Kaveri Seed Company is in the business of producing and selling of hybrid seeds, micro-nutrients, and premium vegetables/herbs (Kexveg new initiative in FY12). Incorporated in 1986, the company completed 25 years in the Indian market. Listed in 2007, it is one of the fastest growing seed companies in India.
Kaveri seeds has invested in an extensive R&D facility with a company owned land bank of ~ 600 acres and a Germplasm gene bank exceeding 11,000.
159 lines/hybrids registered with PPV&FR, of which 39 have undergone DUS test and 15 are in line for certification.
Kaveri Seed has a diversified portfolio of Corn, Pearl millet (Bajra), Sorghum (Jowar), Rice, Cotton and Sunflower premium hybrid seeds with genetically superior traits for high yield, pest resistance, and drought tolerance. [FY12 Sales 349.5 Cr ~93% Sales]
BT Cotton Hybrid forms over 50% of Sales. The BT Cotton gene is licensed from Mahyco-Monsanto JV (to which it pays royalty of Rs 180 per bag) with which it has produced a highly successful BT Cotton Hybrid by using separate male & female lines form its Germaplasm gene Bank.
Started in 2002, the Microteck division provides micro-nutrients and organic bio-pesticides /fungicides to increase crop yield. Foliar sprays, Soil applications, Plant defense, Bio-pesticides & Bio-fungicides. [FY12 Sales 23.5 Cr ~7% of Sales.]
Kaveri Seeds has a well established distribution network catering to the farmers. Over 60% of the company’s revenue is recorded in Q1. Karnataka and Andhra Pradesh contribute highest sales.
- Huge potential for Hybrid seeds – because of lower acreages & requirements of higher yields, pesticide/herbicide resistance, lower water consumption, drought resistance
- BT Cotton led volume growth – Rapid market share growth, to 11% in FY12 from 5.5% a year back on the back of its differentiated BT Cotton Hybrid. BT Cotton forms 50% of Revenues
- Corn led margin growth – Corn is the next highest segment, with higher margins
- Paddy Hybrids – Future growth driver
- Weather-Related risks
- Longer debtor days
- Low tax rates by Seed Industry- disputed by Income Tax Department. Favourable judgement in lower courts face risk of being overturned in High Court/Supreme Court
- Regulatory Risks – Agri sector
- Political Interference – Price capping. AP Govt has capped price of BT Cotton in AP
- Aggressive shift in Crop patterns by Farmers
Barriers to entry
- Big Germaplasm Bank – Kaveri has amassed a huge breeder base ~11000 over the years for producing hybrids with required traits for local market. It has also established cold storage and Seed Bank facilities at Gowaram to now preserve these as “Gene Bank”.
- Huge Land Bank – The Seed business needs huge land banks for experimentation and commercial production for Sales. Kaveri Seeds has ~600 Cr land bank
- Long development time – Coming up with a differentiated effective hybrid usually takes 5-6 years
- Diversified Portfolio – 50% of revenues come from BT Cotton. Corn, Bajra and Sunflower are other major contributors. Jowar & Rice are the other premium hybrid seeds
- Strong Distribution Network – ~750 distributors across the country
- Intellectual Property – 159 lines/hybrids registered with PPV&FR India, of which 39 have undergone DUS test and 15 are in line for certification.
Monsanto’s Corn hybrid – Dekalb – is 100 years in existence. This is the Power of a good differentiated hybrid!! Kaveri also has good hybrids in Corn. It has reportedly increased its Hybrid Corn pricing 16% on a compounded basis over last 20 year
Donald Francis: More than 5% of Portfolio in the Company; Holding for more than 2 years