Kaveri Seed Co Ltd Q3 FY22 Earnings Conference Call Insights

Key highlights from Kaveri Seed Co Ltd (KSCL) Q3 FY22 Earnings Concall

Management Update:

• KSCL said the company witnessed significant growth in both revenue and volumes from hybrid and selection rice and vegetable segments.

Q&A Highlights:

• Tarang Agrawal from Old Bridge Capital asked about the cotton crop outlook. Mithun Chand ED answered that the current sentiment for the cotton crop is very positive and it’s trading at an all-time high. Compared to previous year, the company is seeing positivity in the cotton crops coming up this year.  

 

• Tarang Agrawal from Old Bridge Capital also asked about the impact of government tender on the maize business. Mithun Chand ED replied that tender business usually comes in the 1H and KSCL has already lost that business since govt. couldn’t call for tenders. Also, KSCL added it doesn’t expect any business coming this year. Going forward, however, the company is not seeing an issue with normalcy coming back.

 

• Tarang Agrawal from Old Bridge Capital asked about the closing inventory for cotton for FY22. Mithun Chand ED said that it’s too early to predict but should be in the 8-9 million range, in line with last year figures.  

 

• Abhijit Akella of IIFL asked about the reason for the decline in hybrid rice business. Mithun Chand ED answered that it’s due to some spillover sales which was carried in 3Q22 and in FY22 selection rice moved a lot in terms of the hybrid paddy. However, going forward KSCL is seeing a good adaption of hybrid rice segment. And there is no change in the 20-25% growth outlook in hybrid rice.

 

• Abhijit Akella of IIFL also asked about the 3% decline in vegetable segment in 3Q22. Mithun Chand ED replied that excess rains in Northern and Central India impacted vegetable business in 3Q22. Okra being a major contributor in 3Q22, KSCL couldn’t gain sales as anticipated in the quarter. However, 4Q22 saw a good start in sales.

 

•  Srikant Varma from State Bank of India asked about the effect on EBITDA margin from raw material price increase. Mithun Chand ED replied that price increase is a routine activity in the business and most of the time company passes it on to the end farmer. As of now, KSCL doesn’t see any stress on the EBITDA margins.

 

• Ashish Agrawal asked about the slowing down of cotton business, it’s outlook, and KSCL’s market share. Mithun Chand ED commented that even though cotton as a contribution to the overall revenue has come down, but it’s a important crop for KSCL. Cotton is contributing 35-40% of revenue for the company. As a crop KSCL doesn’t want to lose any focus in cotton. But as non-cotton segments are growing much faster, the company is speaking more of non-cotton segment. KSCL is seeing cotton business picking up going forward.

 

• Ashish Agrawal asked about the anticipated volume growth for the cotton segment for the coming 12 months. Mithun Chand ED replied that the company maintains only 10% growth in FY22, even though KSCL is seeing a lot of positivity in cotton crop coming up this year.

 

• Ashish Agrawal also asked about the margin profile on cotton, rice and maize. Mithun Chand ED said that on non-cotton crops, the company is getting better margins, but cotton is slightly under stress. However, as an industry, KSCL still realized more than the industry. Therefore, in the next 12-14 months, the margins should be in line with the previous year.

 

• Sumant Kumar of Motilal Oswal asked about the cotton seed inventory and sale outlook. Mithun Chand ED said that on the inventory, KSCL is conscious about the longevity of the seeds and inventory management. The production the company has would last for next 2-3 years and is seeing no threat in terms of the write-off or not using the seeds. Regarding the sale, with the present inventory, KSCL can easily supply to the market.