16 November 2015
2QFY16 Results Update | Sector:
Agri
BSE SENSEX
25,760
Bloomberg
Equity Shares (m)
M.Cap. (INR b)/(USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
S&P CNX
7,807
KSCL IN
68.5
41.2/0.6
1077 / 380
-11/-48/-49
226
42.5
CMP: INR389
TP: INR414 (+6%)
Kaveri Seeds
Neutral
Results below estimates; guidance cut for FY16
Results below estimates:
KSCL reported revenue of INR934m (est. of INR1,528m)
in 2QFY16 as against INR2,037m in 2QFY15, marking a 54% YoY de-growth. Lower
cotton and corn seed sales (due to erratic monsoon and shift of acreage toward
pulses and oilseeds) impacted sales. Sales return increased significantly to INR490-
500m in 2QFY16, with corn contributing bulk of the sales returns at INR340m
compared with INR150m-160m in 2QFY15. Consequently, KSCL’s total cotton seed
packet sales declined 33% YoY—from 8.4m packets in 1HFY15 to 5.6m packets in
1HFY16. During 1HFY16, cotton revenue declined 22% YoY (from INR7.4b to
INR5.7b) and corn revenue 23% YoY (from INR1.9b to INR1.5b); rice business
posted was up a robust 28.5% YoY—from INR370m to INR450m.
EBITDA slips to a loss:
EBITDA stood at INR-453m (est. of INR91m) as against
INR328m in 2QFY15. High sales returns and consequent write-offs drove EBITDA in
the red. The total disputed royalty amount was INR660m, of which INR650m was
provided in 1QFY16; hence, impact of royalty on EBITDA was miniscule during
2QFY16. Bottom-line stood at a loss of INR475m (est. of INR102m profit) in
2QFY16 as against a profit of INR335m in 2QFY15.
Management confident of 25% growth in cotton in FY17:
Led by new product
launches like Super Duper, participation in credit markets and focus on HDP
varieties of seeds, the management is confident of regaining lost market share in
cotton. Consequently, it expects cotton seed packets to grow 25% in FY17 to 7.2m
as against 5.8m in FY16. Market share in its largest geography—Andhra Pradesh—
is expected to improve from 32%; however, the 40% level as clocked in FY15 looks
difficult in FY17. On the cotton seeds production front, management plans to
produce 9m-10m packets in FY17.
Valuation and view:
While we build in FY16 cotton sales at 5.8m packets, we cut
FY17 sales forecast from 8.4m packets to 7.2m packets; we maintain our estimates
of royalty payments in FY16, while modeling full royalty of INR180/packet in FY17.
We cut FY16/17 EPS by 31%/29%. Maintain
Neutral
(PT of INR414; 13x FY17E EPS).
Financials & Valuation (INR B)
Y/E MAR
Sales (INR b)
2015 2016E 2017E
11.6
8.8
2.0
1.9
27.5
10.9
2.3
2.2
31.8
EBITDA (INR b) 3.1
NP (INR b)
3.0
EPS (INR)
EPS Gr (%)
BV/Sh. (INR)
ROE (%)
RoCE (%)
P/E (x)
P/BV (x)
Estimate change
TP change
Rating change
43.7
42.5
47.4
48.8
8.9
3.6
-37.0 15.7
23.4
24.4
14.1
3.1
23.8
24.8
12.2
2.7
109.6 125.5 142.2
-29%
-38%
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.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

Kaveri Seed Co
Results below estimates
KSCL reported revenue of INR934m (est. of INR1,528m) in 2QFY16 as against
INR2,037m in 2QFY15, marking a 54% YoY de-growth.
The sales were impacted due to lower cotton sales and corn seed sales due to
erratic monsoon and shift of acreage towards pulses and oilseeds. Further, sales
return increased significantly at INR490-500m in 2QFY16 with corn contributing
bulk of the sales returns at INR340m compared to INR150-160m in 2QFY15.
Consequently, KSCL’s total cotton seed packet sales declined 33% YoY—from
8.4m packets in 1HFY15 to 5.6m packets in 1HFY16.
During 1HFY16, Cotton revenues declined by 22% YoY from INR7.4b to INR5.7b,
corn revenues declined by 23% YoY from INR1.9b to INR1.5b while rice business
posted robust growth of 28.5% YoY from INR370m to INR450m.
Exhibit 2: EBITDA trend
YoY growth (%)
EBIDTA (INR m)
22.3
-19.7
12.2
28.8
15.4
61
28.1
16.1
361
84
2,258 -453
-48.4
EBITDA margin (%)
39.8 21.1 34.0
Exhibit 1: Revenue trend
Revenue (INR m)
53.5 62.1
97.3
40.8
-47.0
12.3
-31.6
1.9
-54.1
1,642 126
382
2,324 328
7,361 1,032 1,326 392 8,269 2,037 907
399 6,641 934
Source: Company, MOSL
Source: Company, MOSL
EBITDA slips to a loss
EBITDA stood at INR-453m (est. of INR91m) as against INR328m in 2QFY15. High
sales returns and consequent write-offs drove EBITDA in the red.
The total disputed royalty amount stands at INR660m of which INR650m was
provided in 1QFY16; hence impact of royalty on EBITDA was miniscule during
2QFY16.
Bottom-line stood at a loss of INR475m (est. a profit of INR102m) in 2QFY16, as
against a profit of INR335m in 2QFY15.
Exhibit 4: Market share in cotton
YoY growth (%)
Exhibit 3: PAT growth trend
PAT (INR m)
228.0
23.2
81
364
18
-84.2
311.3
1,617
60.6
2,304
42.5
335
358
13
2,184
-5.2
0.0
-475
Market share in Cotton
16%
10%
4%
16%
16%
14%
-1.6 -28.9
2%
FY11
FY12
FY13
FY14
FY15
FY16E
FY17E
Source: Company, MOSL
Source: Company, MOSL
16 November 2015
2

Kaveri Seed Co
Exhibit 5: Market share in Corn
Market Share in Corn
12%
9%
10%
4%
2%
13%
14%
13%
14%
8%
6%
6%
Exhibit 6: Market share in Rice
Market Share in Rice
9%
9%
FY11
FY12
FY13
FY14
FY15
FY16E
FY17E
FY11
FY12
FY13
FY14
FY15
FY16E
FY17E
Source: Company, MOSL
Source: Company, MOSL
Management confident of 25% growth in cotton in FY17
Led by new product launches like Super Duper, participation in credit markets,
focus on HDP varieties of seeds, management is confident of regaining lost
market share in cotton.
Consequently it expects growth at 25% in cotton seed packets in FY17 to 7.2m
packets as against 5.8m packets in FY16.
Market share in its largest geography – AP is expected to improve from 32% to
higher levels; however 40% as clocked in FY15 looks difficult in FY17. On the
cotton seeds production front, management plans to produce 9-10m packets in
FY17.
Other conference call highlights
Management believes that it has correctly provided for royalty payments, and it
believes that royalty being a state subject, it is governed by state regulations
and guidelines. Management is confident that the ruling in the case filed by
Monsanto against seed companies for higher royalty payments will be in favor
of seed companies.
Disputed royalty amounted to INR650m in 1QFY16 while it amounted to just
INR10m in 2QFY16.
Non-cotton witnessed sales returns to the extent of 40% during the quarter
which resulted in an inventory write-down of INR550m.
Cotton revenue share for FY16 stood as follows:- Telangana – 22%, AP – 11%,
Maharashtra – 12%, Karnataka – 5%, Madya Pradesh – 5%, Gujarat – 5%.
16 November 2015
3

Kaveri Seed Co
Valuation and view
We value KSCL at 13x FY17 EPS of INR31.8 and arrive at a price target of
INR414
We believe our target multiple is justified, given the following:
High FCF and RoCE led by high entry barriers in the industry, endogenous
demand and low capex intensity.
Strong market share in cotton at 16%.
Strong market share in corn at 15%.
Increased growth in hybrid cotton growth led new plantation techniques like
High Density Plantation (HDP) which have a potential to expand market by 50%.
Increasing hybrid penetration in corn (from 60% to 80% in the next five years).
Large opportunity in hybrid rice which currently has a minuscule penetration of
~5%.
We believe the following factors pose risks to our assumptions:
Irregularities in rainfall can change the cropping pattern.
Newly launched hybrids yielding lower than expected yields.
Exhibit 7: Price to earnings (one year forward)
40
35
30
25
20
15
10
5
12.4
0.5
Negative
Earnings
Cycle
13.0
14.4
6.5
4.5
2.5
3.9
3.2
3.2
P/E (x)
5 Yrs Avg(x)
8 Yrs Avg(x)
Exhibit 8: Price to book (one year forward)
8.5
P/B (x)
5 Yrs Avg(x)
8 Yrs Avg(x)
16 November 2015
4

Kaveri Seed Co
Story in charts
Exhibit 9: Declining hectare/person globally
Exhibit 10: Hybrid penetration to improve
Source: Company, MOSL
Source: Company, MOSL
Exhibit 11: Yields in India among the lowest
Exhibit 12: Stagnant land area leading to sluggish production
Source: Company, MOSL
Source: Company, MOSL
Exhibit 13: Limited use of hybrid seeds in India
Exhibit 14: CAGR in MSPs to boost hybrid seeds usage
Source: Company, MOSL
Source: Company, MOSL
16 November 2015
5

Kaveri Seed Co
Exhibit 15: Key assumptions (%)
FY12
Market share
Cotton
Corn
Paddy
Revenue growth
Cotton
Corn
Paddy
Other seeds
4
10
4
81
48
46
57
FY13
10
12
6
171
36
73
33
FY14
16
13
6
52
40
129
6
FY15
16
14
8
19
-6
10
22
FY16E
14
13
9
-34
-23
20
3
FY17E
16
14
9
24
33
20
20
16 November 2015
6

Kaveri Seed Co
Financials and valuations
Standalone - Income Statement
Y/E March
Net Sales
Change (%)
FY11
2,337
44.1
FY12
3,724
59.4
FY13
7,120
91.2
FY14
10,111
42.0
FY15
11,612
14.8
(INR Million)
FY16E
8,823
-24.0
FY17E
10,906
23.6
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 (%)
Net Profit
538
23.0
102
436
43
10
403
0
403
-20
-2
-5.4
425
425
46.3
18.2
425
770
20.7
100
670
33
26
662
53
610
30
-1
4.7
581
631
48.7
17.0
631
1,393
19.6
122
1,271
15
49
1,305
13
1,319
36
2
2.9
1,281
1,268
100.8
17.8
1,268
2,212
21.9
164
2,048
2
97
2,143
0
2,143
37
-2
1.6
2,109
2,109
66.3
20.9
2,109
3,097
26.7
149
2,948
2
157
3,103
-3
3,107
93
-1
3.0
3,014
3,011
42.8
25.9
3,011
2,012
22.8
208
1,803
1
173
1,975
0
1,975
79
0
4.0
1,896
1,896
-37.0
21.5
1,896
2,345
21.5
248
2,097
1
191
2,286
0
2,286
91
0
4.0
2,194
2,194
15.7
20.1
2,194
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
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
FY11
137
1,757
1,894
301
2,196
1,285
232
1,053
368
2,270
1,649
362
45
214
1,560
1,505
56
710
2,196
FY12
137
2,277
2,414
247
2,661
1,269
326
943
1,175
3,635
3,033
285
96
220
3,225
3,130
95
410
2,661
FY13
137
3,311
3,448
31
3,479
1,813
439
1,374
1,318
5,902
4,912
686
143
161
5,196
5,039
157
705
3,479
FY14
137
5,018
5,155
9
5,169
2,033
596
1,436
2,783
5,944
4,972
653
67
253
5,114
4,882
233
830
5,169
FY15
138
7,410
7,548
14
7,564
2,351
743
1,608
2,950
6,994
4,943
1,768
66
216
4,608
4,362
245
2,386
7,564
(INR Million)
FY16E
138
8,507
8,645
14
8,659
2,851
951
1,900
2,950
7,812
4,162
1,209
2,160
281
4,006
3,786
221
3,805
8,659
FY17E
138
9,662
9,800
14
9,814
3,351
1,199
2,152
2,950
9,520
5,020
1,494
2,641
365
4,811
4,565
246
4,709
9,814
16 November 2015
7

Kaveri Seed Co
Financials and valuations
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
FY11
6.2
7.7
27.7
0.5
9.4
FY12
9.2
10.7
35.2
0.8
11.0
FY13
18.5
20.3
50.3
3.2
20.0
FY14
30.7
33.1
75.0
4.8
18.3
FY15
43.7
45.9
109.6
7.5
20.6
FY16E
27.5
30.5
125.5
10.1
42.1
FY17E
31.8
35.5
142.2
13.1
47.3
62.7
50.6
14.1
11.6
50.3
0.1
42.2
36.4
11.0
7.2
35.0
0.2
21.0
19.2
7.7
3.7
19.2
0.8
12.7
11.8
5.2
2.6
12.1
1.2
8.9
8.5
3.6
2.3
8.6
1.9
14.1
12.7
3.1
2.8
12.3
2.6
12.2
11.0
2.7
2.2
10.3
3.4
25.0
21.5
29.3
28.6
43.3
43.0
49.0
49.6
47.4
48.8
23.4
24.4
23.8
24.8
1.1
258
56
235
104
1.4
297
28
307
31
2.0
252
35
258
29
2.0
179
24
176
28
1.5
155
56
137
73
1.0
172.2
50
157
68
1.1
168.0
50
153
69
1.5
0.2
1.1
0.1
1.1
0.0
1.2
0.0
1.5
0.0
1.9
0.0
2.0
0.0
Standalone - Cash Flow Statement
Y/E March
Net Profit / (Loss) Before Tax and Extraordinary Items
Depreciation
Interest & Finance Charges
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
(inc)/dec in FA
Free Cash Flow
(Pur)/Sale of Investments
CF from Investments
(Inc)/Dec in Debt
Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
16 November 2015
FY11
400
102
43
-20
10
575
-125
441
-348
-465
-176
-43
-40
-255
-154
200
46
FY12
610
100
33
30
357
1,070
-108
991
-807
-892
-60
-33
-64
-157
51
45
96
FY13
1,319
122
15
36
-262
1,158
-420
679
-207
-582
-208
-15
-256
-471
47
96
143
FY14
2,143
164
2
54
-230
2,026
-255
1,677
-1,464
-1,624
0
-2
-387
-384
-76
143
66
FY15
3,100
149
2
93
-1,561
1,597
-819
628
-33
-836
5
-2
-621
-613
-1
67
65
(INR Million)
FY16E
1,975
208
1
79
675
2,781
117
2,897
0
114
0
-1
-799
-801
2,094
66
2,160
FY17E
2,286
248
1
91
-422
2,022
-500
1,522
0
-500
0
-1
-1,039
-1,040
481
2,160
2,641
8

Kaveri Seed Co
Corporate profile: Kaveri Seed Co
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.
Exhibit 17: Shareholding pattern (%)
Sep-15
Promoter
DII
FII
Others
57.5
5.7
21.1
15.8
Jun-15
56.8
6.5
22.2
14.6
Sep-14
57.7
9.3
18.9
14.1
Exhibit 16: Sensex rebased
Kaveri Seed Co.
1,100
900
700
500
300
Nov-14
Feb-15
May-15
Aug-15
Nov-15
Sensex - Rebased
Exhibit 18: Top holders
Holder Name
Ashoka PTE Ltd
Smallcap World Fund INC
IDFC Premier Equity Fund
Franklin Templeton Investment Funds
Oppenheimer International Small Company Fund
% Holding
5.0
4.5
2.5
2.2
1.5
Note: FII Includes depository receipts
Exhibit 19: Top management
Name
Gundavaram Venkata Bhaskar Rao
Gundavaram Pawan
Gundavaram Vanaja Devi
Chennameneni Mithun Chand
Rangineni Venu Manohar Rao
Designation
Chairman & MD
Director
Whole-time Director
Whole-time Director
Whole-time Director
Exhibit 20: Directors
Name
Gundavaram Venkata Bhaskar Rao
Gundavaram Pawan
S M Llyas*
K Purushotham*
P Vara Prasada Rao*
S Raghuvardhan Reddy*
Name
Yeshwant Laxman Nene*
Muppidi Srikanth Reddy*
Gundavaram Vanaja Devi
Chennameneni Mithun Chand
Rangineni Venu Manohar Rao
Chennameneni Vamsheedhar
*Independent
Exhibit 21: Auditors
Name
P R Reddy & Co
Type
Statutory
Exhibit 22: MOSL forecast v/s consensus
EPS
(INR)
FY16
FY17
MOSL
forecast
40.3
44.6
Consensus
forecast
50.1
59.9
Variation
(%)
-19.5
-25.5
16 November 2015
9

Disclosures
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affiliated company(ies). This report is for personal information of the selected recipient/s and does not construe to be any investment, legal or taxation advice to you. This research report does not
Kaveri
an offer, invitation or
constitute
Seed Co
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
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