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Motilal Oswal
Kaveri Seed (Buy)
CMP: ₹421.45
Target: ₹582
Revenue declined 5 per cent y-o-y to ₹67.2 crore (our estimate: ₹71.4 crore) in 3QFY19. EBITDA fell 99 per cent y-o-y to ₹10 lakh (our estimate: ₹8.9 crore), with the margin shrinking to 0.2 per cent from 13.8 per cent in the year-ago period. Adjust PAT was down 33 per cent y-o-y at ₹3.6 crore (our estimate: ₹4.7 crore). For 9MFY19, revenue and adjusted PAT declined 1 per cent y-o-y, with the margin down 250bp y-o-y to 29.2 per cent.
Management guidance for cotton volumes in FY20 was robust at 72 lakh packets (our estimate: 69 lakh). We, nevertheless, cut our FY21 cotton volume estimate by 3 per cent (keeping it same as that of FY20) due to lower visibility, which translates into an 8 per cent earnings cut for FY21. The downside to our estimate is the non-renewal of KSCL’s licence by the Andhra Pradesh government (got suspended recently for a year), which can impact FY20 revenue by 6-7 per cent. Given this uncertainty, which might restrict the company from taking advantage of a likely positive cotton season in FY20, we cut our multiple from 17x to 15x (~10 per cent discount to its three-year average multiple).
We, however, find comfort from the company’s reducing dependency on cotton business, with non-cotton share likely to rise up to 55 per cent in FY21.
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