Kaveri Seed Company Fundamental Analysis and Future Outlook
Kaveri Seed Company was incorporated in 1986 recognizing the need to accelerate crop productivity and ensuring food security in India. The company operates mainly in two segments named field crops seeds and vegetable crops seeds. The company’s business model is to provide quality seeds to the farmers, backed by breeding and biotech innovations which overall improves crop productivity.
- Kaveri Seed Company operates in a highly competitive industry where market leadership is achieved through pricing power, scale and distribution reach.
- The company has 1 lakh+ seed growers across 12 different agro-climatic zones in India along with a 65,000+ acres of land for seed production. They also have an R&D team of 100+ employees working towards new hybrid innovations in agriculture and building a new product pipeline for the company.
- Kaveri Seed Company is based out of Hyderabad and has 7 seed processing plants along with distribution and marketing offices in 22 cities across India.
- The company also has 36,000+ distributor touch points along with a presence in 6 other countries, namely, Egypt, Pakistan, Bangladesh, Nepal, Myanmar and Sri Lanka. Kaveri Seed Company is one of the largest organized hybrid seed producer and distributor in India.
- However, there are many other players like Advanta, Renova Seeds, Suttind Seeds, Mangalam Seeds, VNR Seeds, Nuziveedu Seeds, Namdhari Seeds etc which more or less have similar products. Therefore Kaveri Seeds company does not have any significant economic moat which can help them to deter competition.
I have evaluated the company on 10 fundamental categories and each has been given a rating out of 5 stars. From this, I have arrived at a combined stock rating for the company.
This is the summary of the analysis. You can read the detailed analysis with the excel models on my blog (Check the source link)
Source: Kaveri Seeds Fundamental Analysis and Future Outlook
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- The impact of COVID-19 on the business will only be due to disrupted supply chains this year. Further, in the coming years, the demand for cotton will reduce in the country due to the slowdown expected in the Textile and Exports demand. The company still remains heavily dependent on Cotton seeds business and can witness a double-digit revenue decline in the coming years.
- The vegetable seed market in India is worth INR 30 billion and is expanding each year. The company expects vegetables to generate revenue of INR 250 Million in FY 2020, registering a growth of 70% YoY. The company is looking forward to expanding its portfolio of seeds in this category.
- Before the COVID-19 outbreak, the management had optimistic revenue guidance for FY 2020. The company expected total revenue to grow 15–20%. The cotton revenue was expected to grow 10–15% and non-cotton revenues by 20–25%. The numbers may see a decline after the Q4 results are announced.
- Profitability in Cotton seeds is increasing as the company has implemented various new technologies. The current profit per seed packet is around INR 10–15. The company is looking forward to expanding its margin in Maize seeds business as well.
- The hybrid seed market stands at 45–50 Kilo Metric Tonne. Uttar Pradesh, Chhattisgarh and Jharkhand are key hybrid markets and the company has a good market share in these areas.
Overall the company has shown improvement in business efficiency and has seen a good growth both in terms of volume and margins across its key offerings. However, concerns still remain about heavy dependence on Cotton and Maize which can see a reduced demand in the post-Covid-19 era. Therefore this category gets 3 stars in Kaveri Seed Company Fundamental Analysis.
Subscribe to my Blog: Subscribe — Billion Dollar Valuation
Join my Telegram Channel
