Kaveri Seed Company Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Double-digit revenue and EBITDA growth, driven by maize: Maize volumes surged 29.7% and revenue 56.76%, showcasing the success of the non-cotton diversification strategy.
• Cotton segment hit by illegal seeds and pricing pressure: Sales volumes fell over 20% as illegal BT seed usage expanded, and the company could not pass on higher production costs to farmers, compressing margins.
• Profitability squeezed by cost inflation and inventory build: Gross margins fell 1.5%–2% at the EBITDA level because cost of goods rose 2%–2.5%, and a deliberate buffer stock build-up, especially in cotton, has tied up capital.
• Portfolio transformation is now visible: Cotton has shrunk to less than 20% of the portfolio from over 70% historically, with maize, rice, and vegetables filling the gap and de-risking the business.
• What to watch next quarter: The pace of cotton inventory liquidation and normalization, the Rabi maize sowing season after an extended monsoon, and any movement on the stalled US-India trade deal that could unlock new cotton technology.

Maize: The New Growth Engine

• Volume and revenue breakout: Maize volumes grew 29.7% and revenues 56.76% in the first half, making it the primary driver of the quarter's double-digit top-line performance.
• Bullish multi-year outlook: Management expects maize growth to continue for at least 3 to 5 years, citing strong demand from industrial usage, including ethanol, and the Agriculture Ministry's goal to double domestic maize production by 2035.
• Rabi season poised for strong contribution: The majority of Rabi sales will come from maize, and the company has planned good inventories. Sowing was delayed by an extended monsoon but is expected to start in November, with many new hybrids launching in the coming days.
• Trade deal risk dismissed: Management does not see any threat to maize from a potential US-India trade deal, pointing instead to the structural demand pull from industrial buyers and government production targets.

Chand: "We see a good potential in maize crop and we don't see any threat in maize crop at all. And we are very much bullish on maize and most of the hybrid in maize are coming in the next few days, so we are not worried about that. In fact, we are very bullish and optimistic on that."

Cotton: The Margin Drag

• Illegal BT seeds erode volumes: Cotton sales volumes declined more than 20% as the illegal BT seed market expanded. Management stated the company cannot compete with illegal technologies and does not engage in them.
• Cost pass-through failed: Production costs rose significantly, but the company was unable to pass the increase on to farmers because market inventory was high, farmer sentiment was poor, and cotton prices were weak. Only a ~3% price increase was attempted, and practically it was not realized.
• Inventory overhang: The company built up buffer stock in cotton anticipating good sales that did not materialize. This inventory, carried at cost which is below selling price, will take 2 to 3 quarters to normalize. Margins have absorbed the cost impact, but no explicit write-down was taken.
• New products offer a path to recovery: The contribution of new cotton products to volumes jumped from 11% to 36%, and management expects all cotton products to be new by FY'28. New hybrids tested last year are now on the ground and performing well.
• Technology stalemate persists: No progress has been made on government approval for new GM cotton seed technology. Negotiations have been at a standstill for 5–6 months, and management believes the topic may only be addressed once the US-India trade deal is concluded.

Chand: "Cotton, we were not able to pass it on because the price remained there. Even though there was a few, like 3% increase in price, but practically, we were not able to pass it on to the farmer because the inventory was very high."

Portfolio Diversification Payoff

• Cotton dependency structurally reduced: Cotton now represents less than 20% of the portfolio, down from over 70% seven to eight years ago. This deliberate diversification has insulated the company from a single-crop shock.
• Rice delivers value growth: Hybrid rice volumes grew modestly at 0.9%, but revenue jumped 21.48% on higher realizations. Selection rice volumes grew 2.6% with revenue up 11.07%. Heavy rains dampened overall hybrid acreage, but management sees this as a short-term blip and expects hybrids to take a major share going forward.
• Vegetable seeds: small base, long R&D cycle: The vegetable seed business is growing at 18%–20%, but its contribution remains low because competitive product development takes 8–10 years. The pipeline of new hybrids is strong and scaling up, and management is very bullish on the second half.
• New crops in the pipeline: The company is releasing hybrids in bajra, with revenue expected in the next 2 to 3 years, and is concentrating on mustard hybrids, a small but growing market supported by government focus on mustard cultivation.

Chand: "If you take our Company in the last 7-8 years, we were constantly saying that we want to decrease dependency on one crop. That's what we are seeing now. The cotton is less than 20%, whereas in earlier, it was more than 70%."

Margins & Cost Structure

• Gross margin compression: EBITDA-level margins fell 1.5%–2% as cost of goods sold rose 2%–2.5%. Production costs increased across both cotton and non-cotton segments, driven by a sharp rise in grain prices that pushed input costs up more than 15%–20% year-on-year.
• Asymmetric pass-through ability: In non-cotton segments like maize and rice, the majority of cost increases were passed on to farmers. In cotton, the combination of high channel inventory and weak farmer sentiment blocked price transmission entirely.
• Operating expenses rising: Employee and other expenses are growing 12%–15% due to annual increments and new headcount from adding new crops, new people, and new R&D facilities. A new office and R&D facility started this quarter, adding to depreciation.
• Recovery expected: Management is confident margins will return to previous profitable levels, with the second half of the year expected to do better than last year in both revenues and profitability.

Exports: Early-Stage Growth

• Strong growth off a small base: Exports are expected to grow 25%–30% year-on-year, reaching approximately ₹35 crore this year. The majority of export revenue is realized in Q3 and Q4.
• Long-gestation play: The company is in trialing and initial stages across multiple geographies and crops. Revenue is minimal in the first few years but is expected to scale as trials convert to commercial orders. Growth is anticipated in both field crops and vegetables.

Guidance & Commitments

Key Metrics