Kaveri Seed Company (KSCL IN, INR 1,049, Not Rated)
We recently met the Kaveri Seeds (Kaveri) management to get a sense on the industry as well as the company’s business. Despite revenue and PAT CAGR (FY07-12) of >40%, management believes the company will continue to grow at 20% CAGR in cotton crop over next couple of years (volume term); other crops are likely to register even higher growth. The under-penetrated rice market is the next big opportunity for the industry as well as Kaveri.
Cotton: Gaining market share on differentiated, high yielding seeds
Organised hybrid seeds market size is INR100bn (including vegetable seeds market size INR20bn) and is expected to post 12-15% CAGR in coming years. Of this, domestic cotton seed market is worth INR40bn and is expected to be same over the next two-three years account of declining cotton acreage in India. But management believes that per acre consumption of cotton seeds in the country is likely to jump from 1.6 packets/acre to the global standard of 2.0 packets/acre. Kaveri has increased its market share from 5% in FY12 to 10% currently, and will enhance it to 15% over the next two-three years on back of a differentiated and high yielding seeds portfolio. Nuziveedu Seeds has largest market share of 25% in hydrid cotton seeds market.
Rice: The next big opportunity
India has ~2m ha (of total 40m ha) under hybrid seed in rice crop, which is the next big opportunity for the industry as well as Kaveri. The company expects area under rice hybrid seed to grow to 4-5m ha over the following three-four years. Kaveri has ~7% market share currently (Bayer crop science has 40%-50%market share) in India and expects to post robust growth in rice crop, going forward.
Outlook and valuations: Positive; Not Rated
With high entry barriers, R&D focus and tremendous opportunity of seed business, we believe the industry as well as Kaveri is likely to post sustainable long-term growth going forward. The Kaveri stock is trading at P/E of 12.5x FY13E and 9.6x FY14E based on Bloomberg consensus earnings. We do not have a recommendation on the stock as it is currently not under coverage.
Regards,
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