MOSL: KAVERI SEED CO. (Buy)-Results below expectations-Market share gain to continue in FY19
Kaveri Seed Co.: Results below expectations; Market share gain to continue in FY19
(ksCL IN, Mkt Cap USD0.5b, CMP INR479, TP INR664, 39% Upside, Buy)
- Revenue below estimates; a significant miss on EBITDA and PAT: Revenue increased 4.1% YoY to INR7,066m (est. of INR814m) in 3QFY18. Maize volumes have been impacted by reduced exports, lower acreages in Karnataka and Telangana, and a drop in government business from 10,400mt last year to 9,200mt this year. Notably, maze volumes fell 12% YoY in Karnataka. EBITDA grew 186% YoY to INR97m (est. of INR43m), with the margin expanding 876bp YoY to 13.8% (est. of 21.9%) on account of a steep decline of 1,250bp in other expenses (16.2% of net sales). Margins have expanded primarily due to lower write-offs (INR36m v/s INR70m in 3QFY17). Consequently adj. PAT expanded 52.5% YoY to INR54m (est. of INR174m).
- Focus on expanding geographical presence bears fruit: KSCL’s focus on strengthening its distribution network in the north, east and west markets has started to show results, with growth of >50% in Bihar and Orissa, >100% in Jharkhand, >200% in West Bengal, and >50% in Maharashtra and Gujarat.
- Market share expansion to continue: Cotton has seen strong growth in FY18; however, due to better prices for other crops, management has guided for flat industry growth in cotton for FY19. Management expects KSCL’s cotton business to grow at 15% in FY19, primarily due to higher growth in Maharashtra/ Gujarat, which should help it gain market share. It also guided for 15% growth in maize, 20% in rice, and 30-40% in vegetables (driven by new hybrids across hot pepper, okra, tomato and gourd).
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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