Kaveri Seed Company Limited — Q3 FY25 earnings call

Call held 13 Feb 2025

Management summary

Kaveri Seed Co. reported a strong Q3 FY25 with revenue growing 30.63% and net profit up 29% YoY, driven by good performance in rice and maize. However, higher production costs and a significant decline in cotton volumes impacted overall margins. Exports also saw a decline due to political unrest in Bangladesh. Management provided positive guidance for top-line and bottom-line growth for the next two years, emphasizing the contribution of new products and a strong cash position.

Highlights

  • Q3 FY25 Revenue from operations grew 30.63% YoY to INR 154.77 crores.

  • Q3 FY25 Net Profit increased 29% YoY to INR 15.04 crores.

  • Cash on book stands strong at INR 499 crores.

  • New products are contributing significantly, with 60-70% of Bajra volumes from new products.

  • Management is confident about export growth in the next 2-3 years, despite current challenges.

Concerns

  • Higher cost of production impacted margins in Q3 FY25, with costs up 5-10% in most crops.

  • Cotton hybrid volumes decreased by 35% and revenues by 27% in Q3 FY25.

  • Exports declined to INR 18.23 crores from INR 38.1 crores in FY24, primarily due to political unrest in Bangladesh.

  • Rice hybridization adoption is slow, with existing varieties doing well and new hybrids needing to perform better.

Key financials

3 periods

Headline

  • Cash on Book
    ₹499 Cr

Q3

  • Revenue
    ₹154.77 Cr
    YoY +30.6%
  • EBITDA
    ₹25.09 Cr
    YoY +12.8%
  • Net Profit
    ₹15.04 Cr
    YoY +29%

9M

  • Revenue
    ₹1,044.61 Cr
    YoY +6.3%
  • EBITDA
    ₹324.78 Cr
    YoY +1.1%
  • Net Profit
    ₹294.6 Cr
    YoY +1.5%

What they filed

Q1 FY27: revenue down 13.8%, net profit down 14.2% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue82 155 77 945 97 +18%180 +16%82 +6%815 −14%
EBITDA-6 13 -15 322 -6 +0%18 +38%-14 +7%281 −13%
Net profit-3 15 -29 316 -15 −400%7 −53%-26 +10%271 −14%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Capex ₹30 Cr
    But in terms of the capex, year-on-year, INR30 crores to INR40 crores should be at a very higher for the next 2 to 3 years.
  • Liquidity Cash ₹499 Cr
    Cash on book stands at INR499 crores.

Guidance & targets

Profitability

  • Bottom-line growth Profitability · next 2 years · High confidence 15% to 20%
    We think that we can grow at 10% to 12% at the top-line and 15% to 20% at the bottom-line.

    — Mithun Chand

Revenue

  • Top-line growth Revenue · next 2 years · High confidence 10% to 12%
    We think that we can grow at 10% to 12% at the top-line and 15% to 20% at the bottom-line.

    — Mithun Chand

Capex

  • Annual Capex Capex · next 2 to 3 years · Medium confidence INR 30 crores to INR 40 crores
    But in terms of the capex, year-on-year, INR30 crores to INR40 crores should be at a very higher for the next 2 to 3 years.

    — Mithun Chand

Product Mix

  • New products contribution (non-cotton) Product Mix · going forward · Medium confidence 30% to 40%
    So we say like 0 to 4 years is only what we say the contribution from new hybrids. Okay. And can you explain us like how will we like we are growing top-line at 10%, 12%, that's fair enough, like considering our product portfolio. But how will the margin improve from here on, like it will be like price increases or like better quality, high margin? be like 30% to 40% going forward as well, because every year, new hybrid comes in and another hybrid goes out.

    — Mithun Chand

Volume

  • Cotton packets Volume · next 5 to 7 years · Medium confidence 8 million packets
    In fact, if everything goes right, we can go back to our peak levels, which were like that 8 million packets in the next 5 to 7 years.

    — Mithun Chand

Exports

  • Export sales Exports · 3 to 5 years · Medium confidence INR 160 crores
    3 to 5 years, yes, definitely between close to INR160 crores we can see, 3 to 5 years.

    — Mithun Chand

Inventory

  • Inventory volume growth Inventory · March end · Medium confidence at least 20% more than previous year's volumes
    But across the previous year, we can see at least 20% more than 15% to 20% more than previous year's volumes.

    — Mithun Chand

What to watch in Q4 FY25

Government decision on cotton price increase

next quarter
Current Pending, expected Feb/March
Target Announcement of price increase

Why it matters

Directly impacts the company's ability to pass on increased production costs and maintain cotton margins.

Still the time is there up to March, most probably they take in the month of February and March. So the time is there, we need to see. We need to wait and watch for that.

Risks & concerns

  • Higher cost of production

    medium

    Cost of production increased by 5-10% in most crops, impacting margins, though efforts are being made to pass it on to farmers.

    Management acknowledged

  • Political unrest impacting exports

    medium

    Political unrest in Bangladesh led to a significant decline in exports, causing a dent in overall export sales.

    Management acknowledged

  • Erratic monsoons and changing climate

    medium

    Changing climate and erratic monsoons lead to new pests, diseases, and viruses, impacting yields, requiring continuous development of resistant hybrids.

    Management acknowledged

  • Pressure on cotton margins due to government pricing

    medium

    If government-mandated price increases for cotton do not keep pace with rising production costs, it could put pressure on cotton margins for FY26.

    Analyst acknowledged

Q&A highlights

5 direct, 1 evasive
Impact of product mix shift (non-cotton growth vs. cotton degrowth) on margins Partial
Usually, this time, the cost of production was also higher in most of the crops as the other expenses. If you see cost of goods remained same most of the time, slightly increased, but other expenses also have gone up in terms of the employee cost. All of them have added up to it.

Analyst questioned why margins didn't improve despite higher-margin non-cotton growth, revealing that increased production and employee costs offset potential gains.

Asked by Siddharth Dant

Outlook on new cotton products and cotton market bottoming out Direct
Yes, we can think of that. We have launched a couple of hybrids in cotton. We have already launched commercially, I mean to say, not in the pipeline. We have launched commercially and tested some hybrids. They are looking very promising. We think that we can definitely grow in cotton as well and this should be bottom year in the cotton crop.

Provides insight into the company's strategy for the struggling cotton segment and a positive outlook for its recovery with new product introductions.

Asked by Siddharth Dant

Payout policy (buyback vs. dividends) given new tax regime Evasive
We need to think of that. We have not discussed in the Board because it's not even 1 year now. I will just discuss on that. But again, that's a Board decision. With the new taxation, we need to see what's best. Once we decide in the Board, we will come back to you on this.

Highlights uncertainty regarding future shareholder return strategy, which is a key capital allocation decision for investors.

Asked by Siddharth Dant

Realization increase from government for cotton prices Partial
That again depends. Every year, they are increasing. This year also they need to take a decision. Still the time is there up to March, most probably they take in the month of February and March. So the time is there, we need to see. We need to wait and watch for that. But they also know the costs have gone up. By considering that, usually, they increase the prices.

Addresses the critical issue of pricing power and government intervention in cotton, which directly impacts the company's ability to pass on increased production costs.

Asked by Krushi Parek

Bottlenecks in rice hybridization adoption Direct
Basically, when we try to introduce a new variety or a hybrid, it should do better than the existing one. In rice, the existing varieties are doing well. And across the industry, we are not having standard rice hybrids. Most of that are in bold rice. Now the pipeline hybrids are coming in standard rice. Once it comes in, it might pick-up.

Explains the challenges in a key growth segment (rice) and outlines the product development strategy to overcome them, indicating a potential future inflection point.

Asked by Krushi Parek

Progress on HTBT (BG3) cotton from government end and pricing Direct
It is much positive when compared to 3 years back. It's moving on. We can expect any time. But again we are not able to time it, but the government response is encouraging in terms of the new technologies. ... Yes, price cap will be there. But again, the price will be negotiated by the service provider for the government and the players.

Provides an update on a significant regulatory development that could open up new market opportunities for cotton, along with insights into the pricing mechanism.

Asked by Sanjeev Zarbade / Siddharth Dant

Reasons for market share loss in cotton (Maharashtra, Telangana, Andhra Pradesh) Direct
It's a combination of all. One is that it was pretty old hybrids. There are some other competitive hybrids which are doing well. The other thing is the availability was also low and we were trying to realize more from the competition when compared to the competition. These all contributed for a degrowth.

Clearly identifies the multi-faceted reasons behind the market share decline in cotton, including product obsolescence, competition, and availability issues.

Asked by Rohan Patel

Increase in employee cost for the December quarter Direct
One, there are usual increments what we give. And the other thing is count also we have increased the count. We both will contribute for the employee cost. ... So one see, one, we are increasing production that itself shows that we require more people in the production, more people to test and more people to process. Again, we require more people to sell it also. So based on the areas and all those things, it all goes up across the Board.

Explains the reasons for increased employee costs, linking it to business growth, increased production, and expansion across various functions.

Asked by Krushi Parek

3 min read 7 chapters

Detailed narrative

Q3 & 9 Months FY25 Financial Performance Overview

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.

Product Mix and Volume Trends

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.

Production Costs and Pricing Strategy

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 Market Performance and Outlook

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.

Cotton Segment Challenges and Future Strategy

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.

Rice Hybridization and Climate Change Adaptation

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.

Capital Expenditure and Growth Outlook

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.

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