Kaveri Seed Company - Sowing more seeds of success - IIFL

Kaveri Seed's management is confident of at least a 20% Cagr in revenue from cottonseed, driven by continued market share gains. It also expects revenue from other seeds to grow at least as fast, driving strong earnings growth for the company. Valuations remain undemanding at 10-11x potential FY14 EPS.

- According to the company, advance receipts from cottonseed dealers for the upcoming kharif season are up c10% YoY despite challenging industry conditions. Management also expects Kaveri's year-end inventory of cottonseed to increase at least by 25-30% YoY, indicating that the company is prepared for at least that much growth.

- The cottonseed industry faces a massive overhang of leftover inventories (>50% of annual sales). However, Kaveri itself has no inventories, thanks to the exceptional success of its Jadoo hybrids that has helped it double market share in FY13. In addition, Kaveri's new cotton hybrid, branded 'ATM,' reportedly offers even higher yields than Jadoo and will support Kaveri's thrust for further market share gains.

- Among other seeds, Kaveri expects continued healthy growth in: 1) corn, in which it already has a significant presence; and 2) in paddy in which its hybrids have topped ICAR trials ahead of MNC competitors. Current valuations do not seem to factor in management's expectation of continued strong growth in earnings.

Source : Equity Bulls

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