MOSL: KAVERI SEED CO. (Buy)-Healthy recovery in FY18; Muted growth expected in cotton
Kaveri Seed Co.: Healthy recovery in FY18; Muted growth expected in cotton; non-cotton share to increase
(KSCL IN, Mkt Cap USD0.5b, CMP INR513, TP INR591, 15% Upside, Buy)
- Revenue below estimate; profitability improves YoY but misses estimate: KSCL's revenue grew 3.4% YoY to INR416m (est. of INR443m) in 4QFY18. EBITDA stood at INR-133m (est. of INR-15m), as against INR-272m in 4QFY17. Margin came in at -32.1% (est. of -3.3%), as against -67.5% in the year-ago period. Consequently, adj. PAT stood at INR-184m (est. of INR-26m) v/s INR-306m in 4QFY17. For FY18, consolidated revenue grew 16% YoY to INR8,192m, margin expanded 730bp to 27.1% and EBITDA grew 59% YoY to INR2,218m. Consequently, adj. PAT increased 174% to INR2,114m in FY18.
- Strong focus on diversification: KSCL launched two cotton hybrids, three hybrids in maize, one in pearl millet, two in hybrid rice and five in selection rice, in line with its strategy to build the non-cotton business (60% share guided in the next five years). The shift is expected to augur well, as the non-cotton business enjoys a higher margin (by 5-7%). We expect high growth in maize (17% CAGR), rice (30%) and other seeds (17%) over FY18-20.
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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