Kaveri Seeds' Q4FY18 results (Neutral) - Non-cotton business to drive growth in FY19E
Q4FY18 results
- Kaveri Seed Company (KSCL) witnessed a net loss of Rs184m (est.Rs15m PAT) in Q4FY18, versus Rs871m net loss in Q4FY17
- Revenues were in-line with our estimates at Rs416m (est. Rs423m), up 3.2% yoy, led by high value product mix. Maize volumes were impacted by lower acreage in AP and Telangana.
- Higher overhead expenses, higher employee costs (up 82%) and lower other income (down 22%) led to an operating loss of Rs133m (est.Rs18m) versus Rs272m loss in Q4FY17. Inventory writeoffs for the quarter stood at Rs105m
Key positives: Stable advance collection, lower inventory writeoffs
Key negatives: Higher overhead expenses
Impact on financials: EPS cut by 2.4% for FY19E and increase by 0.1% for FY20E to factor in higher overhead expenses and cost of production
Valuation and view
KSCL’s performance in Q4FY18 was impacted by lower hybrid corn seed sales, however favourable product mix and lower inventory writeoffs compared to FY17 led to narrowing of losses. KSCL’s new product launches and geographic expansion initiatives helped the company capitalise on the increase in cotton acreage during FY18. In FY19E, growth in non-cotton crop segment and reduced inventory write-offs will further aid in improving performance. KSCL’s cotton seed sales volume is set to increase from 6.9m packets in FY18 to 7.3m packets in FY19E. In the non-cotton crop segment, hybrid rice, hybrid pearl millet and vegetable segment will drive growth at 11-12% in FY19E. In the long term, strengthening market share in cotton seed business (currently ~20%), increasing contribution from high margin non-cotton crop seeds sales and expanding the geographic presence within India will be the key growth drivers. We retain our neutral recommendation with target price of Rs545 (14x FY20E earnings).
Kaveri Seed Company Ltd. Kaveri Seed Company Limited is an India-based seed company. The Company is engaged in the production, processing and marketing of hybrid seeds. It owns over 600 acres of farm land. It offers products in two categories: filed crops and vegetables. Its range of field crops includes corn, paddy, cotton, sunflower, mustard, sorghum, pulses, bajra and wheat. Its range of vegetables includes tomatoes, okra, chilies, watermelon, gourds and brinjal. Its range of corn seeds includes Kaveri 225, Kaveri 2288 (Ekka), Kaveri 244+, Kaveri 50 and Kaveri 25K55. Its range of paddy seeds includes Supreme Sona, Kaveri 9090, Kaveri 108 (Sampurna), KPH 412 and Chintu. Its range of cotton seeds includes Jaadoo, Jackpot, ATM and Singha. Its range of sunflower seeds includes Kaveri 678 (Leader), Kaveri 618 Extra, Kaveri 7049 (Champ), KSFH 7032 (Sunkranti) and Kaveri 9004. Its range of mustard seeds includes Kaveri AK47 and Kaveri 36.
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