Buy Kaveri Seed Co; target of Rs 561: Motilal Oswal

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Motilal Oswal 's research report on Kaveri Seed Co

Kaveri Seeds (KSCL) closed FY20 on a strong note, with 15%/20%/20% revenue/EBITDA/PAT growth. -We have increased our earnings estimates by 25%/31% in FY21/FY22 on the 10-15% volume growth guidance in the Cotton Seed segment and 20-25% growth in the Non-Cotton segment. However, we have assumed 7m packet (in FY21) sales of cotton seeds (lower by 3% YoY) on lower cotton price due to subdued domestic as well as export demand. Earnings revision is despite lower-than-expected operating performance in 4QFY20 as a mere 6% of the revenue contribution comes from the 4Q of the financial year.

Outlook

We value the company at 12x FY22E EPS (~20% discount to three-year average PE). The discount is primarily on account of uncertainty in cotton/maize seed demand in FY21 due to lower price, which could impact acreage. We arrive at TP of INR561. Maintain Buy.

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