MOSL: KAVERI SEED CO.-Cotton leadership and product diversification to provide holistic growth
​Kaveri Seed Co.: Cotton leadership and product diversification to provide holistic growth
(KSCL IN, Mkt Cap USD0.7b, CMP INR608, TP INR738, 21% Upside, Buy)
- Revenue in-line; EBITDA and PAT beat estimates: KSCL reported overall revenue of INR5,906m (est. of INR5,829m) in 1QFY18, as against INR4,940m in 1QFY17, marking growth of 19.6%. EBITDA stood at INR2,069m (est. of INR1,918m), as against INR1,583m in 1QFY17. Margins came in at 35% (est. of 32.9%) v/s 32% in 1QFY17 on account of a significant decline of 360bp in raw material cost (52% of net sales). Consequently, adj. PAT stood at INR2,024m (est. of INR1,864), as against INR1,544 in 1QFY17.
- Growth reinforced by improved cotton acreage: 1QFY18 witnessed a sharp increase of 27% in cotton volumes for KSCL, with cotton seeds gaining market share in Gujarat and Maharashtra. New product contribution too increased from 7% to 11% in 1QFY18, with the company launching two new cotton hybrids and two others under demonstration. Although 1QFY18 witnessed INR192m of inventory write-off primarily driven by cotton inventory, the write-offs are expected to be lower for FY18 v/s FY17.
- Focus on diverse product portfolio: While the cotton business posted significant growth, the company's strategy would be to expand the non-cotton business as well, which is evident from the rise of more than 40% in selection rice volumes in 1QFY18 and new product contribution in Bajra increasing from 6% to 17% (in volume terms). The company is also expected to focus on the north region to strengthen its distribution network.
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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