Kaveri Seed Company Limited (KSCL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Kaveri Seed Company's Q2 and H1 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference call will be recorded. Joining us today on this call is Mr. Mithun Chand, Executive Director. Before we begin, I would like to mention that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. For a list of such consideration, please refer to the earnings presentation. I would now like to hand over the call to Mr. Mithun Chand. Over to you, sir.

Thank you. Good afternoon. Welcome, everyone, to our quarter 2 and H1 financial year '24 earnings conference call. We hope you had a chance to review the presentation of our results, which is also available on our website. I will touch upon the operational and financial performance of the company and then open the floor for question-and-answer session. Revenue from operations has registered a growth of 5.75% to INR 863.42 crore as compared to INR 816.44 crore in first half financial year '23. EBITDA was at INR 298.88 crore as compared to INR 259.72 crore in financial '23, increased by 15.08%. EBITDA margin improved by -- improved to 34.62% from 31.81% in first half financial '23, improved by 301 basis points. Net profit grew by 14.45% to INR 278.56 crores as compared to INR 248.39 crores (sic) [ INR 243.39 crores. ] PAT margin was at 32.26% as compared to 29.81%, grown by 245 basis points. Cash on books stood at INR 732 crores as compared to INR 497 crores. Major highlights. Board has recommended 250% dividend, that is INR 5 per equity share on a face value of INR 2 per equity share. Despite stable volumes in rice and cotton, better realizations translated into substantial revenue growth, which has fueled significant improvement in margins. The surge in global rice prices has propelled a remarkable 10.8% increase in rice cultivation area. Company is not only witnessing unprecedented success in the vegetable business, but also aggressively expanding its footprints in international markets. In vegetable, major focus is on cold crops like cauliflower, cabbage and carrot. Cotton volumes are stable and revenues increased by 6.77%. Hybrid rice volumes are stable, revenues increased at 9.97%. Selection rice volumes grew by 4.87% and revenues by 14.8%. Maize revenues were grown by 13.96%. The contribution of new products was up from 44.46% to 58.71% in bajra. Vegetable seeds volume increased by 25% and revenues [ grew ] by 20.6%. Vegetable crops like bitter gourd, tomato, okra and watermelon have done well. Export business has increased by 146.49% on account of expanding U.S. geographies. Major export sales volume increased, maize sales -- export volumes increased by 129.91% and revenues by 140.52%. I would now open the floor for question-and-answer session.

[Operator Instructions] The first question is from the line of Madhur Rathi from Counter Cyclical.

Sir, I wanted to know, sir, our cotton prices -- cotton revenues from Q2-on-Q2 basis have fallen. So why -- what is the reason for that?

Second quarter is a very lean quarter for us. Whatever sale we get is a spillover sale. Compared to last year, if you see, because of the thin volumes, the cotton sale is lower. But that is not significant, it's only 2,000 packets, lower than last year.

Sir, there was a report that this year cotton production was lower, so do we think that next year cotton seed or sales will be better than expected? Or what kind of growth are you expecting in the cotton segment for the next year?

The cotton production is a bit tough this year, which we are going to sell for the next year, but that's too early to predict the output on that. We can only say by the month of January or February, what is the prediction that we are going to get.

But sir, in your experience and being in the industry for so long, sir, how has the year, post El Nino, been in terms of the business?

Sorry.

Sir, in your experience, how has the year, post El Nino year, been in the business, our business segment of cotton and other seeds?

So basically, we have done well instead of these tough conditions this year, most of these crops were stable or lower. But even in these tough conditions, we were able to increase the revenues and in some crops, the volume as well. And being a multi-crop portfolio, we don't see that sort of a risk when compared to the other companies, which are concentrated in 1 or 2 products. In that way, we are very much pleased, and El Nino year and the other normal years are well in the cycle, so we don't see much of a difference and we are quite bullish in the second half and even for the next year.

Okay. And sir, we had launched hybrid tobacco seeds, so how are they doing?

Sorry?

Hybrid tobacco seeds that we have already guided in our AGM that we had launched, so how are they doing?

Hybrid tobacco seeds?

Yes, sir.

Which seeds you are talking about?

Sir, we had launched hybrid tobacco seeds, we had guided in our AGM, so that's what I was asking. How is that responding?

Hybrid tomato?

Tobacco, sir.

Sorry to interrupt you. Mr. Madhur Rathi, could you speak a little louder because your sound is not clear.

Yes, sure. Hybrid tobacco seed, sir.

Hybrid tobacco. We are not into tobacco at all.

Okay. And sir, with INR 732 crores on our cash, please do a buyback sir, it will be very helpful for our shareholders.

Definitely. We'll definitely consider, but that is subject to the Board discussion. We'll definitely consider it.

The next question is from the line of Anand, who's an individual investor.

Congratulations on a good set of numbers. My first question is on cotton seeds. What I realized is that our previous seeds like Jaadoo, ATM, although they had a very high yield, but the feedback that I have received is these are all -- these are old hybrids. These are like -- these old hybrids take around 160 to 180 days for maturity. And currently, these seeds have become susceptible to bollworm in the later stages of crop. So is that a fair understanding?

Yes, as we move forward, these are old hybrids. And if you see after Jaadoo became -- ATM was there. ATM is still doing well in some parts. And after that, we have introduced Money Maker, which is also doing well now. After that, now we have introduced a couple of hybrids for the North and the Central regions also, which are doing well. So it's a combination of all. And definitely in the industry and as we go, over the years, previous hybrids get faded out and new hybrids come in, based on the challenges. Now most of the hybrids, you rightly said, that we are trying for -- resistance for the virus. Some second best resistance that we are looking at.

So the 2 hybrids that I hear from Kaveri's table are 144 and 36. These are the hybrids, which matures much early in the cycle, like 100 and 120 days. So where are we in -- if I were to look at last season, if you can give us a breakup of how our sales were between these older hybrids, which would take higher maturity and these newer hybrids, which would mature much early in the season?

Basically, if you take our portfolio, Jaadoo, ATM and Money Maker contributes to more than 85% of the revenue. There are other hybrids, which are sold in very small quantity. So these are all the newer hybrids which are introduced recently like 0.5 lakh, 1 lakh packets. So based on next year and we are waiting for this year result, as of now, which looks good. But for the next meeting, I can be telling you the exact position, which are the promising hybrids based on the performance this year. But what we see as of now is they're performing well and, going forward, these will pick up the volumes.

So if I were to look at next breed season, I think, on a combined with it around 57 lakh packets as a company, consolidated company, is that the number?

Roughly, I don't exactly remember, but it's close to last year figure.

55 lakh to 60 lakh, somewhere in between.

It's close to last year figure, 1 lakh plus or minus. It's only 2% or more, that's it.

So now what I -- so going ahead, do you see that -- so some of these hybrids, let's say, 36 or 144, depending on how these hybrids perform, do you think that the share of these would continuously keep going up?

Definitely, we think they're very promising hybrids. As I said earlier, we will wait for another season. By this season end, we'll be knowing the exact system about the performance of that, and we will be giving you guidance, which are the hybrids, which are looking better. And not only these 2, we have tested many other hybrids in different [ fruits ], which I can't reveal right now, where all are in testing stage. Once they are there, we will disclose. But definitely, we see very promising hybrids in our portfolio. Going forward, we see momentum in cotton seeds as well.

The next question that I have is, again, on the same thing. So do we -- so what has happened in the last -- like I've been tracking Kaveri since like maybe 2015 onwards or maybe even before that, but the price per packet of seeds has not moved much. Like from INR 800 to INR 850 right now, roughly INR 845, I think, that's the price. So do you see significant margin pressure and do you also see production volumes going down because the farmers are not getting compensated enough for that?

Yes, if you see cotton seeds from the last 8, 9 years, it has not moved up when compared to 2015. But in the last 2 years, last few years, the selling price is more than 5% and above. Probably the 2 or 3. It might be so because now the production is very difficult. The cotton seeds production costs is also going up, so that is putting a pressure on the margin. But definitely, we are trying to increase the selling price. So that is compensating on it.

Okay. One more question in terms of the production side. So if you have to plan for next season, then by when can we have seeds, which can be used for production?

So already we have started for next year production. We usually sow in the month of May '23 for selling something in the month of -- in the Kharif of '24.

Okay. And going by our current production plan, what could be the maximum number of packets we can do in the next season?

So we are in target, I may not be disclosing the exact figure, that we will not reveal as of now, but we have enough production for next year. As I said in the earlier question, what is the productivity of that, that only we will get to know by year-end because the season was also not good. There was delayed -- dry spells in between, pest attack was also more, so that we'll get to know by December to January.

Okay. But I mean I understand your difficulty in giving that kind of a prediction, but can we assume like it could be like 20% to 40% more or any range that you can give compared to last year.

So usually we are saying that cotton will grow in between 5% to 10%, something -- as a guidance, we are saying cotton will grow in between 5% to 10%. So based on per our requirement, we're having production. Production in the sense like the left out stock and the fresh production. We are on target on that as of now. But again, subject to the weather conditions.

So basically for next year, what you -- as of now, I mean, things might change, you see a 5% to 10% growth in the cotton seeds, as of now?

We have already given this guidance long back. In the past 1, 2 years, I think 5% to 10% in cotton for the next 2 to 3 years, so we still give the same guidance.

Okay. And I'll move on to other crops now, sir. We have seen significant growth in Q2 in maize and you have also highlighted that there is a very, very strong demand for maize going ahead. What we -- so if you can tell us that, is this demand -- what areas this demand is coming from? And also on the export side, our exports have grown significantly this quarter. You've also alluded to export growing significantly going ahead. So do we have -- what kind of registrations we have in different countries? That is one thing I want to know. So what are the crops, in that sense? And how do you see export growth going ahead in the next few quarters and the next year? And also finally, on maize, what kind of growth are we looking at in the coming years?

So maize as a crop looks good both in terms of domestic and internationally. We gave a guidance of 10% to 15% in maize for a longer term of period, 3 to 5 years, that we are pretty confident that we are -- we will be able to achieve it. And this quarter, especially when talking about for -- coming back to this quarter, maize revenues contributed to the major growth. One is both in domestic, we had a good sale and across India because anyway it's a very lean quarter for us. Second quarter, most of that is a spillover sale. Might be in Karnataka, might be in some parts of Andhra and some parts of Maharashtra. But major contribution was from exports, where we have done like INR 15 crores more than last year. So against INR 10 crores of exports, we added INR 25 crores of exports here. That was a major revenue. And out of that exports, 90% of that was maize, more than 90% was maize.

And do you see this trend continue?

Maize as a crop looks good. Going forward, we see maize going better in exports also. And we are exporting to other countries, so the majority of the exports earlier was only to Bangladesh, and some of Nepal. Now we are even looking at African countries. And we are concentrating on crops like maize, sunflower, vegetables, and rice. Rice is especially for Southeastern countries like Indonesia, Philippines, Thailand. These are the countries, which we are concentrating more, so -- including Vietnam. So we see a good growth coming in there. And wherever we are tested our rice hybrid, that's very positive. So definitely as you know it will take some time for us to make growth, but it's very positive. We are moving in a very positive direction. And as a company, we are very much bullish on this export segment.

So you also mentioned in the presentation this time that vegetable seed sales growth has gone up by 25% and 26% roughly and the revenue growth -- and the revenues grew by around 20%. And you also mentioned that there is unprecedented growth in the vegetable segment for us, success. So how do you see -- because this portfolio has not changed in the last 5 years or something, like roughly say, even stagnant at around INR 30 crores. So how do you see this vegetable going ahead, right, like for this year and for the coming years? How do you see the vegetable segment?

Vegetable is a big segment in India and this is a fastest-growing segment. We are very small in the vegetable segment or by seeing the overall market. And the way what we have worked in the last 10 years, we have very good hybrids, which are there in the pipeline and some hybrids are already placed in the market. And last year, we have done close to INR 45 crores as an overall sales of vegetables. Again, first half, it was 22 compared to 26 this year. So in the second half also, we see a similar growth and we think that vegetable year-on-year will grow at more than 20%, 25%...

Sir, last question from my side. It's more of -- in case of vegetable companies, to some extent, the demand outlook that we have can also be visualized on the balance sheet in terms of the kind of advances that we get from the customer. So if I were to look at our H2 other current liabilities, which I think are mostly coming from advances from customers, they have gone up -- like they used to be like INR 80 crores, INR 90 crores 5 years before, and now they are almost at INR 270 crores. So if you can give some kind of a breakup of those in terms of what crops are these?

You are talking about current liabilities?

Other current liabilities, which are INR 270 crores. And...

So that means that other current liabilities not only advances, that also is a payment which we need to give for the production.

Okay. Which we also need to give for production purposes.

Usually, this is a very lean season. We don't have much of an advances for this second half. Usually, we get advances for the first half, but the industry is changing. Nowadays, we are not taking much of an advances because we need to give more discounts, so we have slightly slowed down on that.

Okay. And sir, one last question, sir. So on the company's stock, one of the major hangovers have been this -- has been the income tax issue. Do you think that -- 2 things, sir, what could be our maximum liability here in this case, in case we lose the case? And b, do you think there could be some kind of a settlement with the department so that this hangover is taken care of?

Basically, we don't have any litigation as of now. I mean to say, we don't have any pending demand other than what we have disclosed in the balance sheet or to the exchanges. Other than that, we don't have any pending demands. We are claiming it as an agriculture income. They might deny it. For that, the liabilities are calculated, what basis they to do it. But as of now, we have only 1-year litigation that we are seeking. The other litigation is a different litigation. We never got any demand for that.

And what is the amount? I mean, if you can...

They never derived any amount for that because as they have not given any demand, so there's no derivation for the liability.

No. No. This is a major, major hangover because rest of the crop companies that I see, even some of the competitors, they actually don't consider it as an agriculture income like DCM Shriram and others?

I don't know which companies you are seeing it, many companies doing that way. But anyhow the subject is pending and everything is disclosed, reports and everything is transparent on the company side. Based on the other unexpected liabilities, we don't know. If something is there, definitely we'll try to intimate.

[Operator Instructions] The next question is from the line of Manish Shah, who's an individual investor.

Sir, in the presentation, you told that the second half also is looking very good. So what crops are looking good? And what kind of revenue growth you can do compared to last year, sir?

Basically, second half is all contributed by maize. And the other thing, the other crop, other segment, what we are looking at exports. These 2 contributes to the major second half, so both the segments should do well.

And sir, comparison to last year second half should be what, 15%, 10% more?

So we have given a guidance in between 10% to 15%, that's what we stick for.

Sir, in the guidance, you have told that the profit can grow by 15% CAGR for the next 2, 3 years. Do you stick by that guidance, sir?

If you see the first half, yes, the profit has grown by close to 14%, 15%.

So you -- we can do for the next 2, 3 years, that is possible.

Sorry?

For the next 2, 3 years, is it possible, sir, to do this kind of numbers?

Yes, yes. Yes, on a consolidated basis for the first half grew by like 13.5%.

Yes, yes, sir.

We said 12% to 15% on the bottom line, we are still stick to that.

Sir, another question is about, sir, the exports and the vegetables. Sir, in the next 3 to 5 years, what kind of figure can you -- like can it be a INR 100 crore business or more than that exports and vegetables? Or any other...

Next 3 to 5 years, what we see both exports and vegetables should be close to INR 100 crores.

Single segment or both?

As a single segment, as a single segment.

And sir, any other promising crop?

No, we are again -- we have started selling mustard also, that is also a good crop. We also see growth in that, mustard.

And sir, about the cash on the books of INR 732 crores, sir, what are the future plans, sir? Any acquisition or any other thing?

We are open for acquisition. In the previous -- as you were not able to find any growth, we have given a dividend or buyback. So again, based on the current scenario, we'll see whether we need to go for the buyback or based on the opportunity we need to acquire a company that we'll disclose. That again, that depends on the Board. Once any outcome from the Board, definitely, we'll let you know.

Sir, what kind of area in acquisition are you looking, sir? Because in the presentation, you have given that the cotton seeds, we are the second -- #2 player. And in other segments, where are you looking for acquisition, sir?

Basically, for some vegetable companies or some technology.

Sir, any specific sir?

As of now nothing. I said that we have not identified any companies, and we are open for it. If any company comes in, definitely we'll acquire. As of now we have not identified anything.

So sir, if there is no acquisition, then there is a buyback?

Yes. That I will not comment as of now. That again, subject to the Board decision. Any decision taken, we'll definitely inform.

[Operator Instructions] The next question is from the line of Anurag Jain, who's an individual investor. Mr. Jain, are you there? Hello, Mr. Jain, you are not audible to us. I think Mr. Anurag Jain's line has dropped. [Operator Instructions] The next question is from the line of Anurag Jain, who's an individual investor. Mr. Anurag Jain, are you there? Because you are not audible to us. Mr. Anurag Jain, we are unable to hear you. I would request you to disconnect and join back. [Operator Instructions] We will take that as the last question. On behalf of Kaveri Seed Company Limited, I would like to thank all the participants for joining the call. For any further information, please be in touch with Rama Naidu from Intellect IR. You can reach him on 992-020-9623. On behalf of Kaveri Seed Company, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.