Gajendra has lived up to the promise with Kaveri Seeds giving gains of 50%+ in just a month’s time (recommended price Rs. 367 (after split); CMP Rs. 550).
Now, given that Kaveri Seeds’ market cap is only Rs. 3700 crore and the gargantum size of the opportunity, it is not late for us to take note of Gajendra Nagpal’s brilliant analysis on why Kaveri Seeds is (still) a great multi-bagger buy:
(i) Kaveri Seeds is India’s fastest-growing seeds company with a net profit growth at a CAGR of 45% over FY08-13. FY14 is also likely to be a year of strong growth for Kaveri, driven by continued market share gains in cotton seed and robust growth in corn and rice seeds;
(ii) Kaveri Seeds is debt-free and generates an impressive return on capital of over 35%. It has no major capex requirements over the next two years;
(iii) It is a dominant player in the organised seeds business, with a market share of 10%. The seed industry is expected to grow by 53% to Rs 10,700 crore by 2015. Kaveri expects to increase its’ market share to 15% to 20%;
(iv) The Industry has high entry barriers because the development of hybrid seeds depends on intense R&D capability;
(v) Kaveri’s best-selling products are cotton hybrid seed varieties such as Jadoo and Jackpot. Another new cotton hybrid, branded ‘ATM’, reportedly offers even higher yields than Jadoo;
(vi) Apart from Bt cotton, which is the key growth driver, Kaveri’s portfolio includes hybrid seeds for important crops like corn, paddy, bajra, sunflower, sorghum, tomato, okra, chilli and watermelon. Kaveri also markets micronutrients and organic bio-pesticides and fungicides to boost crop yields;
(vii) Kaveri has a large network with 15,000 distributors and retailers across India. It has a dominant position in South India and is expanding into new markets such as Chhattisgarh, Jharkhand, West Bengal and Odisha;
(viii) The size of the opportunity is massive. The current seed production is 40 million quintals and is expected to increase to 63 million quintals by 2015. Hybrids have about 20% share of the total seed market, of which cotton (20%) has the biggest share, followed by rice (15%), wheat and vegetables (over 10% each). There is scope for the per acre consumption of cotton seeds in India to jump from 1.6 packets per acre to the global standard of 2 packets per acre;
(ix) The next big opportunity for Kaveri could be hybrid rice. Of the 40 million hectares under rice cultivation, hybrid rice accounts for only 2 million. Kaveri expects the area under rice hybrid seed to grow to 4-5 million hectares over the next three to four years. Kaveri has around 7% market share currently (Bayer has around 50%) and expects to post robust growth in this segment by launching two new rice hybrids soon;
(x) As to valuations, at the (present) CMP of Rs. 550 Kaveri is quoting at a P/E of 17 times the TTM EPS of Rs. 32. While optically this looks expensive, the valuation is not factoring in the continued strong growth in earnings in FY 14 and FY 15.
So, there you have it. Gajendra Nagpal’s confident prophecy that that Kaveri Seeds has all the ingredients to become a multi-bagger and that you will not find a better stock may well come true.