Mumbai: Kaveri Seed Co., India’s biggest listed hybrid seeds manufacturer, forecast sales will expand at the fastest pace in seven years as the government’s move to exempt farms from the world’s strictest stay-at-home rules aided demand.
The Telangana-based firm this week said revenue will rise as much as 20% in the financial year started April 1, compared with an average 15% forecast by eight analysts. Prime Minister Narendra Modi’s decision to scrap royalties paid to Bayer AG for Monsanto’s genetically modified cotton will also help Kaveri Seed, Executive Director Mithun Chand said on an earnings call.
Responsible for feeding the world’s second-largest population, Modi let farmers harvest and sow through April and May, while the rest of the country was locked down to contain the coronavirus. Shares of Kaveri Seed have surged more than 60% from their lows in March compared with a 28% gain in the benchmark index.
“Right from the first lockdown till today, we have received strong support from the government in enabling us to achieve and move ahead,” Chand said.
Kaveri Seed has seven ‘buy’ ratings, two holds and zero sells. IIFL Securities Ltd. maintained its buy recommendation with a 12-month price target of 700 rupees compared with about 499 rupees in Mumbai on Wednesday.
“The shift in earnings mix toward the non-cotton business — which is less regulated, higher-margin and faster-growing — could drive an expansion in margins and an increase in valuation multiples over time,” IIFL analyst Abhijit Akella wrote in a report. “Specific tailwinds include margin expansion due to cut in cotton royalties.”
Indian companies paid royalty of 20 rupees for a packet of 450 grams in 2019, which the government scrapped in March. Bayer said the decision was disappointing. Kaveri Seed’s Chand said this will add to operating profit as the company doesn’t plan to pass the benefit to dealers.
The company, which has a network of about 40,000 retailers, gets about half its revenue from cotton while hybrid rice, maize, okra, tomatoes and hot pepper form the remaining. It aims to expand the share of its non-cotton seeds, demand for which have been outstripping cotton.
Sale of hybrid rice seeds rose 60% last financial year while vegetables seed volumes grew 40%. Forecasts for a healthy monsoon also boosts the company’s outlook, especially in northern India where states like Punjab and Haryana are asking farmers to opt for maize.
“Most of the tanks are full, ground water is also full, and we are expecting a very good monsoon this year also,” Chand said. “Definitely, they will have a good scope of maize crops.” – Bloomberg