Kaveri Seeds vegetables business set for strong growth: Motilal Oswal

By: |
Published: October 18, 2017 3:43:48 AM

The company plans to introduce nearly 50 products in vegetables over the next two-three years, taking the total tally of products in this segment to 65. Notably, margins in vegetables are significantly higher at ~50% versus the company’s blended margin of ~20%.

The vegetables business is poised for strong growth of ~200%, with revenues expected to increase from Rs 60 m in FY17 to ~Rs 180 m in FY18; much of this growth is likely to materialise in H2FY18. (Reuters)

Kaveri Seeds (KSCL) is highly dependent on the cotton business, which contributes ~60% of its overall revenues. However, of late, management has increasingly shifted its focus toward the higher-margin non-cotton business (target to take its share to 50% of overall revenues over FY18-20, especially the less-penetrated vegetables segment). The vegetables business is poised for strong growth of ~200%, with revenues expected to increase from Rs 60 m in FY17 to ~Rs 180 m in FY18; much of this growth is likely to materialise in H2FY18. The company plans to introduce nearly 50 products in vegetables over the next two-three years, taking the total tally of products in this segment to 65. Notably, margins in vegetables are significantly higher at ~50% versus the company’s blended margin of ~20%. Both the cotton and non-cotton businesses would be ramped up by strengthening the distribution network from 15,000 now to 20,000 by FY20.

Although the overall area sown for kharif crops declined slightly by 0.8% y-o-y to 104.1 m ha in 2017-18 (as of September 8, 2017), we note that cotton acreage increased significantly by ~19% y-o-y to 12.1 m during the same period. The effect of better acreage was partly witnessed in Q1FY18, when KSCL sold 6.5 m packets of cotton seeds — 19% more than those sold in FY17. Despite being a seasonally-weak quarter, Q2FY18 witnessed better traction, as delayed monsoon in parts of Karnataka and other southern regions led to a rise in cotton seed sales. Overall, the number of packets of cotton seeds sold is expected to increase 28.4% y-o-y to 7 m in FY18. The company is set to recover from the impact of heavy inventory write-offs in FY17, Rs 660 m, primarily driven by higher sales return. However, given the strong cotton seed sales so far in FY18, we expect annual inventory write-off to be Rs 250-300 m in FY18, implying a reduction of over 60% y-o-y. KSCL’s cotton market share has expanded 3% so far in H1FY18 on account of increased penetration in Maharashtra and Gujarat, and also its foray into the newer markets of Orissa, Chhattisgarh and MP.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.