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You are here : IndiaNotes >> Research & Analysis >> Companies >> Kaveri Seed Company Ltd. >> Research

Kaveri Seed benefits from better cotton acreages in Q1FY18; Buy

Motilal Oswal | 10 Aug, 2017  | Follow Author | Add to my Favourites 
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- 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 writeoffs 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.

- Valuation and view:
KSCL benefited from better cotton acreages, leading to a significant rise in cotton seed volumes. Going forward, we believe product diversification and geographical expansion would lead to reduced dependency on selective crops and regions, bolstering growth. Therefore, we raise our earnings estimates for FY18/FY19 by 7%/8%. We value the stock at 18x FY19E EPS, and maintain Buy with a TP of INR738.

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About Motilal Oswal

Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.


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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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