Kaveri Seed Company Limited's standalone revenue in the quarter ended September 2018 came in at Rs75.2cr, up 8% yoy. The operating profit for Q2FY19 came in at Rs7.9cr, down 46.6% yoy. EBITDA margin in the period contracted ~1,071bps yoy to 10.5%. The adjusted net profit after tax stood at Rs11.9cr in Q2FY19, down 42.9%. Top-line of the company beats the estimate of Rs60cr by 25%. EBITDA missed the estimate of Rs13.3cr by 41%. However, net profit was in-line with estimates.
• Kaveri Seed reported a gross profit margin of 51%, down ~1,349bps yoy in Q2FY19. This was on account of a likely drop in realization levels and likely supply overhang across the cotton portfolio due to lower cotton acreages.
• Decline in EBITDA margin was on account of lower operating leverage as the second quarter was a seasonally smaller quarter during the current period.
• Effective adjusted tax rate for Q2FY19 was at 26% as against 16% in Q2FY18.
• Trade receivables shot up significantly to Rs231.4cr as on September 30, 2018, (Rs63.9cr as on March 31, 2018) indicating an increase in working capital days. The lag in recovery of dues is also on account of subdued crop prices and an erratic monsoon, which impacted farm income.
• Kaveri Seed's board has approved an interim dividend of Rs3 per equity share.
• Kaveri focuses on reducing dependence on cotton with an aim to increase non-cotton contribution to ~60% of total revenue over the next three years. This transition will help diversify revenue risk and distribute revenue across kharif and rabi season.
• Kaveri has also completed registrations across nine South Asian and African countries.
• Cotton volumes declined by ~12% yoy in H1FY19, which was offset by significant growth of 23% yoy during H1FY19 in the non-cotton business, especially selection rice. Cotton prices have remained high and led to high cash generation for farmers. However, volumes were impacted by lower acreage due to the pink ballworm incidence. Use of illegal herbicide was found in all states this year despite government efforts to curb this problem.
• Overall rainfall was delayed & deficient with wide variation resulting in lower sowing area for most crops.
• The profitability has been impacted on account of reduction in cotton seed prices by Rs60 per packet. However, this impact was lower as compared to that of other industry players. There was inventory write-off amounting to Rs3cr in COGS during Q2FY19.
• The company has given an annual guidance of Rs30-40cr towards capex.
Kaveri Seed Company Ltd is currently trading at Rs503.15, down 31 points, or 5.8%, from its previous close of Rs534.15 on the BSE. The scrip opened at Rs531 and has touched a high and low of Rs532.20 and Rs495, respectively. So far, 9,62,055 (NSE+BSE) shares were traded on the counter. The stock is currently trading above its 100-DMA.
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