By admin       2019-04-05

We note that Kaveri has launched multiple variants of rice (selection+hybrid) and maize seeds. The firm is also investing in development of vegetable seeds. 04 April, 2019 .The Andhra Pradesh government has reissued licence to Kaveri Seeds to sell cotton seeds in the state. We note that the licence was suspended in January 2019 and there has been loss of revenues for ~50 days. We consider this a negligible impact as cotton seed sales in Andhra Pradesh are less than 5% of Kaveris net sales. Also, March quarter accounts for just ~5% of annual revenues. We believe the companys long-term growth story remains intact and it is on the right path to craft new growth avenues via product and geographical expansion and de-risk the current business model of selling cotton seeds in south India.The Andhra government, in January 2019, had suspended the licence of 13 seed firms (including Kaveri) to sell cotton seeds. However, after an appeal by the companies and studying various representations, the government has reissued their licences. Kaveris only one variant of cotton seeds (KCH 707 BGII) which accounted for less than `2 million revenues in FY18 is still suspended.Also, as the firm has got the licence before the kharif season starts, it will be able to manufacture as well as distribute seeds before the sowing season starts in June-July 2019. We expect negligible impact on Kaveris Q1FY20 revenues.Kaveri is working toward the dual objectives of expanding product portfolio and geographical presence. It has entered western India to sell cotton seeds and plans to expand in north India. It is also in the process of starting exports of seeds to eight countries. We note that Kaveri has launched multiple variants of rice (selection+hybrid) and maize seeds. The firm is also investing in development of vegetable seeds.We note Kaveri has created strong value (FCF) over the past decade and we remain positive on the medium-term growth outlook. We expect the firm to report revenue and PAT CAGRs of 7.6% and 9.4%, respectively, over FY18-FY21. Over the past decade, the stock has traded at an average P/E of 20x, but considering the slower growth over FY18-FY21E, we value the stock at a DCF-based revised target price of `598, implying a target P/E of 16xFY20E.

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