Q4FY23 Review: Kaveri Seed: Headwinds easing?

25 May 2023 , 11:36 AM

While Q4 is not a seasonally important quarter for Kaveri Seed, analysts of IIFL Capital Services note that management has guided to a ~10-12% revenue growth and ~15-20% PAT growth in FY24. The guidance indicates that the headwinds faced by the company over the past couple of years have eased. the remain conservative and leave their EPS estimates largely unchanged; though there is upside risk to their estimates should the company meet its guidance. 

FY24 is a year of revenue growth and margin improvement: 

Management guided to a ~10-12% growth in revenue and ~15-20% growth in PAT in FY24. This is largely driven by continued volume growth across Maize, Bajra and Vegetables; coupled with margin improvements as the mix of newly introduced hybrids increases.

Headwinds easing: 

Over the last couple of years, the company has faced challenges from the penetration of illegal BT cotton seeds, increased competition and low realisation (for rice). Management stated that the scenario has improved since, and share of illegal cotton seeds is likely to reduce. Realisation of rice seeds (hybrid and selection) is also likely to witness an uptick in FY24.

Valuations could re-rate: 

Outlook for FY24 and beyond remains positive. The company seems to be on track to deliver ~10-15% growth in PAT in the coming years. Prominence of smaller peers within the Cotton Seed industry is expected to reduce as new hybrids are introduced. Penetration of the illegal BT cotton seeds has also reduced in FY24. Headwinds faced by the industry over last few years appear to have subsided. All eyes are on Q1, which is seasonally the most important quarter. Valuations are cheap for a company with a healthy balance sheet and >20% RoE. Should the company deliver on its growth guidance in Q1, a re-rating is likely.

Analysts of IIFL Capital Services TP, rolled forward to Jun’24 comes down to Rs670 as they reduce their 1YF PE target multiple to 10x (from 12x), given the uncertainty over monsoon.