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Kaveri Seed Co. Ltd’s June quarter results (Q1 FY22) were hit due to lower cotton seed volumes. Maize volumes also fell due to absence government sales in the quarter. Overall, the company’s consolidated revenues declined 12.5% year-on-year to nearly Rs630 crore.

Even so, the non-cotton business put up a good show. “Non-government sales of maize significantly higher despite flat acreages," said the company, adding, “Contribution from new introductions for maize increases strongly." Vegetable sales performed well, too.

However, these factors weren't enough for profitability. Earnings before interest, tax, depreciation and amortization (Ebitda) declined 30% year-on-year to around Rs200 crore. Accordingly, margins contracted too, by as much as 820 basis points (bps) from the year ago period. One basis point is one-hundredth of a percentage point. Higher input prices and weak operating leverage weighed on the Ebitda performance.

“Factoring in the 1QFY22 performance, we lower our earnings estimate for FY22 by 34% as 1Q contributes around 70% to annual revenue," said analysts from Motilal Oswal Financial Services Ltd in a report on 16 August. The brokerage added, “Kaveri Seed is well on track to diversify from cotton seed sales by increasing the share of rice and vegetables – which are not only growing at a faster pace but also yielding higher margins (versus the cotton segment)."

To be sure, the Kaveri Seed stock has sharply underperformed the Nifty 500 index over the past one year. ICICI Securities Ltd has maintained a ‘buy’ rating with a DCF-based (discounted cash flow based) target price of Rs706. “The stock is trading at less than its mean price-to-earnings ratio over the past five years," point out ICICI Securities. On Monday, shares of Kaveri Seed closed at around Rs607 per share on the National Stock Exchange.

 

 

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