Poor rains, low acreage to weigh on cotton seed vol: Kaveri

Kaveri Seed has lowered its FY17 guidance on cotton seeds and also its volume guidance to 7-7.7 million packets from 8-8.5 million packets.C Mithun Chand, Wholetime Director, Kaveri Seed in an interview to CNBC-TV18 said the reasons for lowering guidance were poor monsoons, lower cotton acreages, subdued crop prices and lower sales. "FY16 has been a tough year for the whole industry," he said.Monsanto had taken 9 seed companies to court demanding trait fee on use of proprietary Bollgard-II BT knowhow on cotton hybrids.On the issue of ‘Trait Fee’ he clarified that the company has cleared all the dues to Monsanto till 2015, although they have claimed for a refund since 2011. “We have a strong case to fight,” said Chand. However for FY16, they still have a dispute to the tune of Rs 66 crore and if the ruling goes in favour of Monsanto then the company will have to pay the amount, said Chand.On the write-offs, he said most of them have been accounted for the first half, although there could be some in H2 but not high enough.
Kaveri Sees had rallied from Rs 250 to Rs 1000 in year and half but since April it has come under severe pressure and is down to Rs 400 now.Below is the verbatim transcript of C Mithun Chand’s interview with Reema Tendulkar& Sonia Shenoy on CNBC-TV18. Reema: Could you tell us what is the reason for lowering your FY17 guidance in cotton seeds and what will this mean in terms of the kind of revenues that the company will be able to clock in FY16 as well as in FY17? A: As you are aware this year was a very tough year for the entire industry. The monsoon was down by more than 14-15 percent across India. Specifically in parts like Andhra Pradesh, Karnataka and Maharashtra the monsoon deficit was closed to 20 percent in most of the area. Compared to previous year the cotton acreages and the volumes were down -- combined it was down close to 20-23 percent. Delayed rains affected because most of the cotton crops, pulses and other oil crops. So that is the main reason for our lower sales in this quarter and particular to this year. Going forward to we the commodity prices and cotton acreages will again come up to last year levels. That is one of the reasons why we have slightly lowered our guidance for FY17. Sonia: In fact it has been two straight years of sub-par monsoons so there is some amount of lag effect as well I guess that you will see in terms of sales. What is the region wise performance, if you can tell us where are you seeing a big hit in sales in terms of different geographies? A: If you take the cotton crop then Maharashtra and Andhra Pradesh are the two big contributors for the entire cotton acreages. We are pretty strong in Andhra which where we have more than 40 percent market share. These are the two parts where I have been affected and more particularly in Andhra because the acreages are down by more than 50 percent in some areas where we have more than 60 percent market shares. The other regions like Maharashtra, Gujarat and Madhya Pradesh (MP) we have increased the market share as compared to previous year in the sales turnover. In terms of the market share we have taken hit only in Andhra and to some extent in Karnataka. However, in next one-two years it won't be difficult to going back to our original level in terms of the market share. Basically, the season has not supported the entire industry. We think that at least next year should be a good sense. Even the commodity prices if you take cotton because cotton is the major contributor for our revenues, the commodity prices have not moved whereas the commodities like pulses have moved higher. So we have slowly shifted to those crops but I think in the next one or two years we need to come back to cotton. These are regular cycles in the agriculture sector, these are not new one but this is the first year in the last three – four years. Reema: In this quarter you have seen some write-offs on account the seed returns will that continue in Q3 and Q4 and what could be the quantum? A: Most of the write offs have been accounted up to Q2 in the first half. However, we may have some more write off but may not be major write-offs. In industry write-off is the common phenomenon but this year. We place a stock well in advance in the market on anticipated a growth over the previous year but in fact the acreages were down and returns went to 40-45 percent in some areas. So most of the stock which was returned to the godowns should be written-off because as the seed loses its germination over a span of 6-12 months. So, that is main reason for write off and some other Rs 10-15 crore higher might come in that of in the next half also that we need to see on a regular basis. As of now we don’t see that one but if something comes in that is the tune if we have seen for the next half. Sonia: The other issue is trade fee issue with Monsanto where Monsanto has taken a lot of seed companies to court including yourself. If the decision does go in favour of Monsanto what kind of an impact would it have? What could the penalty be? A: Till 2015, we have cleared all the dues; even though we are claiming refunds from 2011 till 2015 we have paid the entire amount to Monsanto as per their agreements. Only for the financial year 2016 we had a dispute with Monsanto to the tune of Rs 66 crore and as an industry it might be much higher but as a company we have a dispute of only Rs 66 crore. If you see the merits of this case, as a industry we think that we are on very strong case to fight for and we think that definitely as per the merits we think the company should get benefit out of this. It is basically the question whether the government can fix the trait value or not. If yes to what extent and at MSP can be fixed. These are the issues which are going on and matter is already in the court.