Stocks

Kaveri Seed Company: a good time to sow

Nalinakanthi V BL Research Bureau | Updated on January 24, 2018 Published on July 05, 2015

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Sharp correction in stock prices, healthy growth prospects are positives



The share price of Kaveri Seeds, the country’s leading seed producer, has fallen over 28 per cent since March.

The sharp fall began after the Maharashtra Government decided to reduce the maximum retail price of cottonseed by ₹100 a packet.

But the cut in cottonseed price is unlikely to affect Kaveri’s profitability materially for two reasons. One, the distribution channel may share a portion of the revenue loss.

Two, cottonseed sales in Maharashtra account for an estimated 16 per cent of the company’s cottonseed sales and about 10 per cent of the company’s overall sales.

Hence, the impact of this move on Kaveri’s profitability may be limited.

Given the healthy growth prospects for other crops such as maize, rice and bajra, as well as for cottonseed, outside Maharashtra, the sharp correction provides a good buying opportunity for investors with a two/three-year investment horizon.

At the current price, the stock trades at an attractive 11 times its 2015-16 earnings.

Kaveri has a strong presence in the hybrid cotton segment — with a share of 16 per cent. This is expected to increase to 19 per cent in 2015-16, aided by higher realisation in other key cotton-growing States such as Andhra Pradesh and Telangana. This should compensate for the decline in cotton hybrid seeds in Maharashtra.

After a sedate 2014, which saw corn acreage fall by almost 20 per cent in key growing States, the area under the crop is expected to improve this year.

Kaveri is planning to launch corn hybrids, particularly in central and north India. This should help the company gain market share in the current year.

Growth potential

Other segments, such as bajra, rice and micronutrients, are also growing at a healthy pace. Given that the hybridisation in rice is less than 10 per cent, the growth potential is quite significant. The company expects its rice seed sales to grow at 20 per cent-plus in the current year.

However, further price cuts in the cottonseed segment, if they happen, can affect Kaveri’s near-term prospects.

Published on July 05, 2015

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