Buy Kaveri Seeds; target of Rs 639: Cholamandalam Securities

Cholamandalam Securities' research report on Kaveri Seeds

In 2QFY19, Standalone Revenues grew by 8% YoY to INR 752mn, which is below our estimate of INR 780mn on account of lower than expected growth in Maize seeds. In 1HFY19, Cotton volumes were down by 10.1% YoY to 6.2mn packets due to aggressive pricing strategy by smaller players, pink bollworm issue and illegal sale of HT cotton seed. Cotton revenue declined 14.1% YoY to INR 3,970mn as GoI has reduced the cotton seed price by INR 60 per packet to INR740/packer and consequently the royalty has been reduced by INR 10 per packet to INR 39. The contribution of new products in cotton went up from 9% to 20% of volume in 1HFY19. The company expects to sell 7.2-7.3mn packets of cotton seed.

Outlook

At CMP of INR 510, the stock is trading at valuation of 14.6XFY19E and 13.2XFY20E earnings. We are valuing the company 16.5XFY20E EPS to arrive at a target price of INR 639 (earlier: INR 653) and upgrade the stock to BUY rating.