Buy India's Largest Agri Stock For Target Price Of Rs 560, Co. Specializing In Hybrid Seeds

Motilal Oswal, a leading brokerage firm, has recently published a report on Kavari Seeds Company Limited suggests buy the stock of the company for a target price of Rs 560. Considering the estimated target price, if the stocks of the company are purchased at the current market price, it could be a potential gain of around 18% upside in the 12 months. Kavari Seeds is a small-cap Agri stock having a market cap of Rs 2,762 crore.

Stock Outlook & Returns

The current market price of the stock is Rs 475.60 apiece, it was opened at Rs 474.90 apiece. Trading 0.15% above the previous close. Currently, the stock is trading Rs 8.35 above the 52 week low and Rs 246.1 below the 52-week high, respectively. 

The stock hit the 52-week low recently on 7 March 2022 at Rs 467.25 apiece. The 52 week high of the stock is Rs 721.70 apiece, recorded on 13 August 2021.

The stocks of the company in the past 1 week declined by 2.52%. In the past 1 month, stocks declined 2.1%. In the past 3 months declined 15%. Over the year, the stocks declined 21.9%. In the past 3 years, the shares gained 2.71%. In the past 5 years, the shares declined by 16.02%. The stocks of the company in the past 5 years didn't perform well.

Volume growth across segments drives sales in 1QFY23

Consolidated revenue rose 9% YoY to Rs 6.9b (est. Rs 7.3b) in 1QFY23. EBITDA grew 24% YoY to Rs 2.5b (est. Rs 2.3b). EBITDA margin rose 430bp YoY to 36%. Gross margin grew 420bp YoY to 48.3%. As a percentage of sales, employee cost/other expenses stood at 3.4%/8.9% (v/s 3.2%/9.2% YoY). Adjusted PAT grew 20% YoY to Rs 2.4b (est. Rs 2.3b). Cotton seed volumes increased by 8% YoY to 5.4m packets in 1QFY23, resulting in a 4% rise in revenue to Rs 3.2b. The contribution to volumes of new products in maize rose to 28.62% from 18.08%. Maize seed volumes fell 24% YoY to 5,411MT and revenue rose 14% to Rs 955m. Hybrid rice volumes rose 6% to 6,969m packets in 1QFY23, with revenue being flat YoY at Rs1,652m. Introduction of new hybrids 7299, 425, 471, and 473 led to strong growth in this segment. Selection rice volumes grew 15% at 13,488MT in 1QFY23, with revenue up 6% YoY to Rs 907m.

Highlights from the management commentary

The company maintained its market share of 16-17% in cotton, further penetrating into Haryana and Punjab, increasing its share in Gujarat, and maintaining its share in Telangana and Karnataka, although it struggled in Maharashtra. Realization growth was muted due to smaller players with lower realizations emerging, leading to additional discounts offered by KSCL. Adding new crops such as soya and wheat, which have a higher growth potential in the years to come, will be the next growth engine for KSCL.

Operating performance better than expectation

Motilal Oswal said, "KSCL clocked a better operating performance in 1QFY23, led by gross margin expansion of 420bp YoY, as the company was able to maintain the cost of production similar to 1QFY22 levels. All seed categories registered a volume growth, with cotton/hybrid rice/maize/selection rice growing by 8%/6%/24%/15%. Realization took a hit across segments due to higher discounts offered in 1QFY23."

Expansion in gross margin drives earnings, buy for a target price of Rs 560

KSCL is well on track to diversify from cotton seed sales by increasing the share of higher-margin rice and vegetable seeds, which are growing at a faster pace. "We largely retain our FY23 earnings estimate, while we cut our FY24 earnings estimate by 8% due to lower cotton seed sales volumes to 6.3m from 7m packets. We value the stock at 11x FY24E EPS to arrive at our Target Price of Rs 560 and maintain our Buy rating," the brokerage said. 

About - Kaveri Seed Company Limited

Kaveri Seed Company was incorporated on 27 August 1986 as 'Kaveri Seed Company Private Limited'; with Mr Gundavaram Venkata Bhaskar Rao Mrs Gundavaram Vanaja Devi & Mr Rangineni Venu Manohar Rao as its founder promoters of the Company. Mr Gundavaram Venkata Bhaskar Rao is one of the graduates in agricultural science and started the business of seed production of public bred varieties of corn bajra and sunflower on his own lands in the village of Gatla Narsingapur Karimgar District Andhra Pradesh.

Kaveri seeds is India's largest agriculture company specializing in Hybrid Seeds in Key Indian crops. The company is backed by strong Research & Development (recognised by DSIR since 2001) has resulted in high-yield seeds that have made the company the trusted partner for farmers for the last three decades. 

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.