Beruflich Dokumente
Kultur Dokumente
120
Net Profit 29.3 105.9 195.4 294.1 366.9
110 NPM (%) 6.1 16.1 19.7 19.6 20.4
100 FDEPS 16.5 10.9 14.3 21.5 26.8
90
P/E (x) 10.3 15.6 11.9 7.9 6.3
80
EV/Ebitda 42.0 12.5 6.6 4.4 3.7
Nov-06
Jan-07
Jun-07
Jul-07
Oct-06
Dec-06
Feb-07
Mar-07
Apr-07
May-07
Aug-07
Sep-07
October 4, 2007
AGRO
Investment Summary
Better seeds - key to enhance depressed farm yields
One of the key reasons for India's sluggish farm growth has been dramatically lower yields,
not just in comparison with the developed world but also with some of our Asian neighbours.
Comparative Global Yields
Country (Qn/hectare) USA Brazil China India
Sunflower 17 16 17 6
Corn 93 30 112 19 • Low quality seeds
Cotton 13 21 23 5
Rice 74 33 63 30 • Sub-optimum
Sorghum 42 20 38 8 Farm practices
Vegetables 571 118 171 102
Source: FAO(2006), ARG Research
Two primary reasons for such low farm yields are low-quality seeds and lack of grassroots
Quality seed key to perk up sagging knowledge about optimum farm practices.
form yeilds
The Indian government has formulated a number of policies to correct such imbalances, such
as the Rs 250,000mn agriculture policy at the Central level. Many such schemes exist at individual
state levels.
The potency of hybrid and GM seeds to enhance yields has been globally proven and the case
of BT cotton is a testimony to this in the domestic context, where India has emerged as a
cotton exporter -- from relying on imports just a few years ago.
Germplasm Product Initial Hybrid Trials Trials on Test Commercial Ramp up volumes
(2000 -3000
Collection Design by Farmers Marketing Launch through
crosses)
Selection of Advanced Hybrid Fields Geographical
in-bred lines Trial (200-300 expansion
crosses)
3-6 years
Source: Company, ARG Research
Concerns
¾ Crop and geographical concentrations: Though Kaveri has concentrated on sunflower
and corn, it has been successfully launching seeds in other segments as well. For cotton, the
company has licensed the Bt gene from Monsanto and JK Agri Genetics to be loaded
onto its hybrids. For this, certain royalties are payable.
FY 05 FY 07 FY 10E
Others Others
Others
15%
8% 23% Maize
Paddy Maize 25%
Maize
7% 43% Paddy 42%
11%
Cotton Paddy
10% 7%
Cotton
Sunf low er
6%
Cotton 21%
Sunflow er
24%
32% Sunf low er
26%
AP & Karnataka
Company Background
Kaveri Seeds was incorporated in 1986 by eminent agriculturist Mr Bhaskar Rao, who had
been in the seeds business for a decade prior and is widely credited with popularising the
hybrid seed concept in southern India. The company currently has 18,000 tpa processing
capacity, which is being enhanced to 30,000 tpa this year. It has been expanding its distribution
network and currently, with 750 distributors, has a pan-India footprint. It also has the Microteck
division (merged last year), which manufactures bio-fertilisers, bio-pesticides and micro-nutrients.
Organised Unorganised
Rs 7.39 bn Rs 5.35 bn
77% 23%
Private Public
Rs 5.69 bn Rs 1.7 bn
Cotton Rice
1% 48%
W heat
35%
Vegetables
12% Cotton
22%
Maize Sunflower
3% Jowar Bajra 3%
2% 3%
The vegetable, maize, mustard and soyabean segments are likely to see furthur movement
towards hybrids.
Key Players
Given the huge R&D costs and possibility of failure, most domestic companies start by focussing
on one crop, then start diversifying as their key product is accepted in the market.
Industry Drivers
Some of major drivers for Indian seeds are
¾ Demographic burden: India's population has been steadily increasing, while farm yields
have not been able to cope with the burden of feeding more mouths. For India to sustain
Many macro drivers positive for Indian
seeds industry a 9% GDP growth rate, agriculture has to grow at least at 4%. Hence, we will have to use
higher yielding varieties of seeds as an effective way of enhancing yields.
¾ Shrinking farmlands: Rapid urbanization, industrial growth and usurping of farm land
for SEZs are leading to less acreage available for farming, further putting pressure on
farm yields.
¾ Alternate crop use: We will also see a global trend of diversion of agri-crops to bio-
fuels, providing seed companies with opportunities to develop products meant for such
applications.
¾ Bio-technology and genetic engineering: Biotechnology has enabled development of
newer crop varieties, which hitherto were unthinkable. With the right gene-collection, one
could custom-design a plant with all desirable traits: colour, yield, pest tolerance, oil-
content, etc.
17 0
12 0
70
20
F Y 07 FY 08E FY 09E FY 10E
M ic ro te c k R e v (R s . m n )
Source: Company, AR Research
Products offered
700 40
600 35
500 30
25
400
20
300
15
200 10
100 5
0 0
FY 05 FY 06 FY 07 FY 08E FY 09E FY 10E
The margin rise in FY07 over the previous year is due more to the Growmore Farms merger
and the launching of higher-realisation hybrids in various crops.
30%
10.99% 26.10%
25%
Ebitda Margins
20%
6.85%
15%
Higher margins sustainable with upward
bias 10% 8.26%
5%
0%
FY06 Inhouse Foundation High Value Products FY07 Margins
Seeds
manufacturing
We see these margins as sustainable, given the favourable macro-economic conditions, integrated
business model and pipeline of high-value hybrids to be launched in the next two years.
Also, the company has historically been debt-averse, which places it in a comfortable situation
for furthur capex or any inorganic opportunity.
160 60
140 50
120
100 40
80 30
Balance sheet will stay unleveraged
60 20
40
20 10
0 0
FY 05 FY 06 FY 07 FY 08E FY 09E FY 10E
400 22
350
300 17
250
200 12
150
100 7
50
0 2
FY 05 FY 06 FY 07 FY 08E FY 09E FY 10E
However, the working capital has to be more efficiently managed, given the larger distribution
network now and the reversal of earlier practices of receiving advances from the channel
network.
150
100
-50
-100
FY 05 FY 06 FY 07 FY 08E FY 09E FY 10E
M o n s a n t o P /E
30
25
20
15
10
0
Nov-02
Nov-03
Nov-04
Nov-05
Nov-06
Jul-02
Jul-03
Jul-04
Jul-05
Jul-06
Jul-07
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
P /E
R e tu rn R a tio s
Kaveri is better at capital efficiency 70
leading to value accretion
60
50
40
30
20
F Y 06 F Y 07 F Y 08E F Y 09E F Y 10E
R o C E (% ) R O E (% )
Peer comparison
Kaveri earns higher margins (operating & net margins) than its peers.
Even on an EV/Sales & EV/Ebitda basis, it is available at significant discount compared to its
peers
Peer Comparision
EBITA Margin Net margin RoCE RoE EV/Sales EV/EBITDA Per(x)
Kaveri Seeds Company 35.72 19.68 42.9 28.4 2.3 1.6 6.6 4.4 11.9 7.9
Monsanto 28.78 18.42 18.74 16.21 3.9 3.7 13.71 11.05 16.05 14.33
Given the strong visibility of earnings, wide product portfolio provide necessary comfort for
attainment of our estimates.
We initiate coverage on the company with a BUY rating & a price target of Rs.236/-,
implying an appreciation of 66% from IPO price. At our target price, it will trade at 16.6x
FY08 & 11x FY09 earnings.
X
Commercial New Plant
Donor Plant Plant Variety Variety
PLANT BIOTECHNOLOGY
Using plant biotechnology, you can add a single gene to
the string. A single gene is transferred
Desired Gene Desired
Gene
+ Improved
Commercial Commercial Plant
Donor Plant Variety Variety
Key Ratios ARG Estimates Cash Flow Statement (Rs mn) ARG Estimates
Y/E Mar Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Y/E Mar Mar-06 Mar-07 Mar-08 Mar-09 Mar-10
Topline growth (%) 1.3 36.5 50.6 51.5 20.0 Consolidated PAT 29 106 195 294 367
Bottomline growth (%) 124.5 261.3 84.5 50.5 24.8 + Non-cash items 7 13 28 45 37
Operating margins (%) 8.3 26.1 34.1 33.8 33.4 Cash profit 36 119 224 339 404
FDEPS (Rs/share) 16.5 10.9 14.3 21.5 26.8 - Inc. in working capital 61 95 295 228 92
CEPS (Rs/share) 20.4 12.3 16.3 24.7 29.5 Operating cash flow (25) 24 (71) 110 312
DPS (Rs/share) - - 3.0 5.9 9.9 - Capital expenditure 47 128 562 0 -
BV (Rs/share) 43.3 27.3 81.0 96.4 112.2 Free cash flow (72) (104) (634) 110 312
PER (x) 10.3 15.6 11.9 7.9 6.3 - Dividends - - 47 94 157
P/C (x) 8.3 13.8 10.4 6.9 5.8 + Equity raised 16 85 734 - -
Dividend yield (%) - - 1.7 3.5 5.8 + Debt raised 41 (25) (99) (0) -
P/B (x) 3.9 6.2 2.1 1.8 1.5 + Inc. in minority interests - - - - -
EV/Sales (x) 4.8 3.5 2.3 1.6 1.3 - Investments (16) (63) (53) - 150
EV/ EBITDA (x) 42.0 12.5 6.6 4.4 3.7 - Miscellaneous items - 4 36 (10) (8)
Debt/Equity (x) 1.9 0.4 0.0 0.0 0.0 Net cash flow 1 14 (29) 26 13
Working capital turn (days) (54.1) 3.7 74.3 112.8 126.4 + Opening cash 33 34 48 19 45
Dividend payout (%) - - 24.0 31.9 42.7 Closing cash balance 34 48 19 45 58
Peer Comparision
Mkt. Cap EBITA Margin Net margin RoCE RoE EV/Sales EV/EBITDA Per(x)
FY08 FY09 FY08 FY09 FY08 FY09
Kaveri Seeds Company 2329 35.72 19.68 42.9 28.4 2.3 1.6 6.6 4.4 11.9 7.9
Advanta India 17666 22 12 14 17 4 3.6 18.6 16.2 34.83 24.88
Monsanto 12185 28.78 18.42 18.74 16.21 3.9 3.7 13.71 11.05 16.05 14.33
Recommendation Guide
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