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    Buy Kaveri Seed Company, target price Rs 700: IIFL

    Synopsis

    The shift in earnings mix towards the non-cotton business – which is less regulated, has a higher margin and is faster-growing – could drive an expansion in margins and an increase in valuation multiples over time.

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    IIFL has given a buy rating to Kaveri Seed Company with a 12-month target price of Rs 700 based on 13 times FY22ii P/E and it retains a positive stance on the stock.

    Kaveri Seeds is one of India's leading seed producers, with a broad product portfolio that includes hybrids for cotton, corn, paddy, bajra, sunflower, sorghum and various vegetables. In addition, in its Microteck division, Kaveri markets micronutrients and organic bio-pesticides.

    Given the seasonal slowness of the fourth quarter, the quarter’s earnings are of very limited significance. The fourth quarter Ebitda missed the brokerage’s estimate, but PAT beat estimates on higher other income. According to IIFL, the focus remains on the first quarter of FY21, which will likely contribute ~90 per cent of FY21 PAT.

    Investment Rationale

    The management retained previously-provided guidance for 15-20 per cent revenue growth, underpinned by 10-15 per cent cotton hybrid revenue growth and 20-25 per cent non-cotton growth.

    The brokerage has left its estimate of the company’s FY21/22ii EPS largely unchanged post the fourth quarter FY20 results. At just 10 times FY21ii P/E and a ~7 per cent payout yield, valuations remain attractive. Cash & equivalents are 12 per cent of market cap. A defensive business profile and steady growth prospects are other positives, according to the brokerage. The company’s increasing crop diversification lends stability. The brokerage believes the shift in earnings mix towards the non-cotton business – which is less regulated, has a higher margin and is faster-growing – could drive an expansion in margins and an increase in valuation multiples over time.

    Financials

    For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 63.12 crore, down -48.26 per cent from last quarter sales of Rs 121.99 crore and up 18.30 per cent from last year's same quarter sales of Rs 53.36 crore. The company reported net profit after tax of Rs 7.61 crore in the latest quarter.

    Promoter/FII Holdings

    Promoters held 55.52 per cent stake in the company as of March 31, 2020 while FIIs held 21.01 per cent, DIIs 10.60 percent and public and others 12.73 per cent.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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