Stock Note 04 Aug 2017

RETAIL RESEARCH
Kaveri Seeds Company Ltd
Industry CMP Recommendation Add on dips to Sequential Targets Time Horizon
Agriculture Products - Seeds Rs. 694 Buy at CMP and add on Rs. 622-628 Rs.771-867 2-3 quarters
declines
Kaveri
HDFCSeeds Company
Scrip Code Ltd (KSCL) is one of the leading seed manufacturers in India . It has vast experience in seed production of major agricultural crops backed by a
KAVSEEEQNR
very strong in-house R&D program for crops maize, cotton, sun flower, bajra, sorghum, rice and several vegetable crops. With over 600 acres of farm land owned by
theBSE Code and 65000 ac re for 532899
company seed production across different agro- climate centers and dedicated team of researchers, the company is conscious of the changing
needs
NSEofCode
farmers and consumers to design and develop productive hybrids that excel in market. It is consistently building a robust portfolio of field crops and
KSCL
vegetables to help enhance farm yield . It is also engaging more with farmers and educating them about its products and handholding those to implement
Bloomberg KSCL IN
agricultural best practices. It is also extending its brand presence across India through aggressive marketing and branding initiatives.
CMP Aug 03 2017 Rs. 694
Investment Rationale:
Equity Capital (Rs cr) 13.8
• Cultivation of Cotton has increased in kharif 2017 supported by better monsoon and farmers ’ shifting from pulses and
Face Value (Rs) 2.0 soya bean to cotton,
Equity Share O/S(crs) 6.91 • Diverse Product portfolio addressing crop rotation & reducing d ependence on traditional crops,
• Aggressive focus on R& D helps product development and sustainability in farm practices ,
Market Cap (Rs.crs) 4792.4
• Investment in Biotechnology is accelerating the bree ding program of cotton and rice,
Book Value (Rs) 146.8 • Focus on new products could help to garner revenue going forward.
Avg. 52 Wk Volumes 78462
Concerns:
52 Week High 706.2
• Atmospheric / weather changes:
52 Week Low 325.2 • Inventories write off could impact profitability,
Shareholding Pattern % ( June 30), • Poor Monsoon and unsupportive commodity prices,
17) • Regulatory diktats from the central and state governments in respect of distribution, prices, royalties etc
Promoters 54.4 • Changes in Taxation law,
Institutions 28.1 View and Valuation:
Non Institutions 17.5 KSCL’s diversified products portfolio, superior R&D capabilities , pan India distribution network, efficient supply chain and
strong relations with farmers are key rationale for long term earning visibility. Increase in cotton cultivation in kharif
Total 100.0
2017 could bring in enhanced revenues and margins for KSCL. The recent completion of Buyback could result in increased
Fundamental Research Analyst r eturn ratios, by reducing the equity base resulting in long term increase in shareholder value. Even after the recent
Abdul Karim buyback entailing an outgo of Rs.200cr and paying healthy dividends year after year, KSCL could end up with cash
[email protected] per share of Rs.94 in FY19E.
Government’s sharper focus on the seeds industry and the introduction of new hybrid seeds for Cotton, Rice and Maize by
KSCL would drive revenues for the company. Further, KSCL plans to increase its market share in Cotton Seeds by
penetrating the markets of Andhra Pradesh and Maharashtra and widening its overall presence in North India, Gujarat
and Rajasthan.

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Kaveri’s cotton seed volumes should rebound strongly in FY18-FY19 (due to higher acreage and higher cotton
prices), its growing footprint outside AP and Telangana could also help de -risk its business and bring new growth
triggers, and its improving operating leverage, should drive a sharp growth in PAT over the next two years.
We feel investors could buy the stock at the CMP and add on dips to Rs. 622-628 band (~19.5x FY19E EPS) for sequential
targets of Rs 771 (24x FY19E EPS) and Rs 867 (27x FY19E EPS). At the CMP of Rs 695 the stock trades at 21.6x
FY19E EPS.
Financial Summary:
Particulars (Rs cr) Q4FY17 Q4FY16 YoY-% Q3FY17 QoQ-% FY16 FY17 FY18E FY19E
Net Sales 40.3 41.1 -1.9% 67.9 -40.6% 744.89 704.99 820.66 898.20
EBITDA -86.4 -6.5 -1239.5% 3.4 -2648.7% 185.91 139.55 205.99 220.51
APAT -29.2 -10.4 -179.9% 3.5 -921.7% 166.28 137.07 198.63 211.89
Diluted EPS (Rs) -12.6 -1.5 -736.4% 0.5 -2576.5% 24.08 19.85 30.05 32.06
P/E (x) 28.8 35.0 23.1 21.6
EV/EBITDA (x) 25.7 34.2 22.2 20.7
RoE (%) 17.9% 13.5% 22.1% 20.5%

Company Profile: (Source: Company, HDFC sec)

Kaveri Seeds Company Ltd (KSCL) is one of the leading seed manufacturers in India . It has vast experience in seed
production of major agricultural crops backed by a very strong in -house R&D program for crops maize, cotton, sun
flower, bajra, sorghum, rice and several vegetable crops. With over 600 acres of farm land owned by the company an d
65000 acre for seed production across different agro- climate centres and dedicated team of researchers, the
company is conscious of the changing needs of farmers and consumers to design and develop productive hybrids
that excel in marke t.
The Company is mainly into the business of production, processing and marketing of high quality hybrid seeds for
Different crops like corn, sunflower, cotton, paddy, grain sorghum, etc. and ha s recently forayed into
micronutrientsandbioproducts. The company produces non-hybrid seeds, primarily for paddy.The Company is a
leading provider of crop solutions to the farmer by supplying high yielding hybrid seeds and cropmanagement namely
micro nutrients, bioproducts etc. The Company is engaged in research and development in theareas of superior breeding
programs and biotechnology tools that will enable them to develop highly effective anddifferentiated hybrid seeds,
micronutrients and bioproducts.
Kaveri is amongst the top three seeds companies in the cotton segment, and top five in the maize, paddy and pearl
millet segments. KSCL was incorporated in the year 1986 and company is one of the fastest growing seed comp anies in
India with a large network of 15000+ distributors and dealers across pan India. As on 3 0th June 2017, Company
has 775+ employees. Company has seven State-of-the-art seed technology, processing and storage plants.
Kaveri Microteck Pvt Ltd. is a 100% subsidiary of KSCL and it is a business division of division engaged in
micronutrient mixtures and bio-pesticides. Kexveg is a 100% subsidiary of KSCL and is involved in selling premium
vegetables in theoverseas markets. KSCL has already invested Rs.6.6 crore in Kexveg. Going forward, the company
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expects to inv estRs9 crore in this subsidiary. This investment can help KSCL to increase its vegetable seeds
portfolio.

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RESEARCH
Product Overview:

Cotton: (Source: Company, HDFC sec)

KSCL is one of the leading cotton seed producers in India, with a significant market share. Company has multi-
geography presence for cotton seed production.Over the year, company has achieved good market response with key
cotton hybrid seed ‘Jaadoo’. Demand of ATM has been good in many states and the feedback for its new
introduction 3x1 has been very good from farmers. In spite of tough growing c onditions, Jaadoo’s performance has
been par excellence; it has tested few new hybrids in farmer field and could be launchedin the near future.
Maize:
Company has consistent focuson increasing the productivity of maize hybrids and stabilizing yields against adverse
situations like drought or heat, among others. Company has partnered with CIMMYT Asia to support a project on
Heat Tolerant Maize for Asia (HTMA). Company has recently launched a new hybrid ‘Godfather’ to address the high
margin single-cross market.
Rice:
Farmers have been moving away from farm saved seeds and demand for selection rice has been growing rapidly. KSCL
has been able to increase volume in selection rice over the past 2 years. Company is strengthening its footprint in
rice market to address the growing market of hybrid rice and selection rice.
Others:
KSCL has strong portfolio of other field crops , like bajra, sunflower, mustard, sorghum, pulses, and wheat. In India,
bajra occupies the highest crop area after rice and wheat and forms an important segment in hybrid seed industry.
Mustard and wheat areother important Rabi crops of India; company could leverage its presence and channel of
distributions to participate in these crops.
Vegetables:
KSCL is emphasizing on tomato, chillies and okra. Besides, its research efforts on brinjal, gourds, watermelon are still in
progress. Company is planning to have a dedicated team to focus on Vegetables sales and marketing ac tivities.
KSCL made a major breakthrough in plant breedingwith the creation of genetic variation and thedevelopment and commercial
release of promising hybrids like Jaadoo and ATM in cotton, KMH 25K45,Kaveri 50, Ekka in maize.

What went wrong for KSCL in FY15/FY16?

Cotton prices and hence acreage of cotton fell resulting in sales and margin drop. Monsoon was not g ood affecting
acreage generallyaffectingdemand for seeds. Telangana farmer situation was not good resulting in possibility of poor
recoverie s and hence KSCL opted for selectivecash and carry impacting sales. Its PAT fell 45% in FY16. Some
auditors/brokers r aised concerns about the genuineness of investment lying on its books. All this led to its stock price
falling from Rs.1077 in Mar 2015 to Rs.300 in Jan 2016. KSCL has cooperated in giving necessary details/proof and
has largely satisfied most people on t he issue of investments.

Industry Overview:
The Agriculture sector commands the largest share of the country’s total land area at about 48% (or 156 million
hectares) compared to USA’s 18% (or 158 million hectares) and China’s 15% (or 106 million hectares). While Ind ia has
more arable land than China, its production is only half that of China The Indian Seed Industry is the 6th largest in
the world in value terms accounting for about 4.5% of global industry preceded by the US (27%), China (22%), France
(6%), Bra zil (6%) and Canada (4.8%). The organized Indian seed industry has been in existence since 30+ years;
however the last d ecade has witnessed exponential and transformational growth.
Going forward, the industry is expected to grow significantly, owing to improved seed replacement ra te (SRR) and increasing
adoption of high-yielding hybrid seeds. The Government of India’s favorable policy environment, aimed at supporting t
he usage of seeds through the National Seeds Plan and bolstering agricultural productivity through the National Foo d Security
Mission (NFSM) also augur well for the industry. Multiple forecasts advocate that the Indian seed industry will grow twice the
average for the rest of the world for the years to come.
Farmers are moving towards branded seed instead of using seed saved from the previous harvestand upgrading to
better quality seeds to improve their yieldleading to growth in the seed industry. Further, the advent of genetically
modified (GM) cotton changed the landscapeof the Indian seed industry. As per ICRA, the Indian SeedIndustry is the
sixth largest in the world in value terms accounting for about 4.5% of global industry preceded by theUS (27%), China
(22%), France (6%), Brazil (6%) and Canada (4.8%).
Key Growth Factors:
Cotton Seed:
 High market penetration of hybrids ,
 Growth - a function of market share gains,
 High Density Planting and Mechanical Harvesting ,
 Pricing subject to GOI’s Price Control Order ,
 KSCL is market leader, Company developed hybrids with only the pest cont rol trait sourced under license.
Paddy:
 Paddy is the largest crop under cultivation in India and is the staple food for large population ,
 Hybrid penetration at less than 10% ,
 Farmers used saved seed; however branded and hybrids gaining increased acceptance,
 Market for both selection variety rice and hybrid rice growing rapidly ,
Corn (Maize)
 India is the world's 6th largest producer and 5th largest consumer of maize ,
 Maize acreage has grown in India over years as it is highly adaptable to different season,requires less water, easy to
grow with good commodity price,
 Demand for Maize in India in expected to continue to grow due to demand from feed industry(accountin g for
~50% of domestic maize demand) and export opportunity (seen a strong 24%CAGR in FY2005 -14),
Vegetables
 Hybrid vegetable seed is one of the fastest -growing segments in India estimated to be around Rs 2,000 crore,
 India is the second-largest producer of vegetables in the world, afte r China,
Buyback offer:
Kaveri Seed had initiated a buy back over 29.62 lakh shares at Rs 675 a share. The company will spe nd Rs. 200
crore(35% of current cash balance) in buying back about 4.29 per cent of the total paid -up capital of the company
from the market. As of last fiscal, the company had reserves of Rs 893 crore. Buy Back offer opened on July 10,
2017 and cl osed on July 21, 2017.
The promoters hold 54.7 per cent stake in the company, while the remaining is held by the public. The promoters
and promoter group companies have also expressed interest in participating in the buyback offer.

Investment Rationale:
Cultivation of Cotton increased supported by better monsoon and farmer’s shifting from pulses and soya bean to cotton:
According to Ministry of agriculture, Cotton production/planting in India has increased to 111.56lac hectares
compared to same period previous year at 92.33 lac hectares, as on July 27, 2017. Cotton cultivation has progressed
to 91 percent of the total normal area at 122.46 lakh hectares showing signs of positivity in planting. Cotton
production has increased due to (a) Comparatively better monsoon than past 3 years (b) Farmers are shifting away from
pulses and soya bean to cotton as prices of pulses and soya bean ruled below minimum support price (MSP) while
cotton was one of t he few crops that gave good returns to farmers, and (c) farmer’s income from vegetables was
badly impacted previous year due to demonetization, therefore farmers are shifting to cotton production in FY17 -18.
Cotton planting progress as on July 27, 2017 Cotton Seed Volume Break up - (FY17)

(Source: Agriculture Ministry of India, Company, HDFC sec) (Source: Company, HDFC sec)

Cotton seed contributes 65% of KSCL’s revenue. Maharashtra, Telangana, and Andhra Pradesh are key acreage areas,
contributing~ 89% of Sales. The industry has played down deficient rainfall in parts of cotton growing areas of
Maharashtra, Telangana and Karnataka, claiming it will not have major impact on the production estimates. Higher
cultivation of cotton could help to generate more demand of seeds. KSCL is one of the leading cotton seed producers in
the areas that have seen an increase in cotton cultivation and hence could benefit from this trend.

Diverse Product portfolio addressing crop rotation & reducing dependence on traditional market:
KSCL has focused consistently on building robust portfolio of field crops and vege tables to help enhancefarm yield since
its inception. Company is also engaging more with farmers and educating them about its productsand handholding
to implement agricultural best practices . Hybrid vegetable seed is one of the fastest -growing segments in India estimated
to be around Rs. 2,000 crore. For vegetables, Company has built an exclusive sales team of more than 20 de dicated
employees, launched new products, and built a focused distribution network and evaluating in -licensing
opportunities.
Company plans to expand its presence in other states rather than key markets like Andhra Pradesh, Te langana,
and Karnataka. Lower acreages of Maize in Bihar and coastal Andhra Pradesh was compensated by higher acreage in
Tel angana, Maharashtra and Gujarat, leading to growth in the maize seed sales in FY17.

Maintaining strong relationships with farmers as well as Channel partners:

KSCL has over three decades of rich experience in application of the science of genetics and princip les of plant breeding
in the evolution of crop hybrids, quality seed production, conditioning and processing and in building exte nsive distribution
networ k
with strong farmer relationship. Over 15,000 direct and indirect distributors across the country and around 350
highly motivated marketing professionals drive market penetration. Company is expanding its marketing and d istribution
network across agricultural belts. This expansion could significantly enhance business opportunities in future in untapped
and growing markets. Company is engaged with farmers through multiple engagement programs like brand
awareness, agronomic information to increase their produc tivity and profitability.
Market share by Crop (%)
Particulars FY11 FY12 FY13 FY14 FY15 FY16 FY17
Cotton 2% 4% 10% 16% 18% 14% 14%
Maize 9% 10% 12% 12% 10% 10% 11%
Hybrid Rice 2% 4% 6% 6% 4% 5% 4%
Pearl Millet 12% 10% 9%
(Source: Company, HDFC sec)
Aggressive focus on R& D helps for product development and sustainability in farm practices:
KSCL has continued investing in Research and Development activities to augment research facilities, farm infrastructure
development. On product developments, company is successful in developing several market competitive hybrids. Hybrid
technology offers considerable opportunity for increasing productivity of field crops and vegetables . It is an
appropriate technology for sustainable agriculture and thus, deserves to be promoted on a large -scale.
 Cotton (Jaadoo& Jackpot) Jaadoo and Jackpot are Bt cotton hybrids with stacked genes, cry 1Ac & cry2Ab that help
combat the bollworm pest,
 Sunflower (Sunkranti& Champ) - Champ and Sunkranti have built in resistance to SNV and DM,
 Bajara (Boss 65): The bajra hybrid Boss 65 is high yielder with attractive grain and drought enduring,
 Rice ( AK56 & KPH 9090)
 Sorghum ( Colonel )
 Several of pipeline maize hybrids (25K60, KMH 3669and KMH 2700) excelled in performance in All India Coordinated
trials
The company has extended cropped area and diversified crops by adding newer ones for agri -seed business. Red gram,
onion, mustard and wheat are the additions to the crop cafeteria of the company. Furthermore, the company has
successfully launched several new hybrids of sunflower, cotton and bajra in the market . The product portfolio is also
expanded for maize, rice and vegetable crops inclusive of both-hybrids and OPVs (Open-pollinated variety).

R&D Infrastructure:
 Dedicated research farms of 700 acres (own & leased) land under varying agro-climatic conditions located in and
around Hyderabad.
 Multi-location breeding and trial stations over 70 centres across India.
 R&D program witnessed progress with increase in multi -location trials and more number of notifications.
 Company received notifications of 2 hybrids in rice, 1 hybrid in maize, 1 hybrid in pearl millet and 1 hybri d in
sunflower.
 Apart from tie-up with Monsanto for pest technology for BT cotton, it has developed all the technology on its own.
State-of-the-art biotech quality check and seed technology laboratory enable crucial quality processes:
Gene bank maintains approximately 6,500 germplasm accession in field and vegetable seeds. It facilitates genetic
enhancement and multidisciplinary crop improvement research programmes . Vegetables business could grow
significantly on the back of increased investment in R&D, supply chain and S&M.
Investment in Biotechnology is accelerating the breeding program of cotton and rice:
Company’s investment in Biotechnology has started paying off in term of accelerating the breeding pr ograms of cotton
and rice. Company’s focus and thrust of R&D biotech program is divided into two areas.
(i)Crop biotechnology (ii) Bio pesticides and Bio fertilizers
The on- going Biotech program involves (i)Introgression of BT gene (Bollgard incorporation in to parental lines of
cotton (ii) stacking two BT genes (Bollgard II) in to parental lines of cotton and develop BT cotton hybrids. Th e
marker based DNA technology is helping in fast track development of lines through back cross breeding. Through
the co njunct use of biotechnology and hybrid technology is the way forward for evolution of new generation Kaveri
hybrid s.
Better than average Monsoon shower could help to generate more demand in current fiscal:
With the El Nino phenomenon being ruled out this year, India is expected to get a normal monsoon as per Indian
Meteorological Department forecasts and analyses done by global weather agencies. The US Climate Pre diction Center
(CPC) has ruled out the possibility of abnormal warming of waters in the Pacifi c Ocean (called the El Nino effect)
happening before August or September. Therefore, rainfall is expected to be 96% of the long period average (LPA) . The
nation receives 70% of its rainfall from the South -West Monsoon that extends from June to September. Agricultural
growth is expected to be 3 -4%, while overall GDP growth is likely to be 7% which augurs well for the agri -business
industry. There were two continuous years of drought before getting normal monsoon in 2016.
As on July 29, 2017 the cumulative countrywide rainfall still remains normal. Southwest Monsoon was vigorous over
South Rajasthan and Sub-Himalayan West Bengal. While active Monsoon was observed over Gujarat, West Madhya
Pradesh, Assam, Himachal Pradesh, Uttarakhand, Coastal parts of Telangana, Coastal Tamil Nadu along with West
Coast.
As on July 28, the cumulative countrywide rainfall continues to stand at 4%. As far as the regional distribution is
concerned, Northwest India is surplus by 17% Central India continues to stan d at 13% whereas, South, East and
Northeast India are rain deficient by 16% and 6%, respectively.
Focus on new products could help to garner revenue going forward:
KSL has added 8 new products in the portfolio and 3 new products launched in Maize, 3 in Ba jra and 2 in Rice.
Company has increased number of demonstration of pre commercial products for promotions. Apart from this,
compan y has introduced sales productivity tool. For vegetables, company has built an exclusive sales team of
more than 20 dedicated employees. Company has also launched new products, built a focused distribution network and
are evaluating in -licensing opportunities.
KSCL’s attempts to professionalize and institutionalize its business by inducting senior professionals across its key functions
and beefing up its internal systems and processes could result in value creation over the medium term.
Over the last few quarters, KSCL has employed COO, CFO supply chain head, R&D head and marketing head for its
various divisions from outside. This will bring greater professionalism and result in better performance for the company
going ahead .

Risk and Concerns:

Atmospheric/weather changes:
Changing climate conditions such as continuous dry spell, high temperature, erratic rainfall, excess rainfall may drastically
impact commercial seed production of the Company. Changing rainfall patterns makes farmers to move f rom one
crop to another to suit the growing conditions.
Inventories write off could impact profitability:
KSCL has written off around 66.6 crore in FY17 compared to Rs. 43.1 crore in FY16. Inventory write-off could be in the
range of 4-5% on sales volumes for every year, but in a bad year it could go up to 10%. In normal course, company
writes off inventory because of unsold old seeds. However, company follows first in and first out policy (FIFO)for
inventory issue.
Poor Monsoon and unsupportive commodity prices:
Consecutive weak monsoon and unsupportive commodity price has impacted Kharif and Rabi seasons in the past two
years. Resultantly, farm income fell which led to farmer trading down and curtailing investments which led to lower
than expected revenue growth for seed companies.
Regulatory risks from the Central/State Governments on issues of distribution, prices, royalties etc.:
The Central Govt has authority to decide on prices of seeds, while state Govts can approve or disapp rove suppliers of
seeds (especially hybrid).
Change in taxation law:
KSCL derives ~65% of its revenue from cotton seeds. Most seed companies including Kaveri report their earnings
as agricultural income; hence they don’t pay corporate tax. Any change in tax law could adversely affec t the
company’s profitability and the return ratio .
Overdependence on Cotton seeds:
Currently cotton seeds contribute 65% of total revenues for the company. Currently two products, ATM and Jadoo,
contribute 50-70% of the company’s cotton sales, but withnew product launches, the contribution should come down
g oingahead.
KSCL is aware of this and has reiterated its strategy to increa se its focus on noncottonseeds and highlighted that the
company is in process ofdeveloping a vegetable seeds portfolio, which should startcontributing to the financ ials
within 1-2 years. Managementhighlighted that the company plans to introduce three new p roductsfor rice, two for
maize, and one for cotton in FY18.
Pink bollworms have begun to develop resistance to Bt cotton, and if this problem intensifies in the next few years,
there could be adecrease in acreages of Bt cotton, hurting KSCL’s sales.
Dependence on two states – AP and Telangana:
These two states account for 53.7 % of revenues for KSCL. Any untoward regulatory or weather development in
these two states could impact the prospects for KSCL. The company is taking steps to expand its geograp hical presence
and reduce its dependence on these two states.
Seasonality: Almost 70-75% of sales by KSCL happens in Q1 of any year.

Q4FY17 results review:

In Q4 FY17, KSCL reported 2% (YoY) Standalone Revenues growth at Rs. 40.30 crore led by lower contribution from a
cotton perspective in Q4, which is normal in nature. Profitability has been impacted by inventory write off s and an
exceptional item. EBITDA and PAT declined by 214% and 72.4% on YoY basis. The exceptional item was Rs 59.23 crore
paid to Monsanto for royalty issue. The legal case has now been settled amicably and Rs 59.23 crore represents a full set
tlement of any outstandin g payment in this regard for FY16. This will ensure access to technology from the MNC giant
in future for KSCL. In FY17, the company has launched eight new products including three in maize, three in bajra
and two in rice.
View and Valuation:
KSCL’s diversified products portfolio, superior R&D capabilities , pan India distribution network, efficient supply chain and
strong relations with farmers are key rationale for long term earning visibility. Increase in cotton cultivation in kharif
2017 could bring in enhanced revenues and margins for KSCL. The recent completion of Buyback could result in increased
r eturn ratios, by reducing the equity base resulting in long term increase in shareholder value. Even after the recent
buyback entailing an outgo of Rs.200 cr and paying healthy dividends year after year, KSCL could end up with a cash
per share of Rs.94 in FY19E.
Government’s sharper focus on the seeds industry and the introduction of new hybrid seeds for Cotton , Rice and Maize by
KSCL would drive revenues for the company. Further, KSCL plans to increase its market share in Cotton Seeds by
penetrating the markets of Andhra Pradesh and Maharashtra and widening its overall presence in North India, Gujarat
and Rajasthan.

Kaveri’s cotton seed volumes should rebound strongly in FY18-FY19 (due to higher acreage and higher cotton prices), its
growing footprint outside AP and Telangana could also help derisk its business and bring new growth triggers , and its
improving operating leverage, should drive a sharp growth in PAT over the next two years.

We feel investors could buy the stock at the CMP and add on dips to Rs. 622 -628 band (~19.5x FY19E EPS) for sequential
targets of Rs 771 (24x FY19E EPS) and Rs 867 (27x FY19E EPS). At the CMP of Rs 695 the stock trades at 21.6x
FY19E EPS.
 Quarterly Financials:
Particulars, Rs in cr Q4FY17 Q4FY16 YoY-% Q3FY17 QoQ-% FY17 FY16 YoY-%
Net Sales 40.3 41.1 -1.9% 67.9 -40.6% 669.9 716.5 -6.5%
Raw Material Consumed 82.0 74.3 10.4% 138.1 -40.6% 378.4 363.5 4.1%
Stock Adjustment -37.8 -53.8 29.7% -100.6 -62.4% 19.1 22.0 -13.3%
Employee Expenses 6.4 9.9 -35.2% 7.4 -13.7% 32.5 31.2 3.9%
Other Expenses 76.1 17.1 343.7% 19.5 290.0% 161.3 109.0 48.0%
Total Expenses 126.7 47.5 166.5% 64.5 96.6% 591.3 525.7 12.5%
EBITDA -86.4 -6.5 -1239.5% 3.4 -2648.7% 78.6 190.8 -58.8%
Depreciation 6.6 7.0 5.6% 6.9 -4.8% 28.5 25.0 14.1%
EBIT -93.0 -13.4 -593.7% -3.5 -2556.0% 50.1 165.9 -69.8%
Other Income 1.8 4.2 58.3% 10.1 -82.5% 34.4 11.7 194.4%
Interest 0.0 0.0 0.0% 0.0 0.0% 0.1 0.2 -29.4%
PBT -91.2 -9.2 -891.6% 6.6 -1490.7% 84.4 177.4 -52.4%
Tax -4.0 1.2 431.1% 3.0 -234.2% 5.9 5.1 16.1%
PAT Reported -87.2 -10.4 -736.8% 3.5 -2556.1% 78.5 172.3 -54.5%
EOI -58.0 0.0 - 0.0 - -58.0 0.0 -
PAT Adjusted -29.2 -10.4 -179.9% 3.5 -921.7% 136.5 172.3 -20.8%
EPS (Adj) (Unit Curr.) -12.6 -1.5 -736.4% 0.5 -2576.5% 11.4 24.9 -54.5%
(Source: Company, HDFC sec)

Segment wise revenue: Segment wise Volume

Rs in Cr FY15 FY16 FY17
Cotton Seed 684 422 358
Hybrid Rice Seed 29 32 28 Mn Packets FY15 FY16 FY17
Maize Seed 140 138 161 Cotton Seed 8.6 5.6 5.4
Others 153 158 Hybrid Rice Seed 1.5 1.7 1.6
Total 745 705 Maize Seed 10.1 9.2 10.9
Financials
Income Statement
Particulars, Rs in Cr FY16 FY17 FY18E FY19E
Revenue from Operations 744.9 705.0 820.7 898.2
Cost of Material Consumed 375.1 391.2 344.7 382.6
Changes in Inventories 23.1 18.1 24.6 29.2
Employee Benefit Expenses 39.9 39.9 48.4 54.8
Other Expenses 120.9 116.2 197.0 211.1
Total Expenses 559.0 565.4 614.7 677.7
EBITDA 185.9 139.5 206.0 220.5
Depreciation & Amortisation Exp 27.4 30.2 30.4 32.3
EBIT 158.5 109.3 175.5 188.2
Other Income 13.1 34.4 32.0 32.3
Finance Costs 0.2 0.2 0.2 0.2
PAT before Except- Item 171.3 143.5 207.4 220.3
Exceptional Items 0.0 59.2 0.0 0.0
PBT 171.3 84.3 207.4 220.3
Tax 5.5 7.0 9.3 8.8
PAT 165.9 77.3 198.0 211.5
Less: Minority Interest -0.4 -0.5 -0.6 -0.4
Pat adjusted 166.3 137.1 198.6 211.9
Earnings per share 24.1 19.8 30.1 32.1

Balance Sheet
Particulars FY16 FY17 FY18E FY19E
EQUITY AND LIABILITIES
Share Capital 13.8 13.8 13.2 13.2
Reserves & Surplus 913.4 1000.2 884.3 1022.1
Share Holders Funds 927.2 1014.0 897.5 1035.3
Minority Interest -0.2 -0.7 -0.6 -0.5
Long Term Borrowings 1.6 4.6 3.1 4.1
Deferred Tax Liability 0.0 0.1 0.1 0.2
Other Long Term Liabilities 8.5 8.7 9.1 9.6
Non Current Liabilities 10.1 13.4 12.4 13.9
 Trade Payables 216.2 281.6 269.8 283.0
Other Current Liabilities 200.1 197.8 217.5 239.3
Short Term Provisions 7.3 21.5 23.6 26.0
Current Liabilities 423.5 500.9 511.0 548.3
Total 1360.7 1527.6 1420.2 1597.0
ASSETS
Fixed Assets 221.2 234.2 248.8 251.4
Non Current Investments 0.7 2.4 2.7 2.9
Deferred Tax Asset 0.3 0.6 0.7 0.7
Long Term Loans and Advances 0.0 3.8 3.6 3.4
Other Non-Current Assets 3.7 2.9 3.2 3.3
Non-Current Assets 226.0 243.9 258.9 261.8
Current Investments 522.4 710.0 497.0 621.3
Inventories 504.4 447.8 517.1 553.7
Trade Receivables 80.4 85.4 101.2 105.8
Cash & Cash Equivalents 9.5 21.0 24.7 31.9
Other Current Assets 18.0 19.4 21.4 22.5
Current Assets 1134.7 1283.7 1161.4 1335.2
Total 1360.7 1527.6 1420.2 1597.0

Key Ratios: (Source: Company, HDFC sec)

Particulars FY16 FY17 FY18E FY19E

No of Equity Shares-cr 6.9 6.9 6.6 6.6
Enterprise Value-cr 4784.6 4776.1 4565.3 4559.1

EPS 24.1 19.8 30.1 32.1

Cash EPS (PAT + Depreciation) 28.1 24.2 34.7 37.0
Book Value Per Share(Rs.) 134.3 146.8 135.8 156.6

PE(x) 28.8 35.0 23.1 21.6

P/BV (x) 5.2 4.7 5.1 4.4
Mcap/Sales(x) 6.4 6.8 5.6 5.1
EV/EBITDA 25.7 34.2 22.2 20.7

EBITDAM (%) 25.0% 19.8% 25.1% 24.6%

EBITM (%) 21.3% 15.5% 21.4% 20.9%
 PATM (%) 22.3% 19.4% 24.2% 23.6%

ROCE (%) 18.5% 14.1% 23.0% 21.2%

RONW (%) 17.9% 13.5% 22.1% 20.5%

Current Ratio 2.7 2.6 2.3 2.4

Quick Ratio 1.5 1.7 1.3 1.4

Debt-Equity (x) 0.0 0.0 0.0 0.0

One Year forward P/E One Year Daily Price (Source: Company, HDFC sec)
Chart
(Source: Company, HDFC sec)
Fundamental Research Analyst: Abdul Karim ([email protected])

HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022)
2496 5066Website: www.hdfcsec.com Email: [email protected].
Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600
_ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ __ _
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