IPO note - Kaveri Seeds Co. Ltd.
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Kaveri_Seeds_Company_Limited_06_September_2007.pdf
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(In %)
Pre-Issue
Post-Issue
86.13
60.99
-
1.46
0.21
14.01
13.66
13.83
-
9.71
100.00
100.00
9,700,000
13,700,000
KSCL
Industry Avg= .
657.72
168,650.30
171.16
18,442.80
FY 2007
FY 2006
FY 2005 FY 2= 004
39.57
3.86
Sales
657.72
481.67
475.53
388.78
26.02
10.94
Total Income
672.38
497.23
482.22
396.35
16.02
6.16
Optg Profit
171.16
39.76
18.00
9.28
19.5 & 22.1=
35.68
Net Profit
105.40
29.32
13.14
2.38
7.72 & 8.74=
EPS*
7.69
2.14
0.96
0.17
Share capital
97.00
16.00
1.50
1.50
Res&Surplus
169.35
58.26
29.23
16.78
Networth
266.35
74.26
30.73
18.28
Total Debt
118.93
144.20
103.56
1.32
Book Value*
19.44
5.42
2.24
1.33
Industry Sce= nario
RONW (%)
OPM (%)
NPM (%)
P/E (150 & = 170)
Rs. 150 - Rs= . 170
Issue Close: = September 11,2007
Net Issue To The= Public
4.00
Shareholding= Pattern
0.20
(Shares in m= illion)
3.80
Issue Open: S= eptember 06,2007
Company Valu= ation
*The no. of shar= es are of the post issue equity i.e. 13.7 mn shares.
Company Snaps= hot
Retail
Retail
Total no. of sh= ares
Non - Institutio= nal
Financial Sna= pshot
9.70
1.33
QIB
Non - Instituti= onal
Sales (Rs. in m= illion)
13.70
Equity Share = Outstanding
Prior to the iss= ue
After the issue =
(Rs. In Mill= ion)
0.57
Total
Operating Profi= t (Rs. in million)
Multiple=
Price to Book V= alue (150 & 170)
Kaveri Seeds= Company Limited
Of Which Reserve= d for:-
Price Band
AVOID
Sector : Mis= cellaneous - Medium / Small
Employees
Equity Resear= ch Desk
Issue Summary=
September 6, = 2007
(KSCL)
IPO - ANALYS= IS
Total Equity Sha= re in Issue
Employee Reserva= tion Portion
QIB
1.90
Promoters &= PAC
Objects of t= he issue:
1. Acquisition = of farmland for R&D.
2. Setting up o= f marketing offices & godowns.
3. Setting up o= f corn cob drying plants.
4. Setting up o= f a biotechnology lab.
5. Upgradation = of existing seed processing plants.
6. Setting up o= f a seed processing plant.
7. Meeting work= ing capital requirements & issue expenses.
- KSCL has a CAG= R of 19% in the topline; 164% in EBITDA
& 254% in th= e bottomline over the last three years.
- Strengths are:= One of the leading seed producers in India;
Has hybrid seeds= for a wide variety of crops; Presence in
the industry ove= r 2 decades; R&D capabilities with
infrastructure &= amp; owned land for the same.
- Weakness are: = Seasonal nature of the business; No
exports; Limited= presence (south india); No dividend track
record.
- Opportunities= are: Potentiality of the north & east Indian
markets; Increa= sed acceptance of Bt. cotton as a reliable
hybrid; Very lo= w levels of hybridization in paddy cultivation;
Growing
importance
for
organic
farming;
Farmers’
acceptance of n= ew hybrids developed with innovative
technologies.
- Threats are: = Pinching of parent lines for hybrid; Declining
soil fertility;= Adverse climatic conditions; Emergence of Multi
National Corpor= ations in seed industry.
- Strategies ar= e: Venturing into high value segments, new
crops; Expandin= g into new potential market; Continue
breeding R&= D; Adaptability to new technology sharing &
sales opportuni= ties; Custom-made product development.
- The stock is = available at a P/E of 20x & 22x at the
lower & = upper band of the issue price respectively.
- The Indian se= ed market is among the top ten largest in the
world.
- The Governmen= t is concerned about the stagnation in the
production &= ; productivity of pulses. A critical deficiency is the
availability &a= mp; quality of certified seeds. Government therefore
proposes to exp= and the integrated oilseeds, oil palm, pulses
& corn dev= elopment programme.
- Key industry= drivers are: Population growth; economic
growth;
land
availability;
sustainability= ;
technology;
hybridization;= food preferences.
- Key crops ar= e: Sunflower; grain sorghum; cotton; corn;
paddy.
- In order to = develop products in the seed industry, companies
need access to= an extensive germplasm bank & adequate
capital to dev= elop products over long periods of time. The
development of= a rich germplasm bank requires the
accumulation o= f genetic material over a period of years.
Development cy= cles can last for about 5 to 12 years prior to
launching a co= mmercially viable product. Seed companies need
to invest heav= ily in creating research & development facilities
which is a mus= t to maintain a full product pipeline.
Equity Resea= rch Desk
September 6,= 2007
Kaveri Seed= s Company Limited
IPO - ANALY= SIS
Company Back= ground:-
The company was= incorporated on August 27, 1986. KSCL is mainly into the business of produ= ction, processing & marketing of
high quality hybrid seeds for different crops like corn, sunflower, cotton, paddy, grain sorghum, etc. & have recently forayed into
micronutrients = & bioproducts. KSCL also produces non-hybrid seeds, primarily for paddy= . KSCL currently has production,
processing & R&D facilities in Andhra Pradesh & Karnataka. All the seed varieties developed by the R&D team are marketed under
the brand na= me of ‘Kaveri Seeds’. The current marketing network of distributors &am= p; dealers are spread over Tamilnadu,
Karnataka, Maha= rashtra & Andhra Pradesh. KSCL had entered into a sub-licensing agreeme= nt with Mahyco Monsanto Biotech
(India) Limited= for Bt. transgenic technology for cotton in the year 2004. In 2007, KSCL h= as also entered into a non-exclusive
licensing agreement with JK Agri Genetics Limited for using insect tolerant seed lines for producing, testing, marketing & selling
genetically mod= ified hybrid cotton planting seed in India. The promoters of KSCL are: Mr. = Gundavaram Venkata Bhaskar Rao;
Mrs. Gundavaram= Vanaja Devi; Mr. Rangineni Venu Manohar Rao; Mr. Chennameneni Vamsheedhar;= Mr. Chennameneni Mithun
Chand; Dr. Gund= avaram Pawan; Dr. Gundavaram Madhushree & Gundavaram Venkata Bhaskar Ra= o (HUF) . In 2006, kSCL has
Acquired the business of M/s Kaveri Agriteck a partnership firm that is engaged in the business of plant nutrition (i.e. Bio-Products
& Micro-Nut= rients).
Company Snap= shot:-
- KSCL has a CAGR of 19% in the topline; 164% in EBITDA & 254% in the bottomline over the last three years. On a Y-o-Y basis,
KSCL has grown = at a rate of 37% in the topline, 330% in the EBITDA & 260% in the botto= mline.
- Strengths = are: On the basis of the volume & variety of the various hybrids, KSCL are one of the leading seed producers in
the country. Fu= rther, such hybrids are adaptable with conditions including inter alia vari= ed agro-climates & soil types; KSCL has
hybrid seeds= for corn, sunflower, cotton, paddy etc. These varieties gives an edge = in the market & KSCL has the ability &
infrastructure = to further develop different hybrids in these crops; Presence in the ind= ustry over 2 decades; KSCL’s
investment in i= nfrastructure development is phenomenal. R&D main stations measu= ring 275.42 acres are strategically located
around Hyderaba= d claimed to be India’s seed hub. These research facilities enable them to = come out with different high quality
hybrids suitable for various climatic conditions. Farmers’ reliance on the quality seeds today puts KSCL in a leadership position in
terms of volume= s & margins in sunflower & corn.
- Weakness are: Because of the seasonality of the business, KSCL's produ= ction & processing capacities are under-utilized.
But they are ov= ercoming this by introducing new varieties & new crops as well as penet= rating into new markets with different
seasonalities; = No exports; KSCL has limited presence by catering only to the= markets of Karnataka, Maharashtra, Tamilnadu &
Andhra Pradesh;= High dependency on R&D; Relies on third party seed growers for seed production; Negative cash flow
two times in th= e last four fiscals.
- Opportunit= ies are: The North & East Indian markets offer enormous potentia= l. Of late, farmers have begun to
understand the importance of hybridization for improved production & productivity & the demand for hybrid seeds & agri-inputs
are growing; Increased acceptance of Bt. cotton as a reliable hybrid; Very low leve= ls of hybridization in paddy cultivation;
Growing importa= nce for organic farming; The Government of India has been stressing upon= importance of increasing
productivity= through improved farm practices. Thus, the farmers have realised th= e importance of switching over to
HYVs / hybri= ds. This has opened the floodgates for companies like KSCL to cater to = their needs. Farmers are willing to pay
higher prices f= or value-added products.
- Threats are: Pinching of parent lines for hybrid; Soil fertility is dec= lining over the time. Yields have plateaued & started
declining becau= se of poor soil fertility. Increased use of chemicals has further aggravate= d this problem; Climatic conditions
always play = a big role in deciding the type of a crop. Demand for a particular seed= varies from year to year based on these
conditions; See= d market is a crowded market but with only a few quality players. Many Indi= an players could not sustain the
onslaught of= MNCs; The major competitors are Monsanto & its subsidiaries= , Pro-Agro (a Bayer Crop Scien. subsidiary),
Pioneer (a Dupo= nt subsidiary), Syngenta, Nuziveedu Seeds, Advanta & Rasi.
- Strategies= are: Venturing into high value segments, new crops; Expanding into new= potential market; Continue breeding R&D;
Adaptability to= new technology sharing & sales opportunities; Custom-made product deve= lopment.
- KSCL has r= ecently entered other states such as Bihar, Madhya Pradesh, Gujarat, Ut= tar Pradesh, Punjab, Haryana &
Rajastan, wh= ere the response received has prompted them to enter these states. K= SCL has 736 distributors & 3,500
dealers acro= ss India.
EPS
Share Price=
Dividend/
Share
EV/EBITDA
P/E
MTBV
(Rs.)
(Rs.)
(Rs.)
12.70
19.50
7.72
7.69
150.00
0.00
14.30
22.10
8.74
7.69
170.00
0.00
13.82
13.91
3.07
18.63
259.25
2.40
21.90
17.74
3.34
81.73
1450.00
22.50
38.66
30.19
12.35
27.66
835.25
1.00
1.06
*Source : Based= on annualised figure of FY07 from RHP & Capitaline. # Figures are of T= TM.
4.56
#Monsanto In= dia
#Bayer Crops= cience
*Advanta Ind= ia
4.05
Multiple (T= imes)
Company*
*KSCL at Rs.= 150 L
MCAP/SALES
*KSCL at Rs.= 170 U
3.54
3.12
IPO - ANALY= SIS
Kaveri Seed= s Company Limited
Equity Resea= rch Desk
September 6,= 2007
Industry Sce= nario:-
+ The Indian se= ed market is among the top ten largest in the world.
+ The Governmen= t is concerned about the stagnation in the production & productivity of= pulses. A critical deficiency is the
availability &a= mp; quality of certified seeds. Government therefore proposes to expand the= integrated oilseeds, oil palm, pulses
& corn development programme. Government will fund the expansion of IIPR, Kanpur & offer the other producers a capital grant
or concessional= financing in order to double the production of certified seeds within a pe= riod of three years.
+ Industry d= rivers: As key agricultural inputs, seed products have the following co= mmon industry drivers: Population growth -
A fundamental d= river for the increase in demand for crops is global population growth. The= United Nations projects that world
population will= increase from 6.1 bn people in 2000 to 7.2 bn people in 2015. India’s popu= lation is also projected to grow at a
rapid pace from= 934 mn in 1966 to 1264 mn by 2016, as per report of Plannig Commission tit= led “
Population Gro= wth =96 Trends,
Projections, Ch= allenges & Opportunities
“; Economic gr= owth - As people become wealthier, they consume more & higher quality
food. The Inter= national Food Policy Research Institute forecasts a 40% increase in demand = for grain by 2020; Land availability -
Arable land is scarce in many parts of the world & under pressure from urbanization & industrial uses. Accordingly, there is
continual pressure to increase the productivity of available resources; Sustainability - Without significant increase in productivity,
more land will have to be brought under irrigation & multiple cropping, which may have a potentially severe adverse impact on
biodiversity &a= mp; the environment; Technology - Innovations that provide new benefits can= spur significant market growth. These
may relate to c= onventional seeds, but increasing derivations from biotechnology can confer= valuable new traits upon seeds and
significant imp= rovements in crop management; Hybridization - Increasing awareness of the b= enefits of high-quality hybrid seeds
& improved = farming practices will encourage quantum shifts in grower preferences; Food= preferences - Shifting consumer food
preferences wil= l affect selection of crops & the seed industry.
+ Key crops are= : Sunflower; grain sorghum; cotton; corn; paddy.
+ Seed Industry= =96 High Barriers to Entry: In order to develop products in the seed indus= try, companies need access to an
extensive germp= lasm bank & adequate capital to develop products over long periods of t= ime. The development of a rich
germplasm bank requires the accumulation of genetic material over a period of years. Germplasm is scarce, expensive & must be
refined properly to meet the breeding objectives. Furthermore, development cycles can last for about five to twelve years prior to
launching a com= mercially viable product. Seed companies need to invest heavily in creating= research & development facilities
which is a must= to maintain a full product pipeline. Success in the seed industry requires= national distribution, building brand
equity & ac= hieving economies of scale in mass production.
FY 2007 FY = 2006 FY 2005
FY 2004=
657.72
481.67
475.53
388.78
-
-
-
-
287.15
303.74
356.16
325.64
66.06
40.29
26.26
23.59
133.35
97.89
75.11
30.27
486.56
441.91
457.54
379.50
171.16
39.76
18.00
9.28
14.66
15.56
6.69
7.57
185.82
55.32
24.68
16.85
14.29
6.71
1.45
7.85
12.35
7.36
5.33
4.09
159.17
41.25
17.91
4.91
53.78
11.93
4.77
2.54
105.40
29.32
13.14
2.38
-
0.30
0.68
-
105.40
29.02
12.45
2.38
FY 2007 FY = 2006 FY 2005
FY 2004=
171.52
41.22
18.73
9.86
(98.51)
(61.61)
0.43
20.06
(52.86)
(12.63)
(5.01)
(2.17)
20.15
(33.03)
14.16
27.75
(127.72)
(46.79)
(26.69)
(3.68)
62.61
15.86
(110.10)
(31.17)
7.74
10.09
5.80
5.82
6.56
1.92
0.15
1.18
(50.81)
(18.92)
(130.84)
(27.86)
84.72
16.28
-
-
(25.27)
40.64
102.24
(0.90)
(14.29)
(4.63)
(1.45)
(0.79)
45.17
52.29
100.79
(1.69)
14.50
0.34
(15.89)
(1.79)
33.60
33.26
49.15
50.94
48.10
33.60
33.26
49.15
Opening Cash
Closing Cash
Interest paid
Net Cash Fl= ow From Financing - C
Net Cash Fl= ow (A+B+C)
Net Cash Fl= ow From Investing - B
Proceeds from = equity
Proceeds / Rep= ayment from borrowings
Net Operati= ng Cash Flow - A
Net purchase o= f fixed assets
Net purchase /= sale of investments
Cash flow from= operations
Cash for worki= ng capital
Net Profit =
Cash Flow S= tatement
Rs, mn
Tax
Profit Afte= r Tax
Extraordinary = Items
Finance & = Interest charges
Depreciation
Profit Befo= re Tax
Operating I= ncome
Other Income
Gross Profi= ts
Establishment = Expenses
Selling & = Distribution Expenses
Operating E= xpenditure
Net Sales
Inc/Dec in sto= cks
Materials Expe= nses
Income Stat= ement
Rs, mn
Kaveri Seed= s Company Limited
IPO - ANALY= SIS
Equity Resea= rch Desk
September 6,= 2007
Direct Taxes P= aid
Interest &= Dividends received
Profit on sale= of investment
FY 2007 FY = 2006 FY 2005
FY 2004=
97.00
16.00
1.50
1.50
169.35
58.26
29.23
16.78
-3.58
-
-
-
262.78
74.26
30.73
18.28
118.93
141.13
103.56
1.32
-
3.08
-
-
118.93
144.20
103.56
1.32
1.47
0.55
0.96
0.51
-
1.78
-
-
383.18
220.79
135.25
20.11
242.73
112.75
78.05
51.36
44.14
32.33
25.04
19.71
198.59
80.42
53.01
31.64
9.84
12.09
-
-
208.43
92.52
53.01
31.64
72.56
135.17
151.03
40.93
107.76
32.36
25.44
28.68
174.51
104.75
93.91
93.62
48.10
33.60
33.26
49.15
60.82
77.91
59.08
27.57
289.00
255.52
280.47
251.48
102.20
-6.90
-68.78
-52.46
383.18
220.79
135.25
20.11
FY 2007 FY = 2006 FY 2005
FY 2004=
39.57% 39.4= 9% 42.75%
13.00%
26.02%
8.25%
3.78%
2.39%
16.02%
6.09%
2.76%
0.61%
NPM
Cash & Ban= k
Loans & Ad= vances
Less: Current = Liabilities & Porvisions
RONW
Net Current As= sets
Total Asset= s
Particulars=
OPM
Sundry Debtors=
Net Block
Capital work i= n progress
Net Fixed A= ssets
Investments=
Current Ass= ets
Inventories
Gross Block
Less: Accumula= ted Depreciation
Equity Share C= apital
Reserves &= Surplus
Networth
Miscellaneous = expenditure (written off)
Rs, mn
Sources of = Funds
Equity Resea= rch Desk
Kaveri Seed= s Company Limited
September 6,= 2007
IPO - ANALY= SIS
Balance She= et
Deferred Tax L= iability, net
Application= of Funds
Secured Loan
Unsecured Loan=
Loan Funds =
Share applicat= ion money
Total Liabi= lity
Sl. No. =
1.
2.
3.
4.
5.
6.
7.
8.
Total
Particulars=
Amount (INR= ,mn)
100.00
[=95]
Setting up of = a biotechnology lab at Gundla Pochampally near Hyderabad.
Upgradation of= existing seed processing plants at Kandlakoi, Gundla Pochampally,
Gatla Narsinga= pur & Bellary.
Setting up of = a seed processing Plant in Medak District near Hyderabad.
Working capita= l margin requirements.
Issue expenses= .
20.45
91.67
58.78
Setting up of = corn cob drying plants in Medak District & Bellary.
120.08
42.00
Acquisition of= farmland for R&D near Hyderabad, Alwar & Ahmedabad.
200.00
Setting up of = marketing offices & godowns in Delhi, Lucknow, Jaipur, Ahmedabad
& Aurangab= ad.
At the lower ba= nd & the upper band, KSCL would be raising approximately Rs.600 mn &= ; Rs.680 mn respectively.
Post issue, the market cap based on the lower & upper band would be approximately Rs.2,055 mn & Rs.2,329 mn respectively.
[=95]
Kaveri Seed= s Company Limited
September 6,= 2007
Equity Resea= rch Desk
IPO - ANALY= SIS
Inst. Deali= ng Desk : 101, 10th Floor , Mittal Court-'A' Wing , Nariman Point ,= Mumbai =96 400021
T e l . No.= : 022-22895500 , Fax No. 22871192/22846318 E m a i l : cms@spacapital.com
Objects of = The Issue:-
The objects of = the issue has not been appraised by any bank or any financial institution o= r an independent organization.
AHMEDABAD
407, Anand Man= gal Complex - I, Behind Omkar House, C.G.Road, Navrangpura, Ahmedabad Tel: = (079) 32998056
Disclaimer: This information is for general purpose only, without regard to any specific objectives, financial situations and needs of any particular person. The
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the Red Herring Prospectus for risk factors, details about the issue and issuer company before taking any investment decision. SPA and/or its representatives do not
accept any liab= ility whatsoever direct or indirect that may arise from the use of the info= rmation contained herein.
JAIPUR
UL-15, Amber T= ower, Sansar Chand Road, Jaipur - 302001. Tel: (0141) 5107044/5107144 Fax: = 5107144
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KOLKATA=
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Kaveri Seed IPO receives 33% subscription on day one
Secunderabad-based Kaveri Seed (KSCL), maker of agriculture inputs, received 33% subscription for its initial public offer (IPO) on first day of issue. The IPO received 1,315,240 bids as against the issue size of 4,000,000 shares. A total of 9,360 bids were received at cut off price.
KSCL intends to deploy the issue proceeds in expansion plans worth Rs 632.97 million. It includes setting up of marketing offices and godowns, corn cob drying plants, biotechnology lab, and seed processing plant.
In addition, KSCL plans to acquire farmland for R&D facilities, upgradation of existing seed processing plants and meeting the working capital requirements. The benefits of these plans are expected to contribute to the financials of KSCL from November 2008 onwards.
Incorporated in 1986, Kaveri Seed is engaged in the business of production, processing and marketing of high quality hybrid seeds for different crops like corn, sunflower, cotton, paddy, grain sorghum, etc. Recently, the company forayed into micronutrients and bio-products. In addition, the company produces non-hybrid seeds. The production, processing and R&D facilities are located in Andhra Pradesh and Karnataka.