Kaveri Seed Co.

Kaveri Seed Company Limited reported a robust Q3 FY25 with revenue from operations growing 30.63% YoY to INR 154.77 crores. EBITDA for the quarter increased by 12.77% to INR 25.09 crores, and Net Profit saw a 29% rise to INR 15.04 crores. For the first nine months of FY25, revenue from operations stood at INR 1044.61 crores, a 6.3% growth YoY, with EBITDA at INR 324.78 crores (1.14% growth) and Net Profit at INR 294.6 crores (1.46% growth). The company maintains a strong liquidity position with INR 499 crores cash on book.

During Q3 FY25, rice and maize segments performed well, with hybrid rice volumes increasing by 14% (revenue up 27%) and selection rice volumes up 18% (revenue up 34%). Maize volumes also grew by 8%, leading to a 25% increase in revenue. However, the cotton hybrid segment faced challenges, with volumes decreasing by 35% and revenues by 27%. New products are making a significant contribution, with 60-70% of Bajra volumes coming from recent introductions, and new products contributing 30-40% in most non-cotton crops.

The company experienced higher production costs in Q3 FY25, with costs increasing by 5-10% in most crops, and over 10% in some. This, along with increased employee costs, impacted EBITDA margins. Management indicated efforts to pass on these increased costs to farmers, particularly in the Rabi season. For cotton, while the government typically increases prices considering rising costs, the timing and extent of such increases (expected by Feb/March) remain a watch item, as insufficient increases could pressure margins.

Export sales for Q3 FY25 declined significantly to INR 18.23 crores compared to INR 38.1 crores in FY24. This decline was primarily attributed to political unrest in Bangladesh, which previously accounted for a substantial portion of exports (INR 35 crores in FY24). Despite the current setback, management expressed confidence in the long-term export market, having expanded to many other countries and seeing promising trial results for hybrids. They project export sales to reach around INR 160 crores within the next 3 to 5 years.

The cotton segment experienced a significant decline in Q3 FY25, with market share in states like Maharashtra, Telangana, and Andhra Pradesh falling from 13-14% to 5-10%. This was attributed to older hybrid varieties, strong competition, and low product availability. However, management is optimistic about a turnaround, having launched new, promising cotton hybrids commercially. They believe the cotton crop should bottom out this year and aim to return to peak levels of 8 million cotton packets in the next 5-7 years. Progress on regulatory approval for BG3 cotton is also seen as positive and encouraging.

The adoption of rice hybridization has been slower than anticipated, mainly because existing varieties perform well, and many current hybrid offerings are 'bold rice' rather than the preferred 'standard rice'. However, the company is developing new standard rice hybrids in its pipeline, which are expected to drive future adoption. In response to erratic monsoons and changing climate patterns leading to new pests and diseases, Kaveri Seed is actively developing resistant hybrids to maintain yields and support farmers.

The company plans for an annual capital expenditure of INR 30-40 crores over the next 2-3 years, primarily for expanding processing lines and warehouses. Management provided a positive growth outlook, targeting a 10-12% top-line growth and 15-20% bottom-line growth for the next two years. This growth is expected to be driven by new product launches and increased market penetration, with inventory volumes projected to grow at least 20% more than the previous year's volumes by March end.