21 October 2014
2QFY15 Results Update | Sector:
Agri
Kaveri Seeds
BSE SENSEX
26,576
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
7,928
KSCL IN
68.9
60.0/1.0
1,023/291
0/23/169
CMP: INR871
TP: INR1,050
Financials & Valuation (INR m)
Y/E MAR
Net Sales
EBITDA
Adj PAT
EPS (INR)
Gr. (%)
BV/Sh(INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (X)
2015E 2016E 2017E
12,254 15,242 18,528
3,125
3,074
44.7
45.8
110.4
48.2
49.4
19.5
7.9
3,993
4,002
58.2
30.2
157.0
43.5
44.4
15.0
5.5
5,003
5,049
73.4
26.2
215.4
39.4
40.4
11.9
4.0
Robust revenue growth; PAT growth above estimate:
KSCL reported overall
revenue of INR2.03b in 2QFY15, against INR1.03b in 2QFY14, marking a growth of
97.3% due to spill-over of sales on account of delayed monsoon. Cotton was the
largest contributor to seed revenue with INR1.05b followed by maize (INR350m)
and Bajra (INR330m). KSCL registered ~8.5m cotton packet sales for 1HFY15, with
stable realizations of INR780-790/ packet, while increasing its market share to
~20% in cotton; management expects the cotton segment to grow by 15% over
the next two years driven by higher traction from ATM. EBITDA margin grew by
390bp, from 12.2% in 2QFY14 to 16.1% in 2QFY15, primarily due to a decrease in
other expenses by 16.5% and reduction in employee expense by ~240bp. Hence,
PAT grew from INR81m in 2QFY14 to INR334m in 2QFY15 (est. INR160m), marking
a growth of 310% YoY.
New product launches and ATM continue to gain market share:
ATM continues
to gain market share in Maharashtra and Gujarat and management believes it has
capabilities to reach the sales equivalent of
Jadoo
in the next three to four years.
Three years ago, ATM had negligible sales, which rose to 18-20m packets in
1HFY15, thus reflecting robust growth and brand recall among farmers. Company
recently launched a new hybrid in the cotton category with the feature of sucking
pest resistance, which it believes will lead to higher market share gain in
Maharashtra over the next three to four years.
Probable price increase may drive profitability going forward:
Our interactions
with industry experts suggest a very high probability of price increase in the cotton
segment for the next kharif season. Management guided that in case of a price
increase of ~20%, the same will be paid as an increase in royalty to Monsanto
Mayco and the balance will reflect in terms of higher profitability.
Valuation and view:
We expect KSCL to post 23% revenue CAGR over FY15E-17E
on the back of new launches and maintain its leadership position in cotton. We
believe that increasing popularity of
Jadoo
and
Jackpot
will drive growth, which
will lead to market share gain in cotton. The stock trades at 19.5x and 15x FY15E
and FY16E earnings. We value KSCL at 18x FY16E earnings of INR58.2 with a target
price of INR1,050. 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 Seeds
Robust revenue growth; PAT growth above estimates
KSCL reported overall revenue of INR2.03b in 2QFY15 as against INR1.03b in
2QFY14 marking a YoY growth of 97.3% a result of spill over of sales on account
of delayed monsoon.
Seed revenues were INR1.8b up from INR970m in 2QFY14 marking a growth of
88% YoY. Cotton was the largest contributor to seed revenue with INR1.05b
followed by maize (INR350m) and Bajra (INR330m).
KSCL registered~8.5m cotton packet sales for 1HFY15 with stable realizations of
INR 780-790/ packet, while increasing its market share to ~20% in cotton and
the management expects to grow by 15% over next 2 years driven by higher
traction from ATM.
EBITDA margins grew by 390bps from 12.2% in 2QFY14 to 16.1% in 2QFY15
primarily due to decrease in other expenses by 16.5% and reduction in
employee expense by ~240bps. Consequently PAT grew from INR81m in 2QFY14
to INR334m in 2QFY15 (est. INR160m) marking a growth of 310% YoY.
AP continues to be dominant market (20% growth YoY) for KSCL in cotton with
45% market share followed by Karnataka (25%) and Maharashtra (9%) and
company expects 15% growth in FY15E.
In maize segment, Kaveri has a market share of 12% on pan India basis while AP
and Karnataka are the biggest market for the company with 30% and 20-21%
market share respectively.
Company does not have dividend policy however management expects payout
to be in range of 20% going forward.
Management has also indicated that they are looking at export as a market
going forward and currently looking for viable opportunity.
Management believes that food processing will be a huge opportunity in next 10
years and is looking to explore the same. Management indicated an investment
requirement of around INR15b for setting up food processing, however a war
chest of INR3-4b will be maintained by the company.
Exhibit 1: Revenue trend
Revenue (INR m)
99.1
31.1
127.2
77.6
53.5 62.1 40.8
-47.0 12.3
YoY growth (%)
97.3
Exhibit 2: EBITDA trend
EBIDTA (INR m)
21.7
15.4
13.4
127
22.3
17.2
12.2
128 1,642 126
382
EBITDA margin (%)
28.8
15.4
16.1
28.1
4,795 637
941
740 7,361 1,032 1,326 392 8,269 2,037
1,043
98
61 2,324 328
Source: Company, MOSL
Source: Company, MOSL
21 October 2014
2

Kaveri Seeds
Exhibit 3: PAT growth trend
PAT (INR m)
285.0
92.0
27.9
66
111
299.0
228.0
60.6
23.2
-84.2
1,007
111 1,617
81
364
18
2,304 334
2%
FY11
4%
Exhibit 4: Market share in cotton increasing
YoY gorwth (%)
310.0
42.5
10%
17%
20%
Market share in Cotton
24%
FY12
FY13
FY14
FY15E
FY16E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 5: Market share in Corn
Market Share in Corn
15%
17%
Exhibit 6: Market share in Rice
Market Share in Rice
10%
8%
6%
4%
2%
6%
9%
10%
12%
13%
FY11
FY12
FY13
FY14
FY15E
FY16E
FY11
FY12
FY13
FY14
FY15E
FY16E
Source: Company, MOSL
Source: Company, MOSL
New product launches and ATM continues to gain market share
ATM continues to gain market share in Maharashtra and Gujarat and
management believes it has capabilities to reach the sales equivalent of Jadoo in
next 3-4 years.
Three years back ATM had negligible sales which has rose to 18-20m packets in
1HFY15 showing robust growth and brand recall in minds of farmer.
The management has recently launched a new hybrid in the cotton category
which has sucking pest resistance which the management believes will lead to
higher market share gain in Maharashtra over next 3 – 4 years
Delayed monsoons have impacted the corn acreages in 2QFY15, however going
forward rabi is season is expected to be strong which will be positive for corn.
We believe that the next leg of growth to come from ATM in non-south market
which will drive the company’s profitability.
Probable price increase may drive profitability going forward
Our interaction with industry experts suggests a very high probability of a price
increase in the cotton segment for next kharif season.
Management has guided that in case of price increase around 20% of the price
increase will be paid in form of increase in royalty to Monsanto Mayco and
balance will flow down in terms of higher profitability.
21 October 2014
3

Kaveri Seeds
Story in charts
Exhibit 7: Declining hectare/person globally
Exhibit 8: Hybrid penetration to improve
Source: Company, MOSL
Source: Company, MOSL
Exhibit 9: Yields in India among the lowest
Exhibit 10: Stagnant land area leading to sluggish production
Source: Company, MOSL
Source: Company, MOSL
Exhibit 11: Limited use of hybrid seeds in India
Exhibit 12: CAGR in MSPs to boost hybrid seeds usage
Source: Company, MOSL
Source: Company, MOSL
21 October 2014
4

Kaveri Seeds
Kaveri Seed Co: an investment profile
Company description
Kaveri is one of the fastest growing seed company in
India with a large network of over 15,000 distributors
and dealers spread across the country. With over 700
employees and a strong product line of hybrids. KSCL is
one of the leading players in seeds industry with
dominant positioning in most of the key crops: cotton
(20% market share), Corn (~13% market share), Bajra
(13% market share) and Rice (~9% market share). With
one of the largest anthology of crop germplasm in the
country, Kaveri’s draught and disease resistant as well
as high yielding hybrid and varietal portfolio includes
Cotton, Corn, Rice, Jowar, Bajra, as well as vegetable
such as Tomato, Okra and gourds.
Key investments arguments
Since launch of Jadoo in 2008 KSCL has gained 40%
market share in AP (60% market share in Guntur
and Krishna each) from large players like Nuziveedu.
However it has 25% market share in Varingal and
Karimnagar and 13% in Adilabad thereby providing
opportunities to improve market share in AP.
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.
The total crop area under Rice in India is
~42mhectares, while area under hybrid seeds is
~2m hectares, hybrid seed penetration of ~5%.
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.
Valuation and view
We expect KSCL to post 23% revenue CAGR over
FY15E-17E on the back of new launches and
maintain its leadership position in cotton. We
believe that increasing popularity of
Jadoo and
Jackpot
will drive growth, which will lead to market
share gain in cotton. The stock trades at 19.5x and
15x FY15E and FY16E earnings. We value KSCL at 18x
FY16E earnings of INR58.2 with a target price of
INR1,050. Maintain
Buy.
Target price and recommendation
Current
Price (INR)
871
Target
Price (INR)
1,050
Upside
(%)
20.6
Reco.
Buy
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY15
FY16
44.7
58.2
Consensus
Forecast
42.5
53.6
Variation
(%)
5.2
8.7
Shareholding pattern (%)
Sep-14
Promoter
DII
FII
Others
57.7
9.3
18.9
14.1
Jun-14
62.3
9.8
12.1
15.8
Sep-13
63.6
10.1
8.5
17.8
Stock performance (1-year)
Note: FII Includes depository receipts
21 October 2014
5

Kaveri Seeds
Financials and valuations
Income statement
Y/E Mar
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
2014
10,111
42.0
2,212
21.9
164
2,048
2
97
0
2,143
35
1.6
2,109
2,109
66.3
0
2,109
2015E
12,254
21.2
3,125
25.5
131
2,994
1
160
0
3,153
79
2.5
3,074
3,074
45.8
0
3,074
(INR Million)
2016E
15,242
24.4
3,993
26.2
149
3,844
1
240
0
4,083
82
2.0
4,002
4,002
30.2
0
4,002
2017E
18,528
21.6
5,003
27.0
140
4,862
1
312
0
5,173
124
2.4
5,049
5,049
26.2
0
5,049
Ratios
Y/E Mar
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)
2014
30.7
33.1
75.0
4.8
18.3
28.4
26.3
11.6
5.9
26.9
0.6
49.0
49.6
2.0
23.6
179.5
225.6
0.0
2015E
44.7
46.6
110.4
8.0
20.8
19.5
18.7
7.9
4.7
18.5
0.9
48.2
49.4
1.6
35.0
230.4
299.6
0.0
2016E
58.2
60.4
157.0
10.0
19.9
15.0
14.4
5.5
3.6
13.8
1.2
43.5
44.4
1.4
35.0
237.6
307.3
0.0
2017E
73.4
75.5
215.4
13.0
20.5
11.9
11.5
4.0
2.8
10.3
1.5
39.4
40.4
1.3
35.0
234.3
306.4
0.0
Balance sheet
Y/E Mar
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
2014
137
5,018
5,155
9
1
5,165
2,033
596
1,436
117
2,783
5,947
4,972
653
67
255
5,114
4,882
233
832
5,169
2015E
137
7,454
7,591
9
0
7,600
2,333
727
1,605
123
2,783
11,242
7,735
1,175
2,001
331
8,153
7,493
660
3,089
7,600
(INR Million)
2016E
2017E
137
137
10,658 14,670
10,796 14,808
9
9
0
0
10,805 14,817
2,633
2,983
876
1,017
1,756
1,966
152
185
2,783
2,783
16,407 22,304
9,922 11,893
1,462
1,777
4,594
8,075
430
559
10,294 12,421
9,471 11,353
824
1,068
6,113
9,883
10,804 14,817
E: MOSL Estimates
Cash flow statement
Y/E Mar
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
2014
2,143
164
0
2
54
-230
1,932
-255
-1,369
0
-1,624
0
0
-2
-387
-384
-76
143
66
2015E
3,153
131
0
1
79
-323
2,883
-306
-4
0
-310
0
0
-1
-638
-639
1,934
67
2,001
(INR Million)
2016E
4,083
149
0
1
82
-431
3,721
-330
0
0
-330
0
0
-1
-797
-798
2,593
2,001
4,594
2017E
5,173
140
0
1
124
-289
4,902
-383
0
0
-383
0
0
-1
-1,037
-1,038
3,481
4,594
8,075
21 October 2014
6

Kaveri Seeds
NOTES
21 October 2014
7

Disclosures
This research report has been prepared by MOSt to provide information about the company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its affiliated company(ies). This
Kaveri Seeds
report is for personal information of the select recipient and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducement to
invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been
furnished to you solely for your general information and should not be reproduced or redistributed to any other person in any form. This report does not constitute a personal recommendation or take into
account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, investors should consider whether it is suitable
for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and
investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur.
MOSt and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We and our affiliates have investment banking and other business
relationships with a significant percentage of the companies covered by our Research Department Our research professionals provide important input into our investment banking and other business selection
processes. Investors should assume that MOSt and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that
the research professionals who were involved in preparing this material may participate in the solicitation of such business. The research professionals responsible for the preparation of this document may
interact with trading desk personnel, sales personnel and other parties for the purpose of gathering, applying and interpreting market information. Our research professionals are paid in part based on the
profitability of MOSt which include earnings from investment banking and other business. MOSt generally prohibits its analysts, persons reporting to analysts, and members of their households from
maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, MOSt generally prohibits its analysts and persons reporting to analysts from serving as an
officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals or affiliates may provide oral or written market commentary or trading
strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with
the recommendations expressed herein. In reviewing these materials, you should be aware that any or all o the foregoing, among other things, may give rise to real or potential conflicts of interest . MOSt and
its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in
any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or
lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates
or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold
MOSt or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The
information contained herein is based on publicly available data or other sources believed to be reliable. Any statements contained in this report attributed to a third party represent MOSt’s interpretation of the
data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. This Report is not
intended to be a complete statement or summary of the securities, markets or developments referred to in the document. While we would endeavor to update the information herein on reasonable basis, MOSt
and/or its affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its
affiliates or employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. MOSt or any of
its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of
merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.
This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision
based on this report or for any necessary explanation of its contents.
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of
Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.
Disclosure of Interest Statement
Analyst ownership of the stock
KAVERI SEEDS
No
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or
will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible
for preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.
Regional Disclosures (outside India)
For U.K.
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to
law, regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.
This report is intended for distribution only to persons having professional experience in matters relating to investments as described in Article 19 of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (referred to as "investment professionals"). This document must not be acted on or relied on by persons who are not investment professionals. Any investment or investment activity to
which this document relates is only available to investment professionals and will be engaged in only with such persons.
For U.S.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States.
In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state
laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein
are not available to or intended for U.S. persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional
investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major
institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as
amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has
entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be
executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer,
MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research
analyst account.
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors
Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore
to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Anosh Koppikar
Kadambari Balachandran
Email : anosh.Koppikar@motilaloswal.com
Email : kadambari.balachandran@motilaloswal.com
Contact : (+65)68189232
Contact : (+65) 68189233 / 65249115
Office Address : 21 (Suite 31),16 Collyer Quay,Singapore 04931
For Singapore
Motilal Oswal Securities Ltd
21 October 2014
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
8