Kaveri Seed Company - Healthy growth in non-cotton seed portfolio - ICICI Securities

Three highlights from Kaveri's Q1FY21 results: (1) Non cotton portfolio i.e. hybrid rice seeds, selection rice seeds and maize seeds reported 53.2%, 8.7% and 28% revenue growth, respectively YoY, (2) Cotton business too performed well with 4.8% revenue growth and (3) Kaveri's revenues were largely unaffected but its profitability improved with cost saving programmes during the quarter. We remain positive on Kaveri with the success of non-cotton seeds and its market share gains in cotton seeds in new geographies of West and North India. Success of these initiatives will de-risk the current business model centred on cotton seeds in South India. The stock is at an attractive price with its valuation below mean P/E-1 SD, and FCF yield of 8% on FY21E. Maintain BUY with DCF-based TP of Rs710 (13x FY22E, Earlier TP-Rs640).

- Q1FY21 results: Kaveri reported revenue, EBITDA and PAT growth of 14.6%, 21.5% and 29.1%, respectively. Cotton, Hybrid rice, Maize and Selection rice seeds reported volume growth of 5.1%, 44.4%, 6.7% and 23%, respectively. With cost saving measures, EBITDA margin expanded 230bps YoY. Net profit grew 29.1% YoY. Kaveri's Q1FY21 PAT margin (41.2%) was highest in past six years.

- Segmental performance: Revenues of cotton, Hybrid rice, Maize and Selection rice seeds were up 4.8%, 53.2%, 8.7% and 28%, respectively. 10% higher sowing in Kharif season and early monsoon helped to report strong revenue growth. Higher revenue growth of premium products boosted the realizations. Vegetable seed revenues were up 250% (albeit on a smaller base).

- Negligible impact of coronavirus led disruption: As seeds are declared as essentials, there was negligible impact of coronavirus led disruption on Kaveri's business. We believe the sowing to improve even in rest of FY21 due to (1) higher soil water levels, (2) normal monsoon, (3) higher surplus with farmers due to strong Rabi season in FY20 and (4) increase in MSPs of kharif crops.

- Multi-pronged growth approach: Kaveri is working towards the dual objectives of expanding product portfolio and geographical presence. It has entered West and North India to sell cotton seeds. It has also commenced exports to five countries. We note Kaveri has launched multiple variants of rice (selection + hybrid), maize and vegetable seeds. Success of these initiatives will create new growth avenues and de-risk the current business model centered around cotton seeds in South India.

- Maintain BUY: Kaveri has created strong value (FCF) over the past decade and we remain positive on medium-term growth outlook. We model the company to report revenue and PAT CAGRs of 12.8% and 13.8%, respectively, over FY20-FY22. We value the stock at a DCF-based target price of Rs710, implying a target P/E of 13x FY22E. The stock is at an attractive FCF yield of 8% for FY21E.

Shares of KAVERI SEED COMPANY LTD. was last trading in BSE at Rs.603.55 as compared to the previous close of Rs. 610.65. The total number of shares traded during the day was 31588 in over 1105 trades.

The stock hit an intraday high of Rs. 631.75 and intraday low of 596.2. The net turnover during the day was Rs. 19293187.

Source : Equity Bulls

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