Kaveri ends the year well, pins hopes on monsoon

Aided by a better monsoon forecast, Kaveri Seed Co. expects 2016-17 to be a better year

Kaveri Seed is confident of gaining market share in Maharashtra.
Kaveri Seed is confident of gaining market share in Maharashtra.

Kaveri Seed Co. Ltd gained 4.87% on Tuesday after it reported better-than-expected sales for the March quarter and indicated that it is mostly done with provisions for doubtful debts. Against an expectation of a 10-19% drop, revenue rose 10% from a year ago on higher lint (seed) sales. Still, the firm posted a loss of about Rs.7 crore as expenses rose sharply.

Employee costs doubled from a year ago on fresh hiring. Other expenses saw a sharp rise as the company provided for doubtful debts.

According to C. Mithun Chand, whole-time director at Kaveri Seed, with the latest write-off, the company has provided for most of the doubtful debts. Trade receivables halved from a year ago.

January-March is a small quarter for seeds companies. A disproportionate part of the business is done in the first nine months of a fiscal year. That said, Kaveri Seed did well to reduce trade receivables. Aided by a better monsoon forecast, it expects 2016-17 to be a better year. Last fiscal year, revenue fell 23% on weak demand and market share losses.

In the current fiscal year, the firm expects the non-cotton seeds business to do better. The segment, which includes maize, paddy and millet, is estimated to grow 20-25% on better farm gate price outlook, Chand said.

The management also expects the cotton seeds business, which generates around 60% of Kaveri Seed’s revenue, to do better than the year gone by. It is confident of gaining market share in Maharashtra. Acreages in Andhra Pradesh and Telangana are estimated to fall due to discouragement of cotton crops by the state governments. But helped by marketing efforts and credit facilities, Kaveri Seed plans to gain market share in these states also.

Gaining market share in the cotton seeds business will not be easy though. Competition is fierce. “Also, our channel checks suggest that it is going to be pretty difficult for Kaveri to regain market share this year as Jadoo (Kaveri’s Bt cotton brand) is now a 7-8 year old hybrid. Hence, we await clarity on market share revival,” a domestic brokerage firm said in a note to clients.

Apart from cotton seed sales, investors will also have to keep an eye on court rulings on Bt cotton royalty. An adverse ruling can hurt Kaveri Seed’s earnings as it will have to allocate more money for royalty payments.

The writer does not own shares in the above-mentioned companies.