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Earnings Update - Kaveri Seeds Ltd(KSCL IN) - Muted performance - CSEC Research
Posted On : 2017-06-08 22:18:56( TIMEZONE : IST )
Muted performance
- In 4QFY17, Standalone Revenues de-grew by 1.9% YoY to INR 403mn in 4QFY17. In FY17, standalone Revenue de-grew by 6.5% to INR 6,698.9mn.
- In FY17, Gross Revenue contribution: Cotton: INR 3,580mn down 15.2% YoY due to high reduction in hybrid cotton seed price ~15% YoY (Volume fell by 3.6% YoY), Maize:1,610mn, up 16.7% YoY and Hybrid Paddy: INR 280mn.
- In 4QFY17, Company reported an EBITDA of INR -272mn compared to loss of INR -64mn in 4QFY16, due to inventory writeoff of INR 201mn, mostly in cotton seeds due to inventory builtup over the last two year and seeds not meeting the germination and trait purity standards. Depreciation expense de-grew 5.7% YoY INR 66mn and other income de-grew by 58.4% YoY to INR 101mn. Net loss stood at INR 306mn in 4QFY17 due to exceptional expense of INR 592.38mn, which arised from the legal settlement with Monsanto.
Valuation With most of the headwinds and uncertainties are behind, the outlook for FY18 looks brighter, given increase in cotton price and high probability of crop rotation in favour of cotton, augurs well for cotton acerage expansion. In addition to this KSCL gaining market share and expanding its footprint reemphasis the quality of the its brands. At CMP of INR 641, the stock is trading at valuation of 19.9XFY18E and 16.8XFY19E earnings. We rollover the earnings & valuation to FY19E to arrive at a target price of INR 658 based on a target P/E of 16.5XFY19EPS and assign MARKETPERFORMER rating.
Risks: Kaveri has high concentration risk and derives ~65% of its revenue from cotton seeds and lint. 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 affect the company's profitability and the return ratio.
Shares of KAVERI SEED COMPANY LTD. was last trading in BSE at Rs.669.05 as compared to the previous close of Rs. 640.6. The total number of shares traded during the day was 163978 in over 4122 trades.
The stock hit an intraday high of Rs. 672 and intraday low of 606. The net turnover during the day was Rs. 107689947.
