Cholamandalam securities' research report on Kaveri Seed Company
In 1QFY21, revenue increased markedly by 114% YoY to ₹7.4bn. Cotton seed volumes grew 5% despite challenges faced by the industry due to illegal sale of cotton seeds in the market. EBITDA was up 20% YoY to ₹2.8bn. EBITDA margin expanded 170bp YoY to 37.3%, mainly due to savings on royalty payment of ₹140m and savings on travel costs. This was partially offset by contraction in gross margin. The growth in Cotton sales was mainly driven by early sowing this year. The company reported higher volumes in India’s North/West markets. However cotton production was down in key states (Maharashtra and Gujarat) due to price decline and adequate stock in the market. This has discouraged farmers from shifting to Soybean in Maharashtra and groundnut in Gujarat.
Government support schemes such as ‘Rythu Bandhu’, market share gains and good monsoon likely to support sales growth for FY21. The optimistic guidance from the management on delivering healthy growth across segments adds credence to value the stock at 14.0x FY22E EPS to arrive at our target price of ₹618, maintaining our BUY rating on the stock.
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