IGI Logo

Higher than expected operating loss on higher fixed cost in 4Q

However, increased volume drives annual performance

* Revenue increased 11% in FY21 on account of growth in Hybrid Rice, Maize and Vegetable Seed segments, whereas Cotton Seed volumes fell 2%.

* Performance was below our estimates in 4QFY21. However, we increase our FY22E/FY23E earnings estimate by 6%/10%, owing to: a) increasing sales estimates in the non-Cotton segment, particularly Paddy, b) increasing realizations in Cotton, and c) higher other income on higher cash. We value the stock at 13x FY23E EPS to arrive at our TP of INR830. Maintain Buy.

Maize and paddy drive overall performance

* Revenue (standalone) stood at INR551m (est. INR567m) in 4QFY21, up 6% YoY. Operating loss increased to INR124m (est. loss of INR91m) in 4QFY21 v/s a loss of INR117m in 4QFY20. Gross margin stood at 56.7% in 4QFY21 v/s 42.8% last year. As a percentage of sales, employee cost/other expenses increased to 34%/45.2% in 4QFY21 v/s 26.8%/38.7% in 4QFY20. It reported a net loss of INR143m (est. loss of INR49m) in 4QFY21 v/s a net profit of INR94m in 4QFY20.

* Cotton seed volumes declined marginally by ~2% to 7.09m packets in FY21 due to lower sales in Andhra Pradesh and Telangana, leading to a revenue drop of 2.2% to INR4,404m. Contribution from new products rose to 25.2% of volumes from 23.8%.

* Hybrid paddy reported 56% revenue growth (to INR1,325m) in FY21 on 48% volume growth. Introduction of new hybrids – 7299, 471, and 473 – aided strong volume growth. Volume contribution from new hybrids rose to 68% from 51%.

* Revenue from maize seeds grew ~18% (to INR2,032m) in FY21 due to better product-mix and stable contribution from new products.

* Consolidated revenue/EBITDA/adjusted PAT grew 11%/18%/20% in FY21. KSCL generated a CFO of INR2.5b (up 31% YoY) in FY21 on the back of higher payables and lower receivables. This was offset by higher inventory.

Highlights from the management interaction

* Guidance: Overall growth is expected to be in the 10-15% range, majorly driven by the non-Cotton segment, which is expected to record 15-20% growth in FY22, supported by growth in volumes and realizations.

* The Cotton segment is expected to grow at 5-7% in FY22 as acreages are expected to remain stable. Realization is expected to rise by 4-5% in FY22.

* Market share: Other than Telangana and Andhra Pradesh, KSCL gained market share in the Cotton segment across all states. The company managed to gain 0.5% market share, taking its overall share to 17%. Market share in rice increased to 10% as the company managed to gain share in FY21, whereas the same in maize is currently close to 10-11%. The size of the domestic maize market is currently pegged at 85,000-95,000MT.

Valuation and view

* KSCL is on track to diversify from sales of cotton seeds by increasing the share of rice and vegetables (contribution of non-cotton seed sales to overall sales has increased to 58% in FY21 v/s 52% in FY20), which are growing at a faster pace and yielding a higher margin (v/s the Cotton segment).

* The management expects stable cotton acreages in FY22 and remains confident of growing the Cotton segment by 5-7% on the back of higher realizations and volume growth.

* Performance was below our estimates in 4QFY21. However, We increase our FY22E/FY23E earnings estimate by 6%/10% owing to: a) increasing sales estimate of the non-Cotton segment, particularly Paddy, b) increasing realizations in Cotton, and c) higher other income on higher cash.

* We value the company at 13x FY23E EPS (in line with its five-year average P/E) to arrive at a TP of INR830. Maintain Buy.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer