Report

MOSL: KAVERI SEED CO. (Buy)-Lower write-offs boost profitability

​Kaveri Seed Co.: Lower write-offs boost profitability

(KSCL IN, Mkt Cap USD0.6b, CMP INR575, TP INR738, 28% Upside, Buy)

  • Revenue marginally below estimates, significant beat on EBITDA and PAT: KSCL’s overall revenue increased 2.7% YoY to INR696m (est. of INR745m) in 2QFY18. EBITDA grew 337% YoY to INR147m (est. of INR43m), with the margin expanding 1,620bp YoY to 21.2% (est. of 5.8%) on account of a steep decline of 2,530bp in raw material cost (35.5% of net sales) due to significantly lower inventory write-offs. Consequently, adj. PAT increased 191.7% YoY to INR209m (est. of INR73m).
  • Increased focus on expanding geographical presence bears fruit: The company’s focus on strengthening its distribution network in the northern, eastern and western markets has started to show results, with growth of over 50% in Bihar and Orissa, >100% in Jharkhand, >200% in West Bengal, and >50% in Maharashtra and Gujarat. The company is expected to further expand its network by improving penetration via new products launches, aided by increased investment in R&D (~4% in FY18).
  • Building a strong non-cotton business: The season has witnessed highest acreage growth (+19.3% YoY) in cotton, resulting in volume growth of 28% (to 6.9m) in cotton seeds packets for KSCL in 1HFY18. Although the company is well placed to benefit from its efforts to expand the non-cotton business, as evidenced by 40% volume growth in selection rice and an 8% volume increase in hybrid rice in 1HFY18. Contribution from new products too has increased from 3%/1% to 12%/15% in selection/hybrid rice. 

Underlying
Kaveri Seed

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.

Provider
Motilal Oswal
Motilal Oswal

​Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance. 

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