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India Nivesh
Kaveri Seed (Buy)
CMP: ₹470.4
Target: ₹627
Kaveri Seed’s (KSCL) Q3FY20 consolidated revenue of ₹122 crore (+43.9 per cent y-o-y) was driven by strong volume growth of 65.6 per cent y-o-y and 27.2 per cent y-o-y in maize and paddy, respectively. EBITDA stood at ₹10.5 crore vs an operating loss of ₹40,000 in Q3FY19. Margin came in at 8.6 per cent (expansion of 857 bps). Consequently, adjusted PAT grew 159.5 per cent y-o-y to ₹8.3 crore. For 9MFY20, revenue/PAT grew 14.7 per cent/10 per cent y-o-y with margin expansion of 188 bps (to 30.7 per cent).
Outlook & valuation: Going forward, KSCL’s growth is contingent on stability in the cotton business and strides in the high margin non-cotton business. The company has shown robust performance in the non-cotton business in 9MFY20, outpacing the industry growth. There have been market share gains in Maharashtra, Bihar and parts of UP for maize, while the company’s market share in the key hybrid rice markets of UP, Jharkhand and Chhattisgarh has remained robust. Going forward, we expect the company to post revenue/PAT CAGR of 10 per cent/9 per cent over FY19-21E.
We find comfort in the valuations at 11.7x/10.8x FY21E/22E EPS, and initiate coverage on KSCL with a ‘buy’ rating.
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