Broker’s call: Kaveri Seed (Buy)

Goal: ₹667

CMP: ₹579.4

In Q1-FY22, Kaveri Seed Firm Ltd’s standalone income declined by 8.8 per cent y-o-y to ₹680 crore; on the again of decrease volumes in cotton and maize segments.

In the course of the quarter EBITDA fell 30 per cent to ₹190 crore whereas EBITDA margin contracted 820 bps to 31.7 per cent, primarily because of the absence of working leverage and higher-than-average returns of seeds. This has led to the provisioning of ₹22 crore and a drop in market share. Though the corporate has been largely impacted by the 2nd wave, we stay optimistic about long run earnings development prospects of the corporate given its management place, R&D focus, wholesome product pipeline, presence throughout crop classes and powerful distribution community.

The corporate stays dedicated to extend contribution of non-cotton class phase from 40 per cent at the moment to 60 per cent and has plans to launch over 50 merchandise in quickly rising vegetable phase. The optimistic steering from the administration on delivering wholesome development throughout segments provides credence to worth the inventory at 13.5x FY23E EPS sustaining our Purchase ranking on the inventory with a revised worth goal of ₹667 (earlier ₹712).

Dangers: Kaveri has excessive focus danger because it derives almost 60 per cent of its income from cotton seeds and lint; Decline in cotton acreage; Unfavourable climate circumstances. | Dealer’s name: Kaveri Seed (Purchase)


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