Detailed Narrative
Q1 FY26 Performance Overview
Kaveri Seed Company Limited reported a strong Q1 FY26, with revenue from operations growing 16.98% year-over-year to ₹945.31 crores, up from ₹808.09 crores in Q1 FY25. EBITDA increased by 13.68% to ₹332.85 crores, and net profit rose 11.88% to ₹316.50 crores. The company attributed this performance to increasing acreages and higher realizations in non-cotton segments.
Segmental Performance and Growth Drivers
Non-cotton segments were key growth drivers. Hybrid rice revenues increased by 32% (volumes up 6.48%), selection rice revenues by 11.58% (volumes up 1.5%), maize revenues by 54% (volumes up 21%), and vegetable seed revenues by 41% (volumes up 28%). Overall, non-cotton hybrids saw an 31% increase in revenues and 8% in volumes. Management expects non-cotton segments to sustain around 20% growth going forward⏳.
Cotton Segment Challenges and New Product Contribution
The cotton segment faced headwinds, with hybrid cotton volumes decreasing by 15% and a corresponding revenue decline. This was primarily due to the proliferation of illegal cotton and increased production costs, which could not be fully passed on due to government price restrictions. However, new cotton products showed promise, with their contribution to cotton volumes increasing significantly from 12% to 34%.
Inventory Management and Outlook
The company intentionally increased inventory in the March quarter to build buffer stock, anticipating a good season and to avoid sales losses experienced in the prior year due to inventory crunch. Management stated that the current inventory is new and does not pose a high risk of write-off. They expect the second half of the year to be much better, driven by positivity in maize and other non-cotton segments.
Capital Expenditure and Depreciation
Kaveri Seed invested ₹45-50 crores in a new R&D plant during the quarter. Quarterly R&D expenditure is expected to be in the range of ₹15-17 crores. Depreciation is projected to be ₹12-15 crores per quarter and is expected to continue at this rate for the next 12 to 18 months due to new asset capitalization.
Growth Outlook and Strategic Focus
The company projects an overall growth rate of 15-20% for the next 3-5 years, with year-end growth expected to be close to 20%. Export business, particularly to Bangladesh and other new countries like Tanzania, Vietnam, and Philippines, is anticipated to grow by 30-40% compared to the previous year. By FY28, new cotton products are expected to contribute 80-90% of cotton revenue.
Regulatory and Industry Challenges
The spread of illegal BG-II RRF cotton seeds remains a concern, impacting the market and potentially harming farmers. The company is in continuous dialogue with authorities regarding the approval of BG-III seeds. Additionally, restrictions on hybrid rice sowing in Punjab affected sales in that state. The company is also actively pursuing a policy resolution for pending tax matters, which are currently at the commissioner level.