Kaveri Seed Company - Non-cotton seed portfolio growing well - ICICI Securities

Highlights: (1) Non-cotton portfolio i.e. hybrid rice seeds, selection rice seeds, maize seeds, vegetable seeds reported 55.9%, 54.6%, 17.7% and 64.5% revenue growth in FY21, respectively, (2) Cotton business reported revenue decline of 2.2% in FY21 and (3) Kaveri continues to introduce new products backed by strong R&D. It is helping Kaveri improve realizations as well as margins. We remain positive on Kaveri with the success of non-cotton seeds and its market share gains in cotton seeds in states like Gujarat, Maharashtra and Haryana. Success of these initiatives will de-risk the current business model centred around cotton seeds in South India. The stock is at an attractive price with its valuation close to mean P/E, and FCF yield of 6.6% on FY22E. Maintain BUY with DCF-based TP of Rs875 (12.6x FY23E, Earlier TP-Rs710).

- Q4FY21 result: Kaveri reported revenue growth of 1.8% YoY. However, adjusted PAT declined 333% YoY. EBITDA margin declined 400bps YoY. During FY21, the cotton seeds volume declined 1.9%, however hybrid rice, maize and vegetable seeds volumes registered strong growth of 48.2%, 9.4%, and 47.1%, respectively.

- Segmental performance: Revenues of cotton seeds declined 2.2% in FY21. The revenues of hybrid rice, maize and selection rice seeds were up 55.9%, 17.7% and 54.6%, YoY, respectively. Higher revenue growth in premium products boosted realisations. Vegetable seed revenues were up 64.5%, largely driven by growth in seeds of hot pepper, tomato, gourds and okra.

- 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.

- Steady launches of new products: The company is steadily introducing new products across all the segments i.e. cotton, maize, vegetables and rice. We believe steady launches will allow the company to improve realizations and margins.

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 16.1%, respectively, over FY21-FY23. We value the stock on DCF-based target price of Rs875 (12.6x FY23E).

Shares of KAVERI SEED COMPANY LTD. was last trading in BSE at Rs.704.65 as compared to the previous close of Rs. 719.05. The total number of shares traded during the day was 36875 in over 1661 trades.

The stock hit an intraday high of Rs. 734.8 and intraday low of 698.95. The net turnover during the day was Rs. 26207969.

Source : Equity Bulls

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