By admin       2018-03-09

The industry size of cotton seeds stands at around 50 million packets per year and it stood at 47 million packets for the year 2017- 18. With a Rs 50 decrease in net realizations, this essentially means a total hit on earnings to be around Rs 250 crore for the total topline of cotton seed companies and around 50 crore net reduction in total royalty payment to the seed technology company Monsanto. Impact on companies � Companies like Kaveri seeds, whose majority revenue is dependent on the cotton seed sale are positioned to get impacted by this move. Cotton seeds form almost 60 percent of the business for Kaveri seeds � an approximate 7 million packets per year. With 2018 almost getting closed, the topline is expected to be impacted by around Rs 35 crore in 2019, approximately 5 percent of 2017 revenue. This would result in a squeeze on margins as well. Over the past years, the company has been talking about shifting focus from the high volatility cotton seed business to high margin vegetable seed business and now targets to make vegetable seed business almost 55 percent of total revenue in coming years. However, the move would only be gradual over the years and the benefits would take significant time to reflect in profitability. Outlook - On the news of the current proposal the Kaveri seeds stock has corrected 8 percent in the last 2 days and is now trading at a 2019E PE of 12x and an EV/EBITDA of 8.3x. With the approval of the current proposal, realizations stand to be impacted in the upcoming year 2019. Moreover, with consecutive breakout of the pink bollworm issues in Punjab and Maharashtra, there is an expectation of a shift in cotton acreages in the upcoming Kharif season which would impact volumes and further impact the topline. Similar to Kaveri seeds we expect impact on the topline and profitability of other seed companies like Monsanto, Rallis India � Metahelix, Nuziveedu seeds and other smaller players like RJ Biotech, Nath Biogenes (India), JK Agri genetics , etc, which have exposure to cotton seeds business.

Download App

# #

Member Login