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Chola Securities
Kaveri Seed (Buy)
CMP: ₹511.05
Target: ₹601
Kaveri Seed Company is the largest producer of hybrid cotton seeds in India with a market share of about 15 per cent. The company has access to 60,000 acres under seed production, with farms in Karnataka, Andhra Pradesh and across the country.
In Q4, standalone revenues increased substantially by 16.1 per cent y-o-y to ₹51.92 crore. The company’s business was marginally impacted by the pandemic as the company’s business activity is listed as ‘Essential Services’. The management guided for 15-20 per cent overall growth for FY21 on the back of normal monsoon and incentives allocated to farmers by the government.
Valuation: Government support schemes such ‘Rythu Bandhu’, increase in market share and good monsoon likely to support sales growth for FY21. With optimistic guidance from the management on delivering healthy growth across segments adds credence to value the stock at 12.5x FY22E EPS to arrive at our target price of ₹601, maintaining ‘buy’ rating on the stock.
Risks: Kaveri has high concentration risk as it derives about 50 per cent of its revenue from cotton seeds and lint; decline in cotton acreage; delayed/deficit monsoon.
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