Kaveri Seed Company Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Diversification story validated: Non-cotton crops now contribute close to 70% of revenue, up from 25% in FY2015, insulating the company from the structural decline in cotton acreage and pricing.
• Margin expansion despite mixed realizations: 9M EBITDA margin expanded 378 bps and PAT margin 409 bps, driven by a favorable mix shift toward high-profitability crops even as hybrid rice realizations lagged.
• Buyback completed, balance sheet strong: The company deployed ₹125.37 Crores to repurchase shares, ending the quarter with a ₹403 Crore cash position and no debt concerns.
• GM cotton technology catalyst in sight: Management cited "a lot of positivity" and expects BG-2 RRF technology approval within the next one to two seasons, a potential reset for the cotton segment.
• What to watch next quarter: Whether the vegetable segment hits its FY22 revenue target, the pace of government receivable recoveries, and any concrete regulatory movement on GM crop trials.

The Diversification Payoff

• Structural shift away from cotton: Revenue peaked at ₹1,100 Crore in FY2015 when cotton was 75% of the mix; a subsequent 20–25% price cut, acreage shrinkage from 1.45 crore to 1.05–1.1 crore hectares, and market share losses forced a deliberate pivot.
• Non-cotton now dominates: The non-cotton share has risen to close to 70% of revenue, with continuous growth and improved realizations across hybrid rice, maize, vegetables and other segments.
• Volume-to-revenue conversion working: Higher area coverage in rice and wheat during the quarter translated into revenue growth, and the company converted volume growth into revenue growth across segments for both the quarter and the nine-month period.
• Hybrid paddy scaling: KPH 468 gained volume and market share across Tamil Nadu, Andhra Pradesh, Assam, Odisha, Karnataka and Telangana, supported by higher paddy area in those states.
• Maize enters Rabi: The company moved into the Rabi season for maize, having previously been present only in Kharif, expanding the addressable window for the crop.
• Subsidiaries contributing: Subsidiaries grew year-on-year despite a dent in their historically cotton-focused businesses, supported by unique products developed in the main company that are marketed through subsidiary brands.

Mithun Chand: "Going forward what we see we are in a much healthier position than what we were earlier. As a company we were more dependent on cotton in 2014 and 2015. Now we are not dependent on any crop but we are there and big in most of the crops in India so that is a very encouraging sign..."

Margin Drivers & Realization Mix

• 9M margin expansion: EBITDA margin rose 378 bps and PAT margin 409 bps year-on-year, described by management as a very encouraging sign.
• Realization mix was uneven: Hybrid rice realizations lagged the previous year despite volume growth. Maize realized more. Cotton saw a price increase but delivered the lowest realization in six to seven years for the quarter due to competitive pressure.
• Profitability mix saved the quarter: Good sales in high-profitability crops enabled the margin increase despite the drag from rice and cotton realizations.
• Historical margin band: Margins have stayed between 28% and 30% over the last eight to ten years, with only one or two years of pressure linked to cotton regulation issues. Management is confident this band is maintainable and sees a chance of slight improvement as sales scale.
• Pricing power intact: Seed costs less than 5% of total input cost in most crops, so farmers do not compromise on seed quality. The company has been able to pass on price increases and expects this to continue.

Mithun Chand: "If you see the previous last 8 to 10 years if you compare our margins always they were sustainable... always our margins remain in between the 28% to 30% and we are pretty confident that those margins will remain and it is maintainable. As we go up and scale up our sales even there is a chance that there will be slight improvement in the margins going forward, but for sure this can be maintainable."

Vegetables: The Next Growth Engine

• Above-industry growth: The vegetable segment is growing at more than 20%, outpacing the industry growth rate of 15–20%.
• Concentrated portfolio strategy: The company is focusing on hot pepper, tomato, and okra, which together contribute more than 50% of vegetable revenue.
• Revenue contribution target: Vegetables are expected to contribute more than 10% of total revenue within the next three to four years.
• Q4 seasonal tailwind: Vegetables typically contribute heavily in Q4; management is confident about the quarter and on track with targets, though the extent to which the FY22 guidance of ₹65 Crores will be achieved remains to be seen.

Cotton & the GM Technology Catalyst

• BG-2 RRF on the horizon: Management expects the technology will most probably be introduced in the next one or two seasons, with continuous meetings happening among technology providers, government and private players.
• Trials largely complete: Most trials for HTBT cotton are finished; the company is now waiting for approval from the GA, the authority that grants commercialization approval to the technology provider. Once that comes, everything will fall under it.
• Sentiment has shifted: Management noted "a lot of positivity" in the last two quarters, a marked change from the technology drought of the last five to six years.
• GM edible crops could follow: If GM mustard receives permission or licensing for trials, all other edible GM crops including banana, tomato and brinjal will become eligible to follow, opening a broader pipeline.

Mithun Chand: "there is a lot of positivity is in the last two quarters. As a company we are expecting that the technology will come very soon."

Exports & International Expansion

• Current markets active: The company is presently exporting to Sri Lanka, Bangladesh and Vietnam, and exports continue to be strong.
• Bullish medium-term outlook: Management is "pretty much bullish" on exports to neighboring countries, South East Asia and Africa, citing good product acceptance.
• Registration bottleneck: Product registration in other countries takes three to five years. The company is already in the process of registering products in some countries and marketing through other companies in the interim.

Mithun Chand: "The registration itself takes three to five years in most of the companies. We are already in the process of registering it in some companies and we are marketing through some other companies there but definitely you will see increase in the revenue."

R&D, Capex & Technology Pipeline

• R&D spend elevated: R&D spending has increased over the last six to eight years, yielding many good pipeline hybrids that give management confidence to grow for the next five to ten years.
• Capex steady at ₹25–30 Crores annually: The majority is now directed toward R&D and building the biotechnology plant, as the major investment in the new office is already complete.
• Gene editing on the radar: The company is open to tie-ups and is already exploring some options for CRISPR-based gene editing, though management cautions it will take time.
• No threat to existing hybrids: Management does not view gene editing as a threat to the existing hybrid portfolio; new technologies will be adopted and may replace existing hybrids over time, just as GM cotton replaced conventional hybrids, but the portfolio will evolve rather than be disrupted. [20–21]
• No entry into fruit seeds or hydroponics: Watermelon is already in the portfolio and could be considered a fruit, but there are no plans to enter fruit seeds or hydroponics as of now.

Guidance & Commitments

Key Metrics