Prabhudas Lilladher recommended Hold rating on Kaveri Seed Company with a target price of Rs 601 in its research report dated June 09, 2020.
Prabhudas Lilladher's research report on Kaveri Seed Company
In 4QFY20, Standalone revenues increased substantially by 16.1% YoY to ₹519.2mn. The company’s business was marginally impacted by the pandemic as the company’s business activity is listed as ‘Essential Services’. The management guided for 15-20% overall growth for FY21 on the back of normal monsoon and incentives allocated to farmers by the government. For the FY20 Cotton volumes were up by 17% YoY to 7.23mn in packets in while revenues from cotton increased by 12.6% YoY to ₹450.2mn (vs ₹399.6mn in FY19). The Contribution from new products increased to 23.1% of total volume (up 826 bps YoY) from 14.8% in FY19. Overall the cotton market remained stable with a growth of 6.5%, the management expects the FY21 outlook to remain similar to FY20. In terms of cotton segment growth management guides for 10-15% for FY21 to be largely driven by market share gains. This guidance factors the government supported increase in cotton acreage in Telangana of 15 lakh acres. In addition, cotton being a six month crop faces limited impact from the pandemic. Maize acreage increased by 5% YoY in FY20 however the volume growth was muted resulting in a sales volume of 9,213 MT. The sales increased by 10% YoY on account of product mix and market share gains. Non-cotton segment constituting ~50% of sales and higher margins in the range of 30-35% compared to the cotton segment (15-20%). The margins in Cotton segment are lower as the prices are regulated by government leaving little scope for margin improvement. The management guided for 20-25% growth in Non-cotton segment for FY21.
Outlook
Government support schemes such ‘Rythu Bandhu’, increase in market share and good monsoon likely to support sales growth for FY21. With optimistic guidance from the management on delivering healthy growth across segments adds credence to value the stock at 12.5x FY22E EPS to arrive at our target price of ₹601, maintaining BUY rating on the stock.
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