Kaveri Seed Company Limited (KSCL) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Kaveri Seed Company's Q1 FY '27 Earnings Conference Call. Please note that this conference call will be recorded. Joining us today on the call, Mr. Mithun Chand, Executive Director. Before we begin, I would like to mention that some of the statements made in today's call may be forward-looking in nature and may involve risks and uncertainties. For a list of such considerations, please refer to the earnings presentation. I would now like to hand over the call to Mr. Mithun Chand. Thank you, and over to you, sir. Thank you.

Good afternoon, and welcome, everyone, to our quarter 1 financial year '27 earnings conference call. We hope you have had a chance to review the presentation of our results, which is also available on our website. I would touch upon the operational financial operations of the company and then open the floor for Q&A session. Revenue from operation was at INR 815 crores as compared to INR 945 crores. EBITDA was at INR 285 crores as compared to INR 332 crores. Operating margin stood at about 35%, the same level as last year, slightly above. Net profit was at INR 271.3 crores as compared to INR 316 crores. The cash on book stands at INR 267 crores. Coming to segment-wise revenue breakup, Non-cotton revenue was INR 6.57 crores, and cotton revenue was at INR 213.43 crores. Cotton stayed at the level of last year. Major highlights. El Nino had a weak monsoon and quarter 1 had one of the shortest sowing windows of recent seasons with less rain through the quarter. Farmers bought fewer premium and high-value products. Our new cotton products did very well. They now make up 37% of our cotton sales against 22% last year. This is a big jump in single year, and it shows the farmers are choosing our newer hybrids despite challenges from illegal cotton and reduced sowing acreages. Our new single-proross maize hybrids are doing well. They now make up more than 20% of our maize sales. A bigger share of maize now comes from our newer and better products, which gives a stronger base to grow from once once maize sowing returns to normal. Mize was slow this quarter because of the deficiency in the rain. Karnataka is our main maize market and only about -- only about 1/5 of the land has been sold by mid-June. Rail returned in July, and we expect maize demand to pick up in quarter 2 financial year '27. We launched 2 new hybrids paddy products, KRH734 and KRH727 in their very first season. They brought in 62% of our new product sales. This is a strong start for our new rice products. Our export business grew close to 4x from INR 1.1 crores to INR 5.79 crores. Demand from overseas markets is clearly building, and this is an area we will keep pushing on. Operational highlights. Operating margins held steady at about 35% throughout the quarter. In Cotton, the company has built a strong base in the northern markets of Haryana, Punjab and Rajasthan. Hybrid rice stays our largest non-cotton segment at INR 247.07 crores in a quarter of which rice sowing area in the country was lower. Selection rice revenue grew marginally to INR 159.07 crores, holding up despite poor rain in the rice sowing areas. New Bajra hybrids now make up 65% of the Bajra volumes, up from 61% with volumes sustained throughout the season. Vegetable seed revenue was at INR 15.08 crores with few new varieties going into the coming season. If rainfall improves during quarter 2 financial, we expect some spillover demand. The growth story stays intact. We are working on new variants across all seed segments, and we will keep raising the share in maize, vegetables, rice and cotton. I would now open the floor for question...

Your first question comes from the line of Rushabh Shah with BuglockMS.

Sir, if I see your numbers in the last 10, 11 years. Sorry, can you be a bit louder?

So if I see your financials in the last 10, 11 years, we have reached a profit of around INR 300 crores in 2015. And after that, we were building a non-cotton business, our vegetable business and which we have grown to a significant size. But still, we are not able to cross that peak profit in the last years. Is it because we couldn't get any hit hybrids like moneymaker or ATM? I mean, what kind of challenges are we facing? And like what do you think we can achieve in the next, let's say, 3 to 5 years?

Rightly observed. If you see from 2014, '15, the profit remained in and around the INR 300 crores in most of the years. And -- but if you see the product mix, the cotton was contributing around 90% in 2014, '15 and the margins are pretty high there. Coming back to this present season, if you see the mix has changed, wherein cotton only contributed close to 20% and 80% in non-cotton segment. And even cotton margins shrink to much lower than what we used to have, even though we were able to maintain those margins at a 35% EBITDA for the first quarter. And leaving apart this year, if you see in the last years, we were growing in non-cotton segment and we were declining cotton. But by seeing the current season, which is a very challenging season for us, where across the first time where we are seeing this type of season where across India, we have seen monsoon deficit till June 15, which has disrupted the cropping patterns and the farmer choices. So that's making an impact. This is one of the years when we should not take into consideration. But coming back to if you see the portfolio levels to the other levels, even in these tough conditions, we were able to do well. And with the products what we have and with the research what we have spent in the last years and the hybrids which were developed, the research is doing very well, and they are very encouraging. It's just one of a year, and it should not be a benchmark for the performance.

Okay. My second question is that we have entered into the export market for quite some time. So -- and we have grown in that area also. So I mean what -- are we facing any challenges in those regions? Because in one of the calls, I remember you have said that gaining farmers' trust even in India, we are an Indian company, which took so long. So are we facing these kinds of challenges in the export market? And second part of the question is in exports, maize and rice are 2 big crops. And we have talked about Philippines, Vietnam or Thailand to grow our export business. We sent some samples for trial. We got good results, and it could be around like INR 100 crore revenue in the few years. So what's happening on that front, if you could just let us know?

We are growing vegetables. We are growing in export market. And -- the conditions here and there remain almost same. I mean to say that in terms of farmers' choices, they will see the performance and then only they will adapt to it. In a few countries, we need to give trialing as well. So that trialing we have completed in Philippines, Vietnam and Indonesia there. So now we are sending material there. So we are getting good sales there and still we stick to that growth in export market, reaching INR 100 crores in vegetables shouldn't be a difficult time in the coming time.

Okay. Okay. And sir, we have done a commendable job in the past years to build a non-cotton portion of the business. My question on the cotton business. As we know that this business does not have significantly lower margins than the non-cotton business. And have we lost focus or let's say, are we focusing less on this -- we are giving less importance to this business? And because there are many factors like illegal seeds, capping prices from the government. And we haven't come out with such new hybrids in the last many years in the cotton business. So -- and just to add on the part, in the last 2 years, we have seen we have huge inventory, like around INR 1,200 crores of inventory we have. So on that front, could you please let us know something?

Coming back to the cotton question first. Yes, cotton, we have lost market share in the last 7, 8 years. And we have -- I'll just correct you; we have developed many hybrids in the past 3, 4 years. And if you see the growth in Northern India, we have grown even though the -- if you see the overall sale as a flattish one, but we have grown in Northern India in terms of -- we have almost like doubled in Northern India in terms of cotton with a small base. But those are all new hybrids, and we are doing very well. When you come back -- when you come down to Gujarat and Maharashtra, the rainfalls were very low, scattered rainfall initially and then the illegal BT. This all has impacted to some extent. As I said that this is one of the years where we should not see -- we should not take it as a benchmark. We are very confident with the new cotton hybrids. And even in the sale, you will see the contribution of the cotton hybrid, new cotton hybrids. We are fairly confident that we'll go back to our market share. what we used to have earlier, and we are very confident about cotton, even though the margins are lower, but the market size is very big where we can't ignore cotton as such. Cotton is a very big market, and we are very strong in those markets. So we are working and we'll be working in cotton segment also. Coming back to inventory, yes, compared to last year, we have roughly INR 200 crores of more inventory when compared to last year. That is because we anticipated a good season and good growth this year because of the El Nino asset and the delayed rains, scattered rains here and then that has impacted the sale. But anyway, that's a part and parcel of the business. We will manage the inventory, and the inventory is pretty much sold properly. And we will be reducing our productions next year. So we'll not take up the production what we have taken up this year. That's a continuous process. So we are monitoring it. No worry as of now to maintain the inventory. It's for the holding time we have.

And sir, just a follow-up on the market share part, lost of market share in cotton. We had lost market share in Andhra Pradesh and Telangana. So Rasi is a market leader all over India. So just wanted to know like -- I mean, what is helping them to gain more market share? Is it better for the farmer connectivity? Or are they a better brand? Or just wanted to know.

So basically, if you see in the last 4, 5 years, I don't think they have increased the market share. At the most, they have maintained or declined in terms of market share. And the cotton market also slightly declined in the last 3, 4 years. illegal cotton has also gone up, smaller players also coming up. So in terms based on hybrid performance, the hybrids are doing well and they are acceptance, they have grown. But these are all old hybrids. We have not seen any new hybrids that have taken market share in the last 3, 4 years.

Your next question comes from the line of Disha Garg with -- so Mutual Funds.

Sir, as the season was not that good, so have we also got hit on our margin for a particular crop, which is compensated by other crops. So is there any -- is there any crop where we got a low margin versus last year?

No, if you see -- if you see the margins, in fact, expanded, even though the sales declined, the EBITDA margins have slightly expanded. If you see the other expenses like the salaries and other expenses were up compared to last year in terms of the percentages. But in terms of the gross margins, it is up by 2% to 3%. So in anticipation of a good season, we deployed many people across and we couldn't sell as well that has slightly impacted our margin. But we are -- in fact, we would have done more margin than last year for the season was good.

The next question comes from the line of Himanshu Upadhyay with Stford.

I had a question on subsidiaries, okay? In one of the recent calls, we stated that our subsidiary also sells seeds. And if we have multiple hybrids, launching all hybrids through Kaveri is not viable. So out of, let's say, 4, 5 hybrids are there, 1 or 2 can go to subsidiary. But I could not understand why all cannot be sold through Kaveri and why not choose best 2, 3 hybrids and put our entire efforts on with focus behind rather than diversifying our energy across multiple products and multiple places through subsidiaries or all that. So some on that will be helpful.

That all depends on the company strategy, how they do it. For us, if you take Kaveri as such, Caver focusses only on those hybrids. Even though subsidiaries are there, we are competitors in the market. They operate as a different company. The team is different. All the efforts are different. So only the research is Kaveri, but all are independent companies and independent subsidiaries. So those are all competitors in the market. We are putting our full effort across all hybrids. And whatever sale is booked in the subsidiaries are also all independent sales.

I could not understand the benefit of that strategy because many companies, let's say, in FMCG or any other agrochemicals also when we see companies have multiple products for the same issues and multiple brands also which get sold through the same company. Why does this strategy is more helpful of selling through subsidiaries and competing with our own subsidiaries. So some thoughts on that will be helpful. That is what I'm trying to understand.

The business of FMCGs and seed is altogether a different business because seed, the farmer only pick up by seeing the performance of the hybrid. And India has got many climatic conditions; each hybrid performs differently in each segment. There are very few hybrids which are successful across all zones. So when we have E2 hybrids, we need to discard one hybrid and market only one hybrid. So the discarded hybrid will go to the subsidiaries, which operate independently and we get market share. For example, if you take this year also, the hybrids, what we sold in -- for example, if you take cotton hybrids, we are sold a 10 lakh to 12 lakh packs in subsidiaries. So that's an added advantage for the car seed company, wherein the cost and everything gets -- the research cost and the production cost will be beneficial for the car seed as we may not be able to market all those hybrids. It's all hybrids basically. some hybrids perform differently in different segments. So they take advantage of that. If you want to do in one company, we need to discard those types of niche market hybrids, which we don't want to do. Again, that's what I was saying. Again, that depends on the strategy of the company.

Okay. Okay. And one more thing.

And one more thing I'll just add to that. Even in the Indian farmer usually tries different products. You will not go for one go. For example, if you have 10 acres of land, even though it's very much, I will say, used to hybrid, even in that way, it tries other 3 or 4 hybrids of different companies or the same company.

And when we see the new cotton products or any, let's say, Bahajarra new hybrids, so the new product would mean launched within 3 years, 5 year? Or what is the duration...

3 years.

Basically 3 years.

Okay. Okay. And in the last 3 years. Okay. So whatever we launched in 3 years is we say new products...

Yes.

Yes.

Okay. And in cotton, when we have seen the new products growing at a very quick pace, are we getting some pricing premium also in those products or the price remain subdued only for those products also -- and if they replace the older ones, okay? And I think they would be replacing. That's why their share is continuously increasing even when the -- our revenues in cotton and some have not increased. But how is the pricing and the profitability for these products or the newer products? Some thoughts on that.

RPaed. In cotton, the MRP is capped. But in terms of the realizations, we are almost like in the top 3 segments of the cotton seed where we realize higher than many other companies.

Okay. And one more thing. With the later rains coming, do we see any hybrids which are -- or any change in the cropping pattern, which might benefit for a shorter duration crop, let's say, vegetables, which generally have a 3-month type of time frame. So any product or any place where we are.

Not much. For us, vegetables is a very smaller segment, even though that might come this quarter, but it's a very quarter -- very small segment, which may not add much for us. But for us, Karnataka is a major state where still we are waiting for the rainfall and now the tanks are getting full now. So in that segment, in Karnataka, what we believe is that we have not lost sales, it can come again in terms of maize. So that is a positive point what we see is that we can get back Karnataka sale. Other parts, we may not get back, but in Karnataka, we can get back. And the other thing is that now with the excess rains and the heavy rains in the last couple of weeks, most of the tanks are full in most of the parts, leaving the southern part like Karnataka or Andhra or some parts of Telangana. But Northern India, mid-part, the tanks are full. So in that way, that rabi might be a bit encouraging this year. And if you see the maize price, in the start of the season, it was only INR 16, INR 17. Now the maize price is also around INR 27, INR 28. So even most of the rabi comes from maize crop. So maize should pick up in the second half.

Okay. Okay. And let's say the exports last year, how much was to Bangladesh? And what is the outlook overall for the exports and especially to Bangladesh.

I don't have the exact split per state as of now. But definitely from last year, we'll go at at least 25% compared to last year as overall exports.

Your next question comes from the line of Dhruv Saraf with Bowhead India Fund.

Q1 numbers, if I compare the feeding revenues of other large companies such as Bayer, such as Advanta, their maize seed revenues almost grew by 20% plus, while we had a 40% decline. So can you help me pin down why this big difference in performance?

Basically, they are very strong in the other parts of India. We are strong in the southern parts of Karnataka, Andhra and Telangana. So these parts, we have received less rainfall. That's one of the impacts what we have seen. And if you see last year, 25% to 30% of sales came from Karnataka last year in terms of overall Kharif sale.

Okay. Right, sir. So -- but even we are strong in areas like Madhya Pradesh as well where the acreage has grown. So were we not able to perform well in those markets -- because the numbers are quite divergent. -- minus 40%, then is plus 20%. So I'm just trying to understand, apart from Karnataka...

There are mixed in some buckets. For example, we have grown in Rajasthan. We've grown in other parts of Northern India, but not in the states of Madhya Pradesh, Maharashtra and Bihar, -- especially in Maharashtra and Madhya Pradesh, we are not able to do well. If you see the overall acreages, Madhya Pradesh is the one where we have seen a huge increase in acreages.

Yes.

That we were not able to capture. That's the only area where we wed out. But whereas if you take Maharashtra and other parts, it remains the same. It remains the same or it came down. The major increase was in Rajasthan and Madhya Pradesh. In Rajasthan, we were able to capture, but in Madhya Pradesh, we are not able to do that.

So sir, is it a problem that we don't have a product, let's say, for those geographies or...

Yes, yes. That's the main reason.

Okay. Okay. Understood, sir. Sir, secondly, you spoke about the fact that rainfall has picked up in Karnataka and maize acreage, which was like down 15% at the start of July year-on-year. If you look at the cropping now, maize acreage is down only 4% year-on-year as of the latest government data. So do you expect to cover a large part of your sales in Q2 and inarif?

Basically, if you see Karnataka now, even now in some parts of Karnataka, where the maize goes in, still the rains are not there. So -- but the dams at Chabada are getting full now. So -- and now in the last couple of days, the season, the maize seed is going up. So -- but in Karnataka, usually, they have a habit of sowing maize across the years during the entire year. So whatever we did last year in Karnataka, still we are confident that we'll do, but it will be in quarter 2 or 3, just need to see.

Sure. So sir, now in terms of you ended Q1 with a 14% correct.

The sale in Karnataka, we might be able to recover. But the sale in other parts for the kharif, that is already lost. But whatever we are in Kharif in maize, that we might recover in Karnataka...

Great. So sir, if I then were to look at the full year for this -- for FY '27, you ended Q1 with a 14% sales decline. Do you expect to, let's say, close this year at last year's sales level? Or will you have that minus 10%, minus 12% decline still by the end of the year? What's your view on that, sir?

Definitely, the margin will be lower than what we have shown in the first quarter because we are expecting some spare and the second year -- second rabi should be good because of the maize prices. It should narrow down. But to what extent that we need to see. It should not move up, but definitely, it should be -- the gap will narrow...

Understood, sir. Understood. Sir, just one last question on cotton, sir. So you spoke about our previous interaction, you spoke about that this year, there was an expectation that the illegal seed could come down, but the legal seed has again gone up this year. So do you see further threats? Or let's say, do you see this becoming an even bigger problem going ahead? And what are the reasons why the illegal seed went up while the expectation was that it would come down?

Basically, it was because of monsoon. As the season gets prolonged, as the monsoon gets delayed, the farmer compromises on the seed. If you see Northern India, which was earlier than the monsoon, we were able to do well. But whereas in states like Gujarat and Maharashtra, these has impacted a lot, especially for us, Gujarat has impacted a lot this year.

Your next question comes from the line of Karan Palwar with DAM Capital.

Can you hear me?

Sir, just 2 from my end. So firstly, you've highlighted that there's a chance that we may recover sales in Karnataka. Could you just quantify how much we've done last year versus how much we've done till now so that we can just have a sense on what is the scope of recovery, please? That's number one.

Last time in Kharif, we had done close to 2,600 tonnes in Karnataka. This year, we have only done 1,500 tonnes in Karnataka. So we are done by 1,100 to 1,200 tonnes only in Karnataka.

And you're confident...

INR 40 crores to INR 50 crores of sales.

I'm sorry.