014

Kaveri Seed

Cotton size in India (m)

Packets

Karnataka

Maharashta

Andhra Pradesh

Gujarat

North (Punjab & Haryana) 4

Total

Cotton Seed Statistics

FY11

Volumes

Nuziveedu

% Change

% Market Share

Kaveri

% Change

% Market Share

Others

% Change

% Market Share

Industry Volumes

% Change

Average Price/ Packet

Industry Value

% Change

8.5

1.2

28.3

38.0

750

28,500

FY12

10.2

1.9

30.9

43.0

930

39,990

FY13

(Million Packets)

FY14E

10.3

10.0

-3

4.1

6.5

115

26.6

25.9

-14

-3

41.0

41.9

-5

930

38,130

38,964

-5

Source: Company, MOSL

Bt Cotton: The revolution in cotton production

According to Ministry of

Agriculture and Textile

11.2m hectares (ha) of

cotton seeds were sowed

in India 2010-2011, as

against 7.4m in 1991 and

9.3m in 2002

India is the second biggest producer of cotton since 2006, after China, but ahead of

the United States. Today, India accounts for 21 % of the global cotton production.

India changed from a net importer of cotton fibers to an exporter: in 2009 - 2010, more

than 8 million bales of 170 kg were exported, accounting for US$ 2.3 billion in revenue.

Indian cotton cultivation has been on the up over the last decade: increasing numbers

of farmers are sowing cotton, whilst the production and the yield have increased

significantly. Most of the credit of this growth goes to the introduction of biotech

cotton. This cotton carries genes from the bacterium Bacillus thuringiensis, hence the

name Bt cotton. These genes produce proteins that protect the plant against

bollworms, an infamous pest in cotton. Bt cotton was officially first introduced in

India during the 2002 - 2003 growing season. According to Ministry of Agriculture and

Textile 11.2m hectares (ha) of cotton seeds were sowed in India 2010-2011, this is

substantially high compared to 9.3m in 2002 and 7.4m in 1991. The figures for 2011 -

2012 were historic: 12.2m ha sown, which is 18% more than in the two previous growing

seasons.

Hectarage cotton in India

Source: MOSL

14 March 2014

Kaveri Seed

Remarkable increase in production

Cotton production has

expanded from 11.9m

bales to 35.3m bales post

BT introduction

Before the introduction of the Bt production varied between 11.9 and 17.9 million

bales of 170 kg during the period 1991 and 2003. Post Bt gene introduction i.e. since

2003 this number is steadily increasing to more than 30mn bales in 2007-08 and 2009-

10 and reached 35.3m bales in 2011-12. However this is increased can also be partially

attributed to the expansion of the cultivation area. But to a larger extent it was due to

introduction of Bt gene.

0% to 90% in 10 years: A mammoth spurt in adoption

Bt cotton was officially admitted in India for commercial planting in 2002. During the

2002-2003 growing season there were 54,000 Indian cotton farmers who sowed Bt

cotton on approximately 50,000 ha. In the following years the use of Bt cotton sky-

rocketed. The area doubled in 2003-2004, quadrupled in 2004 - 2005 and the 1 million

ha threshold was passed in 2005-2006. The number increased to 3.8 million ha in 2006-

2007, to 7.6 million in 2008-2009 and to 8.4 million ha in 2009-2010. At that point, more

than 80 % of all Indian cotton plants were Bt cotton plants.

Emergence of Bt cotton in India

BT penatration has

increase from 0% in 2002

to 88% 2012

Source: MOSL

In a number of Indian cotton provinces the adoption of Bt cotton even exceeds 90 %.

Examples include Punjab (96%), Haryana (95%), Maharashtra (91%), Madhya Pradesh

(92%) and Andhra Pradesh (98%). Furthermore, provinces where Bt cotton has not

been grown much have caught up significantly over the last year (Rajasthan from 64%

to 82%, Gujarat from 59% to 81%, Karnataka from 49% to 74% and Tamil Nadu from 33%

to 77%).

Even India farmers opt for Bt cotton as against traditional cotton. The number of

farmers cultivating Bt cotton displays the same increasing curve: from 50,000 in 2002,

to 100,000 in 2003, 300,000 in 2004, 1 million in 2004 to 6.3 million in 2010. In 2012, 7.2

million of the 8 million Indian cotton farmers have chosen to sow Bt cotton. Not only

the large cotton farmers who prefer to grow Bt cotton. The average Indian cotton

farmer cultivates 1.5 ha of cotton and even the smaller farmers have switched to Bt

cotton in large numbers.

14 March 2014

Kaveri Seed

Yield per hectare has

seen dramatic jump from

300kg/hectare in 2002-03

to ~485kg/hectare in

2011-12

Even yield per hectare has increased significantly

In a recent report from the International Food Policy Research Institute (IFPRI) Bt

cotton is responsible for at least 19 % of the general increase in yield of Indian cotton

farming. Yield per hectare has seen dramatic jump from 300kg/hectare in 2002-03 to

~485kg/hectare in 2011-12 marking a staggering growth of ~62% in 9 years. However

other key factors that have contributed to the increased yield are the use of fertilizers,

hybrid seeds, and improved agricultural practices, optimum use of pesticides and

expansion of irrigation systems.

Major improvement in yield and Net Income post Bt gene

Bt gene introduction has resulted in tremendous improvement on various parameters.

As stated in Economic & Political Weekly, 2012:17; The IFPRI scientists collected data

from 186 farmers in the province of Andhra Pradesh. According to this study, the net

income of these farmers increased by an average of 209% once they switched to Bt

cotton. Although Bt seeds are more expensive and a greater investment in labor is

required, the scientists concluded that the net income of the farmers still increased

significantly. Two parameters again favor Bt: a higher yield and lower expenditure on

insecticides. All farmers benefit from Bt cotton, including the small and mid-range

farmers. Their yield increased by 39% and 33% respectively, resulting in their net

income increasing by 186% and 217% respectively. The large farmers did benefit most

from Bt cotton: the yield of their cotton harvest increased by 93 % and their income

increased by 300%.

Costs and yields before and after the adoption of Bt cotton (per 'acre' in INR)

Before adoption After adoption(Bt) After adoption (Bt) Change (in %)

(non-Bt) (2004 - 2005

(2006 - 2007

(inflation

growing season)

adjusted)

Hired laborers

1,476

1,726

1,535

Labor with buffalo and oxen

855

906

806

-6

Mechanical labor

587

886

788

Seed

598

897

798

Organic fertilizers

406

380

338

-17

Fertilizers

1,603

1,723

1,532

-4

Insecticides

3,267

1,599

1,422

-56

Irrigation

-9

Misc. (repair and transport)

-7

Total production cost

9,057

8,327

7,405

-18

Yield (in quintals)

721

1,027

Production cost per quintal

1,256

811

721

-42

Gross income

12,338

19,722

17,540

Net income

3,281

11,395

10,134

209

Source: Herring RJ and Rao NC, Economic & Political Weekly. 2012:17, MOSL

Farmer's income has

increased by 300%

from INR3,281/acre to

11,395/acre post BT

introduction

14 March 2014

Kaveri Seed

Hybrid seed industry

is very labor intensive

and comprises bulk of

cost of goods

Economics of BT cotton hybrid seed for KSCL

The table below depicts the economics of a large BT cotton hybrid seed player. Almost

all companies pay ~12-20% as royalty to Monsanto (INR 180 per packet) for using its

underlying BT gene. Hybrid seed industry is very labor intensive and comprises bulk

of cost of goods. Average margins by key players in this segment are ~15-20%. Margins

are higher in other hybrid seeds, as companies are able to save on royalty cost.

Cotton seed economics for KSCL

Costs

Royalty to Monsanto

Cost of Goods

Employee Cost

R&D Cost

Business Promotion

Admin and Selling

Margins

Sale Price

(INR/ Packet)

180

350

185

930

100

Comments

Large players with scale, enjoy discounts

from Monsanto

Labor is the most critical cost for seed

companies

Margins range from 15-20%

Frozen by Government

Source: Company, MOSL

14 March 2014

Kaveri Seed

KSCL has all success factors necessary for a seed company

Introduction of BT cotton hybrids



KSCL is one of the leading players in most of the key crops: cotton (17% market share),

Corn (~13% market share), Bajra (13% market share) and Rice (~9% market share).

KSCL has a wide distribution network of ~15,000 direct/indirect distributors (15 key

Indian states) and strong marketing of ~350 professionals on a pan India basis as compared

to 11,000 distributors 4 years ago, it also claims to have around 90,000 loyal production

growers and ~60,000 acres (across 12 different agro-climatic centres) under seed

production.

Its two key cotton seed brands christened 'Jaddoo' and 'Jackpot', introduced in FY10 has

tasted phenomenal success with KSCL's cotton seeds sales increasing from 0.5m packets

(~INR400m) in FY10 to ~6.5m packets (INR6.5b) in FY14, a value CAGR (4 years) of 90%.

It takes ~2-3 years to establish a new product in the market, given there has been no such

launch of any successful product by the competition, management is hopeful of continuing

its strong momentum in the cotton segment and continue to gain incremental market

share.

Key success factors for a seed company

There are four key factors which determine the success of a seed company such as

1) R&D strength, 2) Distribution and marketing skills, 3) ability to manage the external

environment and 4) Forecasting of demand and planning.

Key success factors

R&D strength



Strength in breeder seeds



Launch winning products



R&D Ability to continuously

refurbish existing product

portfolio

Wide product offering / Distribution and

Marketing skills



Broad product offering



Wide geographical Pan India

distribution and marketing

strength



Ability to create brand pull for

key products

Complex chain/ Ability to manage the

external environment/ Forecasting of

demand and planning



Protection of intellectual property



Navigating Government issues

(both state and central)



Regulatory and legal issues



Demand forecast for forthcoming

season



Production planning, management

of inventory system and

distribution strength

a) Strong R&D strengths

Kaveri has till date

filled 169 registrations

with PPA/ FRV

The key differentiating factor in the seed industry is company's R&D capabilities and

strength of its product pipeline. KSCL is in the process of phasing out older products

and replacing them with newer improved varieties with a view to maintaining its

strong positioning across key crops. Kaveri has till date filled 169 registrations with

PPA/ FRV, of which 48 (~28%) have managed to clear the DUD test, while ~14 (8.3%)

have been successfully registered. It also has ~34 products in pipeline, which provides

visibility for growth ahead.

14 March 2014

Kaveri Seed

Products in Pipeline

Corn

Rice

Jowar

Bajra

Tomato

Okra

Bottle Grourd

Ridge Gourd

Bitter Gourd

India PPA and FRV filling

No of fillings to date

DUD test cleared

% of filled

Registration

% of filled

FY10

100

FY11

140

FY12

168

8.3

FY13

169

8.3

R&D spend over FY09-13 (INR m)

R&D spend of key seed majors (INR m)

R&D spend

FY11 FY12 FY13

236

133

147

158

152

173

168

100

% of sales

FY11 FY12 FY13

0.9

0.8

1.8

0.6

0.7

0.6

4.2

4.6

3.7

3.1

2.2

1.4

Rallis

PI Ind

Bayer Crop Science

Monsanto India

Kaveri Seeds

Source: Company, MOSL

Kaveris key brands across product categories

Type

Field Crop

Cotton

Maize

Rice

Millet

Sunflower

Vegetables

Tomato

Okra

Number of Brands

Key Brands

Jadoo, Jackpot, ATM, Singha, Barood, Bullet

Ekka, 3110, Bumper, KSO, Super 224m K55, 244

Sampurna, Chintu, Sleek

Super Boss, Fouzi

Sunkranti, Champ

KTH 104, KTH 204

Kaveri Nadia, Kaveri Leena

Source: Company, MOSL

KSCL spends 1.4%

of sales on R&D

b) One of the largest germplasm pool - Advantage position

Kaveri over the years have developed one of the largest germplasm bank one of the

key entry barriers in the business. It has access to leading research institutes /

universities such as ICRISAT, IRRI, CYMMIT etc for germplasm. It has over 600 acres of

dedicated research farms with varying agro climatic conditions, sofihisticated biotech,

Quality check, seeds technology labs with latest equipment and cold storage for

germplasm. It also has multi season trials, breeding and testing facilities across 57

trial centres across India.

Has created a niche for itself in the cotton segment

KSCL's cotton seeds

sales have grown at 90%

CAGR in the last 4 years

KSCL is one of the fastest growing seed companies in India, with revenue and net

profit CAGR of 65% and 71%, over FY11-14E. Its two key cotton seed brands christened

'Jaddoo' and 'Jackpot', introduced in FY08 has tasted phenomenal success with KSCL's

cotton seeds sales increasing from 0.5m packets (~INR400m) in FY10 to ~6.5m packets

(INR6.5b) in FY14E, a value CAGR (4years) of 90%.

14 March 2014

Kaveri Seed

Introduced in 2009, Jadoo started with a modest production of 15,000 packets. Less

than four years later, it has sold nearly 5 million packets as farmers lapped up the

seed that not only gave 20% better yield than other hybrids but could also withstand

excessive rain and drought situations.

KSCL's growth in cotton seeds over FY11-16 (INR m)

CAGR

27%

Sales of non-cotton seeds over FY11-16

CAGR

34%

CAGR

40%

CAGR

97%

Source: Company, MOSL

It takes ~2-3 years to establish a new product in the market, given there has been no

such launch of any successful product by the competition, management is hopeful of

continuing its strong momentum in the cotton segment and continue to gain

incremental market share.

b) Has a broad product portfolio

KSCL is one of the leading

players in most of the key

crops: cotton (17%

market share),

Corn (~13% market

share), Bajra (13% market

share) and Rice

(~9% market share)

The company's product portfolio includes hybrid seeds for cotton, corn, paddy, bajra,

sunflower, sorghum, tomato, okra, chilly and watermelon. KSCL is one of the leading

players in most of the key crops: cotton (17% market share), Corn (~13% market share),

Bajra (13% market share) and Rice (~9% market share). Its key brands are BT cotton

hybrids - Jaadoo, Jackpot; Bajra hybrid - North Bullet and Super Boss; Red Gram -

Sampada and Rice - Sampoorna. Kaveri is developing 12 new variants across corn,

rice, bajra and jowar and 22 variants across vegetables that are likely to be launched

in the next two or three years.

Characteristics across seeds lifecycle

First Year Hybrids

(1st-3rd year)

Value

Highest

Promotional expense

Very high

Ideal share in revenue mix

15-20%

Margins

Low

ROCE

Low

Proven/ Core Hybrids

(4th-9th years)

Medium

High

~60-70%

High

Mature Hybrids

(>9 years)

Lowest

Low to negligible

~15-20%

Medium

Source: Company, MOSL

14 March 2014

Kaveri Seed

Sales break-up FY14

Market share in key crops (FY14)

Source: Company, MOSL

Pan India distribution network

KSCL has a wide distribution network of ~15,000 direct/indirect distributors (15 key

Indian states) and strong marketing of ~350 professionals on a pan India basis as

compared to 11,000 distributors 4 years ago, it also claims to have around 90,000 loyal

production growers and ~60,000 acres (across 12 different agro-climatic centres) under

seed production. It also has ~57 out-reach trail centres and seven plants spread across

the country. It has 8 own plants spread across 10 key locations in India which has an

aggregate processing capacity of ~145 MT per hour. Kaveri has 26 warehouses at strategic

locations with combined storage space of ~500,000 sqft.

Historically, Kaveri has been primarily focused in southern and Central India, but over

the past few years it has expanded its geographical presence to include northern,

eastern and western markets too. KSCL plans to introduce new range of seeds for

these markets, which should allow it broaden its geographical reach. Kaveri tackles

that by setting up outreach centres where it talks with farmers to understand their

needs and also educate them about the company's new seed varieties, the best way

to use them as well as better farming practices. There are currently 57 such centres

across the country.

While the company has a dominant position in the south, the expanded distribution

has helped it make inroads into new markets such as Chhattisgarh, Jharkhand, West

Bengal and Odisha.

8 processing plants spread across key locations in India

Loyal grower network



~ 90,000 production growers



~ 60,000 acres under seed

production

Processing capabilities



8 own plants with a combined

processing capacity of ~ 145 tonnes

per hour



Modern equipment for pre-

cleaning, grading, cob drying,

storage, packing ƒÜLarge-scale

grow-out test (GOT) area

ƒÜSophisticated biotech, QC, seed

technology labs with the latest

equipment



Green houses for hybrid screening

Pan India warehouse network



26 warehouses with combined

storage space of ~500,000 sqft



Dehumidified, climate-controlled

godowns



Storage godowns of ~90,000 sqft

(cold) and ~37,000 sqft (dry heat)



Storage godowns can store ~ 8,300

Source: Company, MOSL

14 March 2014

Kaveri Seed

Vision to become a leader in cotton segment

Increased penetration in AP and entry in newer markets to drive growth



Kaveri has 40% market share in AP driven by 60% market share in Guntur and Krishna

respectively. However it has only 25% market share in Varingal and Karimnagar.and 13%

in Adilabad thereby providing significant opportunities to improve market share thereby

driving growth.

Kaveri has 7% market share in Maharashtra and Gujarat where players like Nuziveedu,

Ajeet and Mayco have more than 20% market share proving huge opportunity for growth.

Around 50% revenues comes from Jadoo , 10% from Jackpot and ATM and balance from

singha , barood etc.

Kaveri introduced ATM in 2008 to tap Gujarat and North India markets, Given initial

success of ATM the company expects to double its sales in FY15E for ATM .

Higher inventory in the system for cotton has helped Kaveri to bring down its cost of

production by INR 25 per kg and also lower discounts in FY15 will lead to margin expansion.

Market share within AP

Improved penetration in AP to drive growth

Kaveri has very strong positioning in AP with more than 40% market share, thanks to

success of Jadoo and Jackpot. Since launch of Jadoo in 2008 the company has gained

60% market share in Guntur and Krishna each by gaining market share from large

players like Nuziveedu. It has 25% market share in Variangal and karimnagar where

Mayco is a leader with 30-40% market share. However in Adilabad Kaveri has close to

13% market share while nuziveedu has close to 35% market share which the

management expects to increase to 25% in next 2 years. We believe that Kaveri will

further gain market share in Variangal, Karimnagar and Adilabad (15-20% of AP market)

from Mayco and Nuziveedu thereby driving growth.

Source: Company, MOSL

Maharashtra and Gujarat - Next on the radar

Kaveri has close to 7% market share in Maharashtra and Gujarat where players like

Nuziveedu, Ajeet, Ankur and Mayco has more than 20% market share. We believe

that Maharashtra which is the largest market with 15m packets and Gujarat which has

size of 4m packets out of industry size of 41m packets will be the biggest driver of

growth over the long term. It has recently launched 2-3 hybrids for North India market

(4m packets) where the leader is Bio seed which is owed by DCM group with around

30-35% market share. We expect this strategy to bear fruits 2-3 years from now. The

company has planned 6 new hybrid to be launched and marketed in FY15E.

Sales of ATM to double in FY15E

While 50% of revenues comes from Jadoo only 10% each comes from ATM and Jackpot

and balance from Singha, Barood and Bullet. While Jadoo and Jackpot perform

extremely well in AP they have not been great success in Gujarat and North India to

due unfavourable climatic conditions (Lower rainfall). The company plans to

aggressive increase market share in Gujarat through ATM which is likely to double

their sales in FY15E thereby increasing their contribution from 10% to 20% of kaveris

cotton revenues. Kaveri sells different brands in different market Eg:- Jadoo and ATM

in Maharashtra, ATM in Gujarat, Jackpot in MP depending on the traits and climatic

14 March 2014

Kaveri Seed

conditions suiting them. Jadoo has trait of tolerant sucking pest while ATM can grow

in high rainfall and low rainfall scenario while Jackpot has very high yield better than

Jadoo and ATM but has low pest resistance.

Decline in cost of production and discounts to improve margins

Net realization to expand

from INR750 to INR 800

per packet in FY15E

Kaveri had 5.5mn packets as inventory at end of FY14. However the inventory in the

industry stands at around 20mn packets at end of FY14. Kaveri plans to produce another

6mn packets for FY15E , while the industry production for next year has come off

significantly . This has helped Kaveri to negotiate with farmers and bring down its

cost of production by INR 25 per packet. Also the company had received INR 2.4bn as

advances which the company expects to be at INR 2bn in FY15, thereby leading to

lower cash discounts to be offered to distributors. The distributor margins per packet

in FY14 stood at INR 140 +50 additional discounts per packet and hence net realization

stood at INR750. The company expects to achieve net realization of INR 800 per packet

due to reduction in additional discounts in FY15E. Due to these reasons the

management expects margin expansion of atleast 100bps in cotton segment in FY15E.

RR Flex technology can drive growth further

The industry can multiply

by 5x due to higher yield

RR Flex offers as

compared to BT

Monsanto current technology of BT is likely to be replaced by RR Flex (BG 2 RR). RR

flex has gone through RCGM and is currently stuck at GEAC level. Post approval of

GEAC only the field trials can begin. However if this gets approved the realization of

per packet of cotton seed can increase by INR 150-200 per packet. Some industry

experts believe that the industry can multiply by 5x due to higher yield RR Flex offers

as compared to BT.

Cotton market share

Source: Company, MOSL

14 March 2014

Kaveri Seed

Corn - Lower penetration provides huge opportunity

Higher share from single cross to drive profitability



India is the 6th largest producer and 5th largest consumer of corn with major demand

coming form animal feed, starch and human consumption which continues to be robust.

Yield for 2 and 3 way crossing is lower than single cross. Around 50% of the industry today

is single cross.

Single cross seeds are sold at INR 300 per kg and 2 way and 3 way crossed are sold at 80-

110 per kg.

Margins in single cross are to the tune of 60% as compared to 30-40% for 2 way and 3 way

crossing seeds.

Corn Industry at an inflection point

India is the world's 6th

largest producer and 5th

largest consumer of

maize

Maize is one of the most widely grown crops globally. In Production items it ranks 1st

in the world, followed by wheat and rice. On the consumption side, the majority of its

use is as animal feed; followed by industrial use in producing starch and other

industrial products; and in some parts, food.

India is the world's 6th largest producer and 5th largest consumer of maize. The nation's

eight million maize farmers produced approximately 22 million tons of a maize crop

from 8.5 million hectares in 2012-13. Over the recent decade, as farmers increasingly

chose maize hybrid seeds, maize production in India has witnessed a quantum leap.

The country is witnessing a maize revolution, as farmers are choosing maize hybrid

seeds on 52 per cent of India's maize areas.

Maize demand is forecast

to grow by 36 per cent in

the next four years

touching 30 MT in 2017

Farmers choosing maize hybrid seeds have contributed to increasing maize production

by approximately 93 per cent in the last 11 years (22.50 million tons in 2012-13 from

11.15 million tons in 2002- 03). Yet, India's maize yields continue to be half of the

world average, with India's yield at 2.47 tons per hectare in comparison with the

world average yield of 5.14 tons per hectare. In next 5 and 10 years, India's domestic

demand for maize is forecasted to outstrip supply. The country's maize demand is

forecast to grow by 36 per cent in the next four years touching 30 MT in 2017, and

double within the next nine years to touch about 44 MT by 2022. If India can enable

her farmers to raise maize yields, its unique geographical advantage can enable it to

emerge as a leading global exporter to meet the needs of South East Asia.

What is single cross in corn hybrids?

Corn hybrids are developed using inbred lines as parents. Inbreds are pure lines

and are weak in productivity. Let us say there are 4 different inbreds A, B, C and D.

AXB

(A X B) X C

(A X B) X (C X D)

is a single cross

is a three way cross

is a double cross

As the inbreds are weak, single cross hybrid seed production yields have been low

and hence and economically not viable. The breeders then came up with the idea

of 3 way cross and double cross using (A X B) single cross hybrid as female (Seed

parent). Since the seed is produced on vigorous parent, the yield are good and

economically viable.But in the process they had to compromise on yield of final (3

way or double) hybrid because single cross hybrids are far superior than others.

14 March 2014

Kaveri Seed

Currently around 50-60%

of industry is single cross

From early 1990s the maize breeders have developed some inbreds with better

vigour and productivity. Now a days these inbreds are used to produce single cross

hybrids which are economically viable. Farmers prefer single cross hybrid seed

though it is 80-100% more expensive than others. The cost of seed in total agriculture

is small and hence there is no resistance. Currently around 50-60% of industry is

single cross.

In earlier years the cost for single cross corn seed was INR 30 per kg and 8kg of seeds

were required to cover 1 acre leading to total cost of INR 240 per acre. However this

cost has not escalated to INR 120 per kg taking total cost to 960 per acre for corn. Single

crossing is more expensive than 3 way or 2 way crossing as when the male pollen is

inserted in female the former plant becomes very weak and is wasted.

Single cross are more expensive than 2 way or 3 way crossing hybrid corn seed as

Single cross corn is high yielding as traits will not get diluted. Also single cross is very

sensitive and can give very high yield in guaranteed environment conditions. The

current selling price of single cross hybrid corn is around INR 200/kg as compared to

80-110/kg for 2 way and 3 way crossing hybrid corn seeds.

Corn market share

Kaveri has 33 hybrids

of which 50% are

single cross

Source: Company, MOSL

Increase share of rabi corn seeds (Single cross) to lead to margin expansion

Share of rabi crop has

increase from 15% in 2008

to 35% currently in

volume terms and 50% in

value terms

Kaveri has 33 hybrids of corn like Ekka, K 50, Super 224, 244, K55 to name a few.

Around 50% of them currently are single cross. And almost 6-7 brands in corn contribute

around 50% of Kaveris corn revenues. However the reason for having such a wide

range of hybrids is because of different corn seeds being used in kharif and Rabi

season. Rabi corn seeds are largely single crossed and are sold low in volumes and

high in value and are more profitable. While Kharif corn seeds are 2 way and 3 way

crossed seeds and are more in volume and lower in value, hence lesser profitable. In

2008 around 85% of the corn sales were in kharif season while now it contributes

around 65%. However currently Rabi contributes around 35% of volumes and 50% of

value and Kharif contributes 65% of volumes and 50% of value. We believe that with

increase in Rabi hybrid corn share the share of single cross is likely to increase thereby

leading to significant increase in margins for Kaveri in the corn segment.

14 March 2014

Kaveri Seed

All India trend in maize production

Maize

1990-91

2000-01

2011-12

2012-13

Production (MT)

Area (ha)

Kharif

Rabi

Total

5.9

8.9

6.6

9.8

1.7

11.6

8.3

15.1

4.8

19.9

8.5

17.0

5.5

22.5

Source: National Council of Applied Economic Research, Ministry of Agriculture, MOSL

Rice- Huge opportunity in the offering...

Rice in India is

~42mhectares, while area

under hybrid seeds is

only ~2m hectares, while

hybrid seed penetration

is ~5%

Rice is the most important staple food for a large part of the world's population. The

total crop area under Rice in India is ~42mhectares, while area under hybrid seeds is

only ~2m hectares, while hybrid seed penetration is ~5%. Till now none of the players

have been able to make a major break-through in the segment. While in China hybrid

rice is 65% of the market, most of the current hybrid seeds have drawbacks such as

cooked hybrid rice become soggy, has distinct smell, does not retain original taste

etc. Bayer Crop Science is currently the market leader in this segment with a market

share of >50%, while other players like pioneer have 15-20% , Nuziveedu have ~5-6%

and Kaveri have 9% market share. Most of the players are working hard to crack this

market given the potential of the market in this segment.

... to target government subsidy business

Kaveri has notified 2 new

hybrid namely KPH 371

and KPH 199 to enter

subsidy business

Kaveri currently has portfolio of 6 hybrid seeds and has recently got notification for

its 2 new hybrid namely KPH 371 and KPH 199. Notification is precursor to participation

in the subsidy business. While 80% of the market of rice is in Eastern India the company

plans to sell it to state government and participate in the subsidy business.

Rice market share

Source: Company, MOSL

Outlook for vegetables

Indian seed industry has till now had high dependence on cotton (~40% of the market),

with cotton penetration already at ~95% and SSR close to optimum, going forward,

growth in cotton segment is likely to be muted ~3-5%. Hence, industry growth would

be increasingly led by other crops, which currently have low hybrid seed penetration.

Consequently, companies are increasingly diversifying their portfolio from cash crops

like cotton to cereals and even vegetables.At end of FY13, Kaveri had over 100 hybrids,

including 10 varieties of cotton hybrids, 25 of corn and 13 of rice.

14 March 2014

Kaveri Seed

Hybrid vegetable seed is one of the fastest growing industries in India. India is the

second largest producer of vegetables in the world, next only to China, with an

estimated production of about 130mt from an area of 8m hectares. India produces

approximately 15% of the world's vegetables from approximately 2.8% of the total

land. The market for hybrid vegetable seeds is rapidly growing in the country. Today

the hybrid vegetable seed industry in India is estimated to be INR15-20b. Tomato

occupies nearly 20% of this, followed closely by okra and cabbage.

Largest vegetable crops in India

Crop

Potato

Onion

Tomato

Eggplant

Tapioca

Cabbage

Cauliflower

Okra

Peas

Sweat Potato

Others

Total

Area

Production

1,828

34,391

834

13,565

599

11,149

600

10,378

280

9,623

310

6,870

349

6,532

432

4,528

348

2,916

124

1,120

2,275

28,006

7,979

129,078

Source: Ministry of Agriculture

Hybrid seed penetration in India

Source: National Seed Association of India

New initiative - KIPL

KSCL's also has a microteck division through which it markets micro-nutrients and

organic bio-pesticides and fungicides that help boost crop yields. In FY12, KSCL formed

a 100% subsidiary christened Kexveg India Private Limited (KIPL) for producing high

value exotic Indian vegetables and European herbs for domestic and export markets.

KIPL has entered into commercial cultivation of these products in specially designed

and built green houses.

During FY13 it started cultivating a five hectare area as a pilot project near Hyderabad.

It is now taking steps to expand the farm by another five hectares to cultivate crops

like green and coloured capsicum, hybrid tomato, cherry tomato, parthenocarpic

cucumber, leafy and iceberg lettuce, basil and other culinary herbs like chives, sage,

tarragon, Rosemary, oregano, cilantro, and parsley to cater to European tastes. Apart

from this, the company is growing a full range of Indian vegetables in its farms under

drip irrigation. Vegetables segment is an INR15-20b market, increasing economic

development and prospects of entry of large MNC retail chains, the demand for such

products is likely to increase sharply.

14 March 2014

Kaveri Seed

Macro opportunity is huge



Macro opportunity for Indian seed industry is huge given factors such as 1) rising population

and shrinking per capita land availability, 2) Indian crop yields being among the lowest in

the world and 3) low penetration of hybrids across key crops.

Indian seed industry is the fifth largest in the world and posted a 14% CAGR (5-year),

which is more than double the international growth rate.

Passage of Food Security Act could be a trigger for seed industry as it would lead to higher

discretionary income in the hands of farmers.

While hybrid seed penetration remains low at ~25%, industry has had significant success

in few select crops like cotton (~95% penetration) etc. It is now aiming to mimic the

success across other key crops like rice (5% penetration), which have low penetration.

Indian seed industry is one of the fastest growing worldwide

Organized Indian seed industry is ~25 years old and has witnessed unprecedented

growth in the last seven years. Most of large seed companies have been promoted by

first generation entrepreneurs. Majority of these promoters have a technical

educational background in agriculture or are technocrats /agriculture scientists. Seed

industry is primarily concentrated in Andhra Pradesh, as its climate is most suitable

for this industry. Intensifying competition, increasing R&D costs and the complexity

of biotechnology is leading to increased consolidation of the Indian seed industry.

Industry structure and economic dynamics are attractive given a) industry has high

entry barriers, b) endogenous demand which enables companies to successfully adopt

differentiation and segmentation strategies, c) low capex intensity, working capital

requirements moderate for established brands - enabling high FCF and ROCE.

The Indian seed industry is the fifth largest market in the world accounting for around

4.4% of global seed trade. The present size of the Indian seed industry is estimated at

around Rs7,000crore with a production of around 40 million quintals of variouskinds of

seeds (Source: ASSOCHAM report). In India, hybridseeds account for around 20% of

the total seed production; of which cotton has the biggest share followed by rice at

15%, wheat at 10% and vegetables at 10%. The production of hybrids needs to be

promoted aggressively to improve productivity especially in crops like rice, maize

and vegetables. A recent survey by Aasocham on the size and growth of domestic

seed market estimates that the total seed production of India will reach to 63 million

quintals by 2015 from the current level of 40 million quintals. The major contributors

to the next leg of growth of the industry is expected to come from corn, paddy and

vegetables.

14 March 2014

Kaveri Seed

India - 5th largest seed market in the world (FY12, USD b)

Indian seed industry has been growing at a fast pace (USD b)

Source: Company, MOSL

Structure of domestic seed industry

Indian seed industry comprises of ~14 state seed corporations (SSCs) and two national

level public sector corporations - National Seed Corporation and State Farm

Corporation of India. Public sector companies are confined to certified seeds of high

volume and low value products such as pulses, rice and wheat.

The private sector is primarily focused on high value hybrid and GM seeds such as

cotton, cereals and vegetables. It consists of ~20 large players (including four MNCs)

which have annual seed revenues of >USD20m and pan-India marketing/distribution

footprints. Private sector also includes an estimated ~300-500 regional players engaged

(more often than not) in distribution of seeds in the local region.

Structure of the industry

~ 20 National

Players

Source: Company, MOSL

Growth drivers of Indian seed industry

With a population of 1.21 billion, India is the second-most populated country in the

world. It is estimated that the population of the country will grow to 1.7 billion by

2050, increasing the demand for food grains. The per capita income of Indians (at

current price) has increased at a CAGR of 15.92% from Rs38,084 in 2008-09 to Rs68, 757 in

2012-13. With the increase in income levels, the consumption of food grains and

vegetables has also increased manifold. The government has allowed 100% FDI in

agriculture sector in development and production of seeds and planting material,

14 March 2014

Kaveri Seed

floriculture, horticulture, and cultivation of vegetables and mushrooms. This will

attract foreign investment in the Indian agriculture sector, leading to higher

investment in R&D and production of high quality, high yielding varieties and hybrids.

The shift to hybrids has helped to boost the yield of food grains from 1,023 kg/hectare

in 1980-81 to 1,993 kg/hectare in 2011-12. Over the years, there has been a steep

growth in the adoption of hybrids due to their higher yields. Further, the government

has been playing a proactive role to promote the cultivation of hybrids by providing a

subsidy.

Given low penetration of hybrid seed, macro opportunity is huge

Macro opportunity for seed industry is huge given factors such as 1) rising population

and shrinking per capita land availability, 2) Indian crop yields being among the lowest

in the world and 3) low usage and penetration of hybrids across key crops. As the

arable land area worldwide is stagnant and world population is rising fast leading to

increasingly lower hectare/person, increasing crop yields is the most credible way to

address the emerging global food conundrum.

Use of hybrid seeds essential to increase yields

Indian crop yields among the lowest in world

Source: Bloomberg, MOSL

Almost ~70-75% of crop area is still under varietal seeds (re-used old seeds), with

negligible hybrid penetration. Moreover, penetration of hybrid seeds among crops is

very low.

Almost ~60% of crop area untouched by hybrids, hybrid penetration is low

Source: Company, MOSL

14 March 2014

Kaveri Seed

The domestic seeds industry has changed significantly over the last decade, with

farmers increasing the amount of purchased seed, instead of using seed saved from

the previous harvest. Since 2003, the industry has been further shaped by the

introduction of genetically modified (GM) seeds in cotton. In India, with the exception

of cotton, government has not allowed GM seeds for any other crop. Worldwide, for

most key crops like soya, cotton, corn and canola (mustard oil), GM penetration is

very high. There are broadly three kinds of seeds: 1) varietal seeds (old replanted

seeds), 2) hybrid seeds and 3) genetically modified seeds.

Indian hybrid seed industry was valued at ~INR100b in FY13. Cotton accounted for

~40% of the market followed by corn (14%) and vegetables (20%). We expect the

domestic seed industry to post a CAGR of ~12-15% over FY12-15E aided by increased

hybrid penetration across key crops through shift from varietal to hybrid seeds and

increase in usage of seeds per acre.

Crop-wise hybrid industry value break-up FY13 (INR b)

Source: Assocham India

Crop-wise competition details

(In Million)

Cotton

Rice

Bajra

Corn

Vegetables

Other crops

Total Seeds

40,000

6,000

16,000

20,000

12,000

100,000

Hectare

under cultivation

40.0

12.1

6.0

16.0

20.0

12.0

100.0

Source: Company, MOSL

44.0

11.5

8.5

65.0

Hybrid Seed

Penetration (%)

95%

50%

55%

20%

Key Players

Nuziveedu (~22%); MM (11%); Kaveri (~17%),

Ajeeth (10%),Ankur (10%)

Bayer Crop Science (~40%); Kaveri (6%);

Pioneer (15-20%); Rallis; Nuziveedu

Kaveri (13%) , Nuziveedu ,JK Agri

Monsanto (18%); Du Pont (18%);

Syngenta (12.5%);Kaveri (14%); Nuziveedu (12%)

Nunhems (subsidiary of Bayer Crop Science),

Kaveri, Nuziveedu

14 March 2014

Kaveri Seed

Indian seed industry - High growth phase ahead

In India, a limited generation system, which is characterized by three generations -

breeder, foundation and certified seeds, is used for seed multiplication. The details

of the production/distribution of each generation since 2006 are provided below:

Production/availability of seed (MT)

Year

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

Breeder seed

6,865

7,382

9,196

9,441

10,604

11,921

12,727

10,282

Foundation seed

Certified quality seed

74,000

1,405,000

79,654

1,481,800

85,254

1,943,100

96,274

2,503,500

180,817

2,797,200

180,640

3,213,592

222,681

3,536,200

161,700

3,285,800

Source: Ministry of Agriculture, MOSL

The production data shown in the table above indicates that the Indian seed market

has entered a period of high growth. Historically, the Indian seed market had been

dominated by public sector players. Private companies began playing an active role in

the industry after the introduction of the Seed Policy in 1988.

Increase in Seed Replacement Rate (SRR) to drive growth

Seed Replacement Rate is the percentage of area sown out of total area of crop planted

in the season by using certified/quality seeds other than the farm saved seed. It is

scientifically proved that the quality of seed deteriorates from one generation to the

next generation in case of farm saved seed.

Ideally seed should be replaced every year for hybrids and every three to four years

for non-hybrids. However, in practice seed is replaced less often especially in case of

open pollinated crops. As a consequence, seed replacement rates are lower than

recommended for different crop varieties. It also varies from state to state. In case of

Andhra Pradesh, the SRR for paddy is ~82% against all India average of ~25%. The ideal

rate for SRR needs to be 30% for self-pollinated crops, 50% for cross-pollinated crops

and 100% for hybrid crops.

SRR crop files for various state and national average

SRR

Paddy

wheat

Maize

jowar

Bajra

Sunflower

National average %

Highest SRR state

Maharashtra

Karnataka

100

Gujarat

100

Source: Ministry of Agriculture, MOSL

While SRR amongst hybrids in crops like Cotton, Sunflower and Bajra is 100%, the SRR

in OPVs is suboptimal. With the entry of private players in this area with significant

R&D investments post PPV and FR act enactment the market for these crops is likely

to grow significantly going forward. Maize is another crop where SRR is low in certain

areas like Rajastan, the largest state with maize production. Hence with right kind of

hybrids these markets can grow exponentially.

14 March 2014

Kaveri Seed

SRR in Paddy and Maize improving (%)

Source: Company, MOSL

Massive entry barriers makes business model exciting

1) Germplasm is one of the biggest entry barriers for a Seed business. Germplasm is

scarce and in order to be successful in developing in new products an extensive

germplasm bank is critical for long term success of a seed company.

2) Each seed possess certain traits and hence is tailor made depending on geography,

type of land, different weather conditions etc. Hence, learning curve progress by

first movers serves as great competitive advantage, which creates entry barriers

of new entrants.

3) The process - to get a seed with desirable traits (like higher output, lower water

intake, pest resistant), breeding is to be done between two parent seeds wherein

desirable traits are extracted and injected in the new seed. This sounds simple

but the problem is while extracting good traits, undesirables also come along

with it. This is only known once the seed is sowed and the output is realized but

the full year is wasted as the next sowing can only happen a year after. Hence,

after 5-6 such years, a seed with desirable trait is developed.

4) Initially when a new seed is launched farmers buy them and experiment them on

a smaller part of their land. Hence for initial years it's a push product. Its takes at

least 2 yrs for farmers to get confidence in the product while three years to reach

the desired scale. Hence it takes total of 8-9 years for a seed to actually start

generating meaningful revenues and profits for the Company.

5) Unlike Pesticides and Fertilizers where increasing the capacity can directly lead

to higher output, Seeds are to be sowed in land to multiply. This acts as another

entry barrier because even after coming out with a blockbuster seed, you need to

be able to produce it. Hence access to large number of contractual farmers and

land bank is a major entry barrier.

Favorable government schemes



Farm credit:

The government has substantially improved the availability of farm

credit and increased Minimum Support Price (MSP) to improve investment in the

farm sector. The annual agriculture credit target for the financial year 2013-14 has

been fixed at Rs7,00,000 crore against the target of Rs5,75,000 crore in 2012-13 (source:

IBEF)

14 March 2014

Kaveri Seed



Planned expenditure:

The total planned expenditure for the Department of

Agriculture has increased by 18.01% from Rs17,123 crore in 2011-12 to Rs20,208 crore

in 2012-13.

Rashtriya Krishi Vikas Yojana (RKVY):

Under RKVY, an outlay of Rs9,954 crore and

Rs2,250 crore have been proposed for mobilizing higher investment in agriculture

and the National Food Security Mission respectively.

Krishi Vigyan Kendra (KVK):

The Indian Council of Agricultural Research (ICAR) has

created a network of 630 KVKs in the country to facilitate farmers’ access to

agricultural technology generated by the National Agricultural Research System

(NARS).

Pulses villages:

The government has launched an initiative to spend USD65.1

million to promote 60,000 ‘pulses villages’ in rain-fed areas for increasing crop

productivity and strengthening market linkages.

Water shed programme:

To provide relief to small and marginal farmers especially

in drought prone and ecologicallystressed regions, the allocation for the Integrated

Watershed Programme has been increased to INR5,387 crore from INR3,050 crore.

Passage of Food Security Act could be a key trigger for seed industry



The Bill shall extend upto 75% of the rural population and 50% of the urban

population, thus covering nearly 67% of the total population.

Priority households will be entitled to 5 kg of foodgrains per person per month at

prices not exceeding INR3, INR2 and INR1 per kg for rice, wheat and coarse grains

respectively.

However, households covered under the Antoyadya Anna Yojana (AAY) (poorest

of poor households) shall be entitled to 35 kgs of foodgrains per household per

month at the prices stated above.

The subsidized prices of foodgrains will be fixed for a period of three years and

will be subject to revision thereafter but in no case shall exceed the minimum

support price of foodgrains.

Every pregnant women and lactating mother shall be entitled to:



Free meals during pregnancy and upto six months after the child birth



Maternity benefit not less than INR6,000 to be given in instalments (except

Central and State Government employees)

This would necessitate sharp increase in per capita production at lower cost, which

can only be possible through use of latest technology and innovations, providing

a big boost to seed companies.

14 March 2014

Kaveri Seed

KSCL's business cycle and trade dynamics

1: Developing a seed and getting it ready for test

marketing



Seed processing chain



It takes ~7-8 years to develop a seed in India. The

process is highly time consuming and labor

intensive, though not very capex intensive.

Advances in seed technology, like marker assisted

breeding, allow companies to lower this cycle by

couple of years. Domestic industry is likely to

witness increased usage of the same.

It involves breeding seeds with desirable traits and

testing the results. For which seeds are sown at the

start of the season and harvested at the end of

season.

Since any modifications can only be undertaken in

the next season, the process takes several years.

Once a successful hybrid seed is selected - it has to

be again subjected to multi-locational trials, larger

companies do it simultaneously.

Next step involves seed production for selected

hybrids in mini-kits for test marketing.

Stages of product development

2: Marketing of seeds and supply chain



Initially for a new product companies have to resort

to push marketing and convince farmers for trying

their product.



At this stage companies have to undertake major

promotional expense and offer high distributor

margins.



Once a product is proven (2-3 seasons of consistent

performance), it becomes a pull product, for which



The marketing channel adopted by most seed

companies is:

Seed Distributor - Dealer - Retailer -

Farmer.



Companies need to have a wide geographical reach

in order to grow and expand product range.

3: Trade dynamics



Marketing of registered seed is a real challenge

given inventory management has to be done 1-2

year in advance.



Companies typically resort to contract

manufacturing of seeds by leasing land from

farmers and offering them fixed returns.

Companies touch point in the chain is typically the

seed distributors, who typically pay 20-50%

(depending on the strength of the brand/ company)

advance to seed companies 3-6 months before the

start of season.



Hence most of the large seed companies enjoy low

to negative working capital cycle.



4. Product lifecycle of seeds



While it takes ~7-12 years to develop a successful

and proven seed, which has significant pull

advantage, typically the window for cashing the

same is often limited to 3-6 years and has faces key

challenges.



Risks include cheap imitation by competitors/

emergence of more superior products with better

product attributes.



Another key risk is ability to scale up to meet

increased demand as production of seeds is

constrained by availability of contract land and

geographical reach.

14 March 2014

Kaveri Seed

M&A activity to be a key driver for the sector

Top 10 seed companies control ~67% of the world market



Globally, top 10 seed companies control ~67% of the world market. While some are well-

entrenched in India, large MNCs are yet to establish their presence.

Intensifying competition, increasing R&D costs and complex biotechnology are leading to

increased consolidation of the Indian seed industry, which should positively benefit some

of the leading players in India.

Over the past few years, industry witnessed hectic M&A activity as key players attempted

to get a head start and fill up their product lines, and acquisitions were at rich valuations

of ~10-16x EBITDA.

We expect hectic M&A activity and strategic partnerships to lead to increased

consolidation in the sector and be a key industry theme over the next 2-4 years.

Globally, seed industry is highly consolidated

Top 10 seed companies control ~67% of the global market. Many of the leading global

MNC players like Monsanto, DuPont, Syngenta, Bayer Crop Science etc are well-

entrenched in the country .Due to varied agro-climatic conditions and natural

resources, India is turning into an R&D hub. Several domestic companies have emerged

as key winners in the hybrid seed segment by leveraging their strengths in labor

intensive hybrid breeding, ability to adapt to local conditions and distribution

strengths. Intensifying competition, increasing R&D costs and complex biotechnology

are leading to increased consolidation of the Indian seed industry, which would benefit

some of the leading players in India.

Since 1985, global industry has turned highly consolidated

Company

Pioneer

Sandoz

DeKalb

Upjohn-Asgrow

Limagrain

Shell Nickerson

Takii

Ciba Geigy

Vander Have

Sub Total

Global seed market

1985

735

290

201

200

180

175

152

150

2,258

18,000

Glabal Seed share (%)

4.1

1.6

1.1

1.0

0.8

12.5

100.0

Company

Pioneer

Novartis

Limagrain

Advanta

Seminis

Takii

Sakata

KWS

DeKalb

Sub Total

Global seed market

1996

1,500

900

650

460

375

320

300

255

250

5,010

30,000

Glabal Seed share (%)

5.0

3.0

2.2

1.5

1.3

1.1

1.0

0.9

0.8

16.7

100.0

14 March 2014

Kaveri Seed

Recent M&A deals

Recently, industry witnessed hectic M&A activities like Groupe Limagrain's acquisition

of Century Seeds Pvt Ltd (vegetable seeds) and Bisco Bio Sciences (corn seeds) at EV/

EBITDA of 12-20x.

Key domestic M&A and strategic investments over the past few years

Date

Nov-12

Acquirer

Groupe Limagrain's

Rallis India

Groupe Limagrain

Krishidhan Seeds

Advanta India

Target

Century Seeds Pvt Ltd (CSPL)

Bisco Bio Sciences

Metahelix Life Sciences

Avesthagen

Summit Partners

Crosbyton Seed

Deal

(USD mn)

~27

Note

All cash deal ~USD25-27m, CSPL was a focused

vegetable seed company

Acquired a 53.5% stake in the India-based

agriculture biotechnology company

Acquired a 51% stake in the India-based seed

company

Acquired 16.7% stake in India-based seeds

company

Acquired the US-based seed company to

enhance market position in hybrid sorghum

planting seed products

Acquired the cotton seed business of India-

based Nandi & Nagarjuna Seeds

Acquired a stake (undisclosed) in both

the India-based seed companies

Acquired ~80% stake in the company

Acquired the sunflower breeding business in

the US

Acquired the US-based company to

strengthen presence in the sorghum grain

market in the US and Mexico

Acquired the India-based vegetable seed

company

Acquired the rice, sunflower, sorghum and

pearl millet business in India, Pakistan and

Philippines

Parent company acquired an 11% stake in the

Indian subsidiary to delist it from the bourses

Acquired a controlling stake in the Australia-

based wheat seed company

Acquired the India-based vegetable seed

company

Acquired the India-based vegetable seed

company

Acquired the India-based vegetable seed

company

Acquired the India-based integrated field

crop seed company

Source: Merger Market, Venture Intelligence

Dec-10

Oct-10

Apr-10

Feb-10

Jun-09

Jan-09

Dec-08

Jun-08

Mar-08

Pioneer Hi-Bred

(Dupont)

Nuziveedu

Nuziveedu Seeds

Advanta India

Nandi Seeds &

Nagarjuna Seeds

Yaaganti Seeds &

Pravadhan Seeds

Blackstone

Limagrain

(US sunflower seeds)

Garrison & Townsend

Jan-08

Dec-07

Advanta India

Devgen

Unicorn Seeds

Monsanto

Dec-07

Nov-07

Jun-07

Apr-07

Mar-07

Syngenta AG

Advanta India

Avesthagen &

Groupe Limagrain

Avesthagen &

Groupe Limagrain

Syngenta India

Long Reach Plant Breeders

Golden Seeds

Green Seeds

Cee Kay Seeds

Swagath Seeds

Mar-07

14 March 2014

Kaveri Seed

Initiate coverage with a 'Buy'

Market share gains to drive growth



We estimate KSCL to register revenue CAGR of ~29% over FY14-16E, primarily led by ~27%

CAGR in cotton seeds and ~40% CAGR in maize seeds. We expect Kaveri growth in cotton

seeds to be driven by increase in market share in AP and entry into newer untapped

markets.

EBITDA margins are likely to increase 150bp from 22.0% in FY14 to 23.5% in FY16E. EBITDA

margins for cotton stand at 17-18% as compared to non cotton at 23-25%. Higher inventory

in the system for cotton in FY14 has helped Kaveri to bring down its cost of production by

INR 25 per kg , also lower discounts in FY15 and increased contribution from single cross

hybrid corn will lead to margin expansion.

Sales Returns do take place in seed business due to reasons like excess inventory or unhappy

distributor / farmer. Kaveri as part of prudence accounting practice registers sales net of

returns to the extent of 20% in Q1.

Given the strong growth in cotton seeds segment driven by market share gain

complimented by stable margins we expect the company to grow its profitability at 39%

CAGR over FY14-16E.

With major capex behind and balance having a cash of INR 1.5bn at end of FY13 the company

plans to increase its dividend payout to 25% over next few years which should lead to re

rating of the stock.

Expect revenue CAGR of ~29% over FY14-16E

We estimate KSCL to register revenue CAGR of ~29% over FY14-16E, primarily led by

~27% CAGR in cotton seeds and ~40% CAGR in maize seeds. We expect non-cotton

revenues to post a CAGR of 34%, while micronutrients to register a CAGR of 20%.

Cotton, as a percentage of overall revenues, is likely to remain stable at ~65%.

Cotton segment revenue trend

CAGR

27%

Non cotton segment revenue trend

CAGR

34%

CAGR

40%

CAGR

97%

Source: Company, MOSL

EBITDA to post a CAGR of 33% over FY14-16E

We assume KSCL's EBITDA to increase from INR2.3b in FY14 to INR4.1b in FY16E, a

CAGR of 33%. EBITDA margins are likely to increase 150bp from 22.0% in FY14 to 23.5%

in FY16E. EBITDA margins for cotton stand at 17-18% as compared to non cotton at 25-

30% primarily due to improved margins in cotton driven by reduction in cost of

production, lower discounts and higher growth in high margin corn and rice segments.

14 March 2014

Kaveri Seed

EBITDA movement over FY11-16E

Source: Company, MOSL

Expect net profit growth of 33% over FY14-16E

KSCL treats its income as agriculture income and hence has a tax rate of ~5-6%. Most

of the seed companies refer to Supreme Court's ruling in case of Monsanto as the

basis for their treatment. Given the strong growth in cooton seeds segment driven by

market share gain complimented by stable margins we expect the company to grow

its profitability at 33% CAGR over FY14-16E.

PAT growth trend over FY11-16E

CAGR

33%

CAGR

73%

Source: Company, MOSL

Sales' Return- a normal phenomenon

Sales Returns do take place in seed business due to reasons like excess inventory or

unhappy distributor / farmer. Sales returns to the extent of 10% is considered normal

in the industry and anything above that is alarming. Kaveri as part of prudence

accounting practice registers sales net of returns to the extent of 20% in Q1 . If sales

returns are less than the estimated amount, the difference shows up in revenue and

is recorded in the subsequent quarter.

Strong brand pull ensures robust working capital cycle

Seeds is an asset light business model but is working capital intensive business. The

inventory of the seeds needs to be planned atleast 2 years in advance by forecasting

the demand which depends of success of a product. Kaveri collects money in advance

from its distributors given the strong demand for its products Jadoo and Jackpot.

Kaveri gets 30% of its revenues as advance from farmers in January of every year and

14 March 2014

Kaveri Seed

the balance in the first quarter when the product is delivered. The company provides

trade/volume discount in case of advance payment. The inventory might appear

higher at the year end due to pile up before the start of the season and comes down

significantly post Q1 and hence the right way is to measure on September end basis.

In case of excess inventory kaveri stores the seeds in its own cold storage which can

be used next year and also has flexibility to cut down its production for next year in

advance.

Dividend Payout - on a rise to lead to P/E expansion

Dividend payout

expected to increase

from 20% to 25%

Due to significant growth and capex / working capital requirements, Company has

been paying around 10% of its profits as dividend. However with major capex behind

and balance having a cash of INR 1.5bn at end of FY13 the company plans to increase

its dividend payout to 25% over next few years which should lead to re rating of the

stock.

Dividend payout on an increasing trend

Source: Company, MOSL

14 March 2014

Kaveri Seed

Valuation and View: Initiate coverage with 'Buy'

We value the company at

13x FY16E EPS to arrive at

target price of INR 730 on

the stock

Company is one of the leading seed players in India with a wide and diversified

product range. Given its R&D and distribution strengths, it is well-placed to benefit

from the large macro opportunities in the sector. Industry structure and economic

dynamics are attractive -- entry barriers are high, demand endogenous, capex intensity

low, working capital requirements low, leading to high FCF and RoCE. Given that the

seed industry only has ~25% penetration and ~30% participation by private players,

the macro growth outlook looks attractive. Industry growth prospects would lead to

continued M&A interest by leading MNCs and large domestic players, which could

further boost valuations of select seed companies.

We expect the company to increase its dividend payout ratio from current levels of

~20% in FY13 to 25% in FY16E. Given its R&D and distribution strengths, company is

well-placed to benefit from the large macro opportunities in the sector. Over FY14-

16E, KSCL is likely to post a revenue growth of ~29.4% and net profit growth of ~32.8%.

It trades at a PE of 12.6x/9.5x FY15E/FY16E EPS. Initiate coverage with a 'Buy' valuing

the stock at 13x FY16E earnings, arriving at a target price of INR730.

Revenue estimates over FY14-16E

YE March (INR m)

Seeds

Cotton

Growth %

Maize

Growth %

Bajra

Growth %

Rice

Growth %

Others

Growth %

Total seeds revenue

Growth %

Micro nutrients

Growth %

Kex Veg division

Growth %

Total revenues

Growth %

FY11

854

620

230

330

2130

207

2,337

FY12

1,551

920

300

139

580

3,490

235

3,724

FY13

4,200

171

1,250

330

240

840

6,860

248

7,120

FY14E

6,572

1,720

410

562

134

790

-6

10,054

335

10,405

FY15E

FY16E

8,547

10,676

2,382

3,361

451

496

893

1,401

880

984

13,153

16,918

402

483

13,575

17,424

Source: Company, MOSL

14 March 2014

Kaveri Seed

Company Background

KSCL was promoted by Mr.Gundavaram Venkata Bhaskar Rao, a graduate in agricultural

science. He started the business of seed production of public bred varieties of corn,

bajra and sunflower on his own land in the village of Gatla Narsingapur, Karimgar

District, AP. KSCL went public in FY07. It has nearly four decades of experience in

quality seed production and farmer-centric relationships. It also has ~600 acres of

company-owned farm land dedicated for R&D. Over the past 25 years, company has

emerged as an integrated player offering a portfolio of farm solutions that focus on

premium hybrid seeds with genetically superior traits for high yield, pest resistance

and drought tolerance, micro-nutrients such as soil enhancers and organic fungicides/

pesticides and high value vegetables/herbs for the domestic and export markets.

The company has a state-of-the-art lab testing facility where seeds undergo moisture,

germination and hybrid tests. Of the 600 acres on which the company develops new

hybrids, a little over 200 acres are at Pamulpurthi. This facility also houses the

company's largest processing centre, built across 350,000 sq ft for pre-cleaning,

grading, cob drying (maintaining moisture content to increase the shelf life of seeds),

storage and packaging. It has six other processing centres across the country, which

together have a capacity of 62 metric tonnes per hour and a cold storage capacity of

8,330 metric tonnes.

Historical events

Year

1976

1986

1991

1997

2000

2001

2004

2007

2008

2009

2011

Key Milestones

Seed production unit started by Mr. GVB Rao

Kaveri Seed incorporated

Initiated R&D Program

Launched 1st hybrid corn

Seed Conditioning Plant launched at Kandlakoi (AP)

DSIR recognition for R&D

Seed conditioning plants at Gundla Pochampally (KAR) and Eluru (AP) commissioned

Initial Public Offer of equity shares and listed on stock exchange

Launched premium cotton hybrid - Jadoo

Seed conditioning plant at Pamulaparthi, AP

Kexveg, new initiative for premium vegetables, launched

Source: Company, MOSL

14 March 2014

Kaveri Seed

Key concerns

Tail risk high

Seed business has high tail risks 1) demand erratic due to factors such as monsoon,

technology advances, crop rotation, pricing outlook for competing crops etc; 2) low

predictability of success for new products in pipeline and 5) product life cycle short -

growth non-linear.

Agriculture income status

Most of the seed companies currently do not pay any corporate taxes as they show

their earnings as agriculture income. Most refer to the Supreme Court ruling in the

case of Monsanto, which allowed the company to treat their earnings as agriculture

income. Nonetheless, with increasing profitability of the industry, continuation of

this benefit could be at risk.

Ability to scale up in new crops

Currently, cotton seeds (non-food) accounts for bulk of the sales, for most of the

leading seed companies in India. The demand for cotton has been continuously

growing over FY03-FY12, allowing companies focusing in this segment to enjoy a steady

growth. Going forward, with companies increasingly focusing on other crops

(particularly food crops), which have more challenges, demand/ production volatile

and largely dominated by MNC players.

High reliance on cotton

Almost ~50% of the domestic seed industry and ~65% of KSCL's revenue is derived

from cotton, which has already reached 95% penetration and has become a mature

segment. Consequently, growth in this segment is likely to be limited to 3-5%.

Moreover, companies have little control on profitability, as on one side Government

freezes the selling price, while on the other side Mahyo Monsanto has significant

power on the cost side with regard to the royalty charges (~12-18% of sales) for its BT

genes.

Agriculture income status

Most of the seed companies including KSCL currently do not pay any corporate taxes

as they show their earnings as agriculture income. Most refer to the Supreme Court

ruling in the case of Monsanto, which allowed the company to treat their earnings as

agriculture income. Nonetheless, with increasing profitability of the industry,

continuation of this benefit could be at risk.

14 March 2014

Kaveri Seed

Annexures

Seed Types

There are two types of seed that are available to farmers - varieties [e.g., open

pollinated (OP) and self pollinated (SP) varieties] and hybrids developed through

controlled pollination of selected parents.

Compared to hybrids, the yields from varieties are lower but the farmer can save and

re-use the seed from year to year for several generations. The downside of using

famers' saved seed of OP and SP varieties is that there is some degeneration of

uniformity, yield potential and quality from one generation to the next when such

seeds are reused. Hybrid seeds compared to OP seeds usually do not perform well

when used by the farmer from saved seed in the next generation and must be

repurchased every year. The loss in yield can be very significant.

OP and SP Seed Production

Seed programs generally adhere to the four-generation system of seed multiplication,

namely, breeder, foundation, registered and certified seed.

1) Nucleus seed is the seed produced by the breeder to develop the particular variety

and is directlyused for multiplication as breeder seed.

2) Breeder seed is the seed material, directly controlled by the originating or the

sponsoring breeder or institution for the initial and recurring production of

foundation seed.

3) Foundation seed shall be the progeny of breeder seed, or be produced from

foundation seed which can be clearly traced to breeder seed. The production

shall be supervised and approved by a seed certification agency and handled in a

manner so as to maintain its specific genetic purity and identity and shall be

further required to meet the relevant labelling standards for the crop.

4) Registered seed shall be the progeny of foundation seed that is handled so as to

maintain its genetic identity and purity according to the standards prescribed for

the particular crop.

5) Certified/TL seed shall be the progeny of registered or foundation seed that is

handled so as to maintain genetic identity and purity according to the standards

specified for the particular crop. At the discretion of the certification agency (when

considered necessary to maintain adequate seed supplies) Certified/TL seed is

the one which is sold to the farmer.

14 March 2014

Kaveri Seed

Hybrid Seed Production

The development of seed crops takes place in several steps.



The process begins with trait selection - choosing plants that have desirable

characteristics, such as high yield, nutritional content, flavor, size or tolerance to

certain diseases and pests.



Trait selection requires an extensive pool of germplasm and significant research

and development capabilities. Seed companies produce both hybrid and OP seeds.

OP seeds are pollinated by natural means and produce progeny with no significant

variation from their component lines.



In many crops, this type of nucleus seed is the seed produced by the breeder to

develop the particular variety and is directly used for multiplication as breeder

seed.



Breeder seed is the seed material directly controlled by the originating or the

sponsoring breeder or institution for the initial and recurring production of seeds

to maintain traits indigenous to a specific parent line. In contrast, hybrid seeds

are the first generation progeny of two different parent lines.



Hybrid seeds are produced by crossbreeding two genetically dissimilar parent

plant lines. The hybrid seed production depends on the crop variety. Hybrid seed

is produced after crossing a male and a female.

Hybrid seed production

Source: Kaveri seeds RHP

The progeny of hybrid seeds (i.e., the F1 shown in the illustration above) that

results from the crossing is sold to the farmer.



The F1 hybrid seed possesses the hereditary characteristics determined by the

selected traits of the parent lines and also would normally contain enhanced

performance characteristics superior to the parent lines.



Crops produced from these seeds exhibit a higher degree of uniformity and

produce higher yields.



However, second generation seed produced by a hybrid will not inherit the

enhanced performance characteristics of its hybrid parent.



Thus, crops produced from seeds saved from hybrid crops do not display the same

performance. As a result, hybrid crop farmers must purchase new hybrid seeds

everytime in order to benefit from hybrids. The demand for hybrid seeds has been

increasing in recent years.

14 March 2014

Kaveri Seed

Premium charged by seeds companies

Seed companies can typically demand a premium for their proprietary hybrid seeds.

This is because these seeds are generally the only alternative for farmers looking for

certain traits, such as increased yields, tolerance etc. Farmers worldwide have

recognized the value of hybrids (including high yields and disease tolerance) and are

beginning to switch over to hybrids from OP seeds. The benefits of hybrid seeds are

such that there is economic advantage to growers who purchase hybrid seed each

year. Sales of hybrids are less susceptible to erosion due to farm-saving of seed.

Successful hybrids have been evolved and commercialized in many crops.

Stages of product development

Stage 0

Stage 1

Stage 2

Stage 3

Design stage

Assembly stage

Initial crosses

Further short

listing of hybrids

Advanced selection

Multi location trails

R&D team gets product approval requirement from sales

team, a product blue print is prepared

R&D team assembles, from the germplasm collections as

per the required traits.

R&D team tries several thousand combination.

R&D team applies selection pressure and closely watches

for the desirable traits and promotes a few hybrids to next

stage after a thorough analysis of data

R&D team invites product evaluation team for joint short-

listing of hybrids

Product evaluation team conducts multi location trials. Short-

listing of hybrids by sales team

Sales team along with product evaluation team conducts

large-scale trials at farmer fields,collect farmer’s opinion

Soft launch/Trial marketing on a small scale in selected areas,

segments recognized

Release to market

Aggressive marketing, building sales volumes

Peak sales stage. Targeted volumes of the hybrid are achieved

and retained for the maximum possible period

At each stage, the new hybrids are tested against standard

checks, which are the leading hybrids in the market

Extensive data is collected at stage and statistically analysed

Source: Company, MOSL

Stage 4

Stage 5

Stage 6

Stage 7

Stage 8

14 March 2014

Kaveri Seed

Financials and Valuation

Standalone - Income Statement

Y/E March

Net Sales

Change (%)

Total Expenditure

% of Sales

EBITDA

Margin (%)

Depreciation

EBIT

Int. and Finance Charges

Other Income - Rec.

PBT bef. EO Exp.

EO Expense/(Income)

PBT after EO Exp.

Current Tax

Deferred Tax

Tax Rate (%)

Reported PAT

PAT Adj for EO items

Change (%)

Margin (%)

FY12

3,724

59.4

2,955

79.3

770

20.7

100

670

662

610

-1

4.7

581

631

48.7

17.0

FY13

7,120

91.2

5,727

80.4

1,393

19.6

122

1,271

1,305

1,319

2.9

1,281

1,268

100.8

17.8

FY14E

10,405

46.1

8,095

77.8

2,310

22.2

159

2,151

100

2,247

3.0

2,179

71.9

20.9

FY15E

13,575

30.5

10,453

77.0

3,122

23.0

186

2,937

132

3,065

153

5.0

2,912

33.6

21.4

(INR Million)

FY16E

17,424

28.4

13,336

76.5

4,088

23.5

210

3,878

176

4,050

202

5.0

3,847

32.1

22.1

Standalone - Balance Sheet

Y/E March

Equity Share Capital

Total Reserves

Net Worth

Total Loans

Capital Employed

Gross Block

Less: Accum. Deprn.

Net Fixed Assets

Capital WIP

Total Investments

Curr. Assets, Loans&Adv.

Inventory

Account Receivables

Cash and Bank Balance

Loans and Advances

Curr. Liability & Prov.

Account Payables

Provisions

Net Current Assets

Appl. of Funds

E: MOSL Estimates

FY12

137

2,277

2,414

247

2,661

1,269

326

943

131

1,175

3,635

3,033

285

220

3,225

3,130

410

2,661

FY13

137

3,311

3,448

3,479

1,813

439

1,374

1,318

5,902

4,912

686

143

161

5,196

5,039

157

705

3,479

FY14E

137

5,014

5,151

5,182

2,113

598

1,515

104

1,318

9,529

6,893

998

1,428

210

7,285

6,782

503

2,244

5,182

FY15E

137

7,210

7,347

7,378

(INR Million)

FY16E

137

10,104

10,241

10,272

2,713

994

1,719

174

1,318

19,179

11,481

1,671

5,673

355

12,119

11,128

991

7,060

10,272

2,413

783

1,629

136

1,318

13,803

9,045

1,302

3,184

273

9,509

8,762

747

4,295

7,378

14 March 2014

Kaveri Seed

Financials and Valuation

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

BV/Share

DPS

Payout (%)

Valuation (x)

P/E

Cash P/E

P/BV

EV/Sales

EV/EBITDA

Dividend Yield (%)

Return Ratios (%)

RoE

RoCE

Working Capital Ratios

Asset Turnover (x)

Inventory (Days)

Debtor (Days)

Creditor (Days)

Working Capital Turnover (Days)

Leverage Ratio (x)

Current Ratio

Debt/Equity

FY12

9.2

10.7

35.2

0.8

11.0

58.0

50.1

15.2

9.9

47.8

0.1

29.3

28.6

1.4

297

307

1.1

0.1

FY13

18.5

20.3

50.3

3.2

20.0

28.9

26.4

10.6

5.1

26.2

0.6

43.3

43.0

2.0

252

258

1.1

0.0

FY14E

31.8

34.1

75.2

6.0

21.9

16.8

15.7

7.1

3.4

15.3

1.1

50.7

52.0

2.0

241.8

238

1.3

0.0

FY15E

42.5

45.2

107.2

9.0

24.6

12.6

11.8

5.0

2.5

10.7

1.7

46.6

48.9

1.8

243.2

236

1.5

0.0

FY16E

56.2

59.2

149.5

12.0

24.8

9.5

9.0

3.6

1.8

7.6

2.2

43.7

45.9

1.7

240.5

233

1.6

0.0

Standalone - Cash Flow Statement

Y/E March

NP / (Loss) Before Tax and EO Items

Depreciation

Interest & Finance Charges

Direct Taxes Paid

(Inc)/Dec in WC

CF from Operations

EO Expense

CF from Operating incl EO

(inc)/dec in FA

(Pur)/Sale of Investments

Others

CF from Investments

(Inc)/Dec in Debt

Interest Paid

Dividend Paid

Others

CF from Fin. Activity

Inc/Dec of Cash

Add: Beginning Balance

Closing Balance

FY12

610

100

357

1,070

1,099

-108

-807

-892

-60

-33

-64

-157

FY13

1,319

122

-262

1,158

-59

1,099

-420

-207

-582

-208

-15

-256

-471

143

FY14E

2,247

159

-253

2,089

-323

-4

-477

-481

1,286

143

1,428

(INR Million)

FY15E

3,065

186

153

-295

2,806

-332

-4

-715

-719

1,756

1,428

3,184

FY16E

4,050

210

202

-277

3,784

-338

-3

-954

-957

2,489

3,184

5,673

14 March 2014

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Kaveri Seeds

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