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Surender Singh Khalsa

BUY Kaveri Seeds Company Ltd
Analyst We initiate coverage on Kaveri Seeds, with a BUY rating and a price target of Rs 236.
surendersingh@rathi.com Investment Positives
+91 22 6626 6726 ¾ Indian seeds market set for linear growth: Rising governmental thrust to enhance
sagging farm yields, mounting private sector involvement in developing better
hybrids, and thrust on corporate farming would enable the Indian seeds industry to
Bloomberg Code: ................. KSCL IN grow faster than it has in the past.
Reuters Code: ..................... KSCL.BO
¾ Market share shifting to organised players: Perceptible shift in market share
from unorganised players (with no access to research skills or requisite distribution
NSE Symbol: ............................ KSCL networks) to organised players such as Kaveri Seeds.
¾ Research-driven model on company-owned lands: In the last two decades Kaveri
BSE Code: ............................. 532899
has been developing a proprietary germplasm on its own lands, with land ownership
of about 200 acres.
Expected Share Price: ..................... 66
return (%) ¾ Geographical expansion, wider product range open furthur growth avenues:
The company has been expanding beyond the southern states (AP and Karnataka)
Expected Dividend yield (%) .......... 1.7 into the lucrative northern markets. Also, it has been widening its product range
beyond corn and sunflower, by launching products in cotton, paddy, edibles and
Market Data vegetables, thereby providing furthur growth opportunities.
¾ Recent business restructuring leading to a more integerated company: On
Sensex: .................................... 17,847
the merger of Growmore Farms and Kaveri Agritech with Kaveri Seeds, the latter
CMP: ........................................... 170 is well poised to capture the entire value-additions in the seed production value-
chain and complement its offerings with bio-fertilisers and other inputs.
Target Price .................................. 236
52-Week Range(H/L): ..................... NA
¾ Geographical and crop concentration: About 65% of revenue from Karnataka
Market Cap (Rs mn): ................ 2,329 and AP (down from 80% two years ago), making it susceptible to adverse agro-
climatic events in that region. Also, 68% of revenue from corn and sunflower (down
Shares O/S (mn): ........................ 13.7 from 74%), making it vulnerable to major pest attacks or acreage shifts in these
Free Float (mn): ........................... 5.39
¾ Furthur aggression from MNC's: Global seed MNC's have multi-billion dollar
3 m Avg. Volume : ......................... NA research budgets and a strong product range, which could give the incumbants Stiff

Relative price performance of the

stock is not avaliable as we are At Rs 170, the stock is available at 11.9x FY08E and 7.9x FY09E earnings, which leaves
expecting the stock to list on 4th Oct. enough scope for price appreciation, in the light of exponential growth.
Y/E Mar (Rs m) FY06 FY07 FY08E FY09E FY10E
Relative Price Movement Net Sales 481.7 657.7 990.6 1500.3 1800.0
Growth (%) 1.3 36.5 50.6 51.5 20.0
Ebitda 55.4 186.4 353.9 525.7 621.9
Ebitda (%) 11.5 28.3 35.7 35.0 34.5

Net Profit 29.3 105.9 195.4 294.1 366.9
110 NPM (%) 6.1 16.1 19.7 19.6 20.4
100 FDEPS 16.5 10.9 14.3 21.5 26.8
P/E (x) 10.3 15.6 11.9 7.9 6.3
EV/Ebitda 42.0 12.5 6.6 4.4 3.7











P/B (x) 3.9 6.2 2.1 1.8 1.5

RoCE (%) 26.9 57.5 42.9 38.9 40.3
RoE (%) 53.9 61.9 28.4 24.2 25.7

October 4, 2007
Investment Summary
Better seeds - key to enhance depressed farm yields
One of the key reasons for India's sluggish farm growth has been dramatically lower yields,
not just in comparison with the developed world but also with some of our Asian neighbours.
Comparative Global Yields
Country (Qn/hectare) USA Brazil China India
Sunflower 17 16 17 6
Corn 93 30 112 19 • Low quality seeds
Cotton 13 21 23 5
Rice 74 33 63 30 • Sub-optimum
Sorghum 42 20 38 8 Farm practices
Vegetables 571 118 171 102
Source: FAO(2006), ARG Research
Two primary reasons for such low farm yields are low-quality seeds and lack of grassroots
Quality seed key to perk up sagging knowledge about optimum farm practices.
form yeilds
The Indian government has formulated a number of policies to correct such imbalances, such
as the Rs 250,000mn agriculture policy at the Central level. Many such schemes exist at individual
state levels.
The potency of hybrid and GM seeds to enhance yields has been globally proven and the case
of BT cotton is a testimony to this in the domestic context, where India has emerged as a
cotton exporter -- from relying on imports just a few years ago.

Market share shifting to organised players

The Indian seeds market is about Rs 40,000m and is characterised by more than 400 players,
most of whom operate locally and focus only on one or two crops. Also, most of them do
not have research capabilities and a distribution network, which are key ingriedents for a
successful seeds company. We will, therefore, continue to see a shift from such unorganised
players to established players like Kaveri.

Germplasm and land ownership are key differentiators for Kaveri

Germplasm (a seed database, with various combinations of traits possible in a specific crop)
is the key differentiating factor for a seeds company, enabling it to roll out hybrids far more
quickly to respond to a specific trait required in a crop for a particular region. Over time,
Kaveri has consciously been enhancing its germplasm (either sourced from various universities
and global bodies, or developed in-house) in multiple crops. Today it can boast of access to
a wide range in various crops, thereby providing it with a competitive edge.
Kaveri’s Business Model

Germplasm Product Initial Hybrid Trials Trials on Test Commercial Ramp up volumes
(2000 -3000
Collection Design by Farmers Marketing Launch through
Selection of Advanced Hybrid Fields Geographical
in-bred lines Trial (200-300 expansion

Ongoing 1-2 years 1-2 years 1-2 years Ongoing Ongoing

3-6 years
Source: Company, ARG Research

Page 2 October - 2007

In recent years too, India has seen a number of instances of bio-piracy, rendering protection
of germplasm difficult due to lax implementation of plant-variety protection legislation. Kaveri,
Land ownership key for GM trials since inception, has been growing its foundation seeds in-house on company-owned land,
thereby ensuring that costly germplasm is protected. It now owns nearly 190 acres directly
(mostly in A.P.) and controls over 100 acres through long-term lease arrangements. Another
200 acres is likely to be added in the current fiscal, which would make the company one of the
largest land-holders in the industry.

Credible business strategy: broadening product range and widening

geographical reach
Historically, Kaveri has been focussed on the corn and sunflower markets of A.P. and Karnataka,
as these are the largest crops in those states. But it has been successfully developing newer
hybrids in cotton, paddy, sorghum, vegetables, etc., and expanding its distribution network to
nothern and western India.
Having a wider product range keeps it hedged against any crop-specific event and a wide
distribution network hedges it against adverse agro-climatic risks in some regions. This is a
major advantage for Kaveri, given India's unique agro-climatic variations and crop diversity.

Business consolidation - value-accretive

In FY07, Kaveri Seeds amalgamated Growmore Farms (meant for cultivating Foundation
Seeds) with itself, together with Growmore’s real estate. This backward integeration enabled
Kaveri Seeds to consolidate within itself the value-addition in both the entities and protect its
germplasm. Another group entity (Microtek), which was floated to enter the fast-growing
organic farming through bio-fertilisers, bio-pesticides and micro-nutrients, was also merged
with Kaveri Seeds to synergistically tap the distribution network and leverage of the parent
brand. After this restructuring, Kaveri has emerged as a fully integerated seeds company, well
established in the organic space as well.

¾ Crop and geographical concentrations: Though Kaveri has concentrated on sunflower
and corn, it has been successfully launching seeds in other segments as well. For cotton, the
company has licensed the Bt gene from Monsanto and JK Agri Genetics to be loaded
onto its hybrids. For this, certain royalties are payable.

FY 05 FY 07 FY 10E
Others Others
8% 23% Maize
Paddy Maize 25%
7% 43% Paddy 42%
Cotton Paddy
10% 7%

Sunf low er
Cotton 21%
Sunflow er
32% Sunf low er

Source: Company, AR Research

Given its genesis, the company had first expanded into the A.P. and Karnataka belt, though in
this decade it has entered other markets. Significantly, test marketing in Bihar, Gujarat and
Rajasthan has been successful and would contribute to revenues this year.

Page 3 October - 2007

Revenues from AP & Karnataka
FY05 FY 06 FY07 FY08E FY09E FY10E

AP & Karnataka

Source: Company, AR Research

¾ Competition intensifying from MNC's: Given the unique business model of the seeds
MNC’s focussing on gene - level business, MNC's have been focussing on gene-level research and leveraging that by licensing
research, while indian companies are the technology to domestic companies, as, keeping in mind the diverse agro-climatic
focussing on building hybrids zones in India, developing hybrids is a tough task. We expect this trend to continue in

Company Background
Kaveri Seeds was incorporated in 1986 by eminent agriculturist Mr Bhaskar Rao, who had
been in the seeds business for a decade prior and is widely credited with popularising the
hybrid seed concept in southern India. The company currently has 18,000 tpa processing
capacity, which is being enhanced to 30,000 tpa this year. It has been expanding its distribution
network and currently, with 750 distributors, has a pan-India footprint. It also has the Microteck
division (merged last year), which manufactures bio-fertilisers, bio-pesticides and micro-nutrients.

The Indian Seed Industry

The Indian seed industry is the eight largest in the world, valued at Rs 51bn. After stagnating
for most of this decade, in the last three years it has been growing at 12-15%, primarily driven
by newer hybrid launches and renewed government emphasis.

Indian Seeds Market

Rs. 51 bn
25% 75%

Commercial Varietal seeds used by

Rs 12.75 bn farmers Rs 38.25 bn
58% 42%

Organised Unorganised
Rs 7.39 bn Rs 5.35 bn

77% 23%

Private Public
Rs 5.69 bn Rs 1.7 bn

Source: Industry , AR Research

Page 4 October - 2007

Historically, Indian farmers have been using seeds saved from the previous year’s harvest. In
time, such seeds lose their yield and vigour. At present, only 25% of the market has been
commercialised, though that is fast changing, as farmers realise the benefits of using fresh seed
to enhance yields at only minimal incremental costs.

Historically, the industry has been fragmented, dominated by unregulated players. As

unorganised players do not have research credentials and the requisite distribution network,
market share is rapidly shifting towards organised players.
Industry remains fragmentaed &
consolidation is imminent
Government bodies like Nafed, the National Seeds Corporation, various state seeds
corporations, etc., tend to operate in the public-bred or HYV (high-yield varieties) segments,
though lately they have started to supply even hybrid seeds. They generally supply high-volume,
low-value seeds in the pulses, oilseeds and cereals segments.
Most of the private sector's thrust is on hybrids and GM seeds. There are more than 350
players in this segment, with the top ten accounting for a quarter of volumes in the segment.

Major crops by Volume

Jowar M aize Vegetables

2% 5% 3% Others

Cotton Rice
1% 48%

W heat

Major crops by Value

Others 15%
32% Wheat

12% Cotton
Maize Sunflower
3% Jowar Bajra 3%
2% 3%

Source: Company, AR Research

Significantly, the level of hybridisation in Indian crops is highly irregular, with very little success
in rice due to non-availability of hybrids suitable for the Indian palate. Cotton is often touted
BT cotten has been a block buster success
as the major success story, led by the Bt technology of Monsanto. The gene supplied by
Monsanto has the ability to produce a protein capable of killing the Bacillus thuringiensis (Bt)
virus, which was a major menace for cotton farmers in India.

Page 5 October - 2007

Crop Area Area under Market Key Players
(m hectares) Hybrid (%) Size (tons)
Paddy 42 2 480,000 Proagro
Wheat 26 90 350,000
Maize 7.4 50 48,000 Monsanto, Pioneer, Proagro
Cotton 8.7 80 8000 Nuziveedu, Raasi
Sorghum 7.5 40 22,000 Advanta, Kaveri
Pearl Millet 10.3 50 21,000
Sunflower 2 80 8000 Syngenta,Advanta,Kaveri
Mustard 6.2 20 3200
Vegetables 3.8 30 32,000
Source: Industry, AR Research

The vegetable, maize, mustard and soyabean segments are likely to see furthur movement
towards hybrids.

Key Players
Given the huge R&D costs and possibility of failure, most domestic companies start by focussing
on one crop, then start diversifying as their key product is accepted in the market.

Kaveri Syngenta Monsanto ProAgro Advanta Nuziveedu Raasi

Corn — — — — — - -
Sunflower — — — — — - -
Cotton — - - — - — —
P. Millet — - - — - - -
G. Sorghum — - - — — - -
Rice — — - — - - -
Mustard / Rapeseed — - - - - - -
Vegetables — — - - — - -
Source: AR Research

Industry Drivers
Some of major drivers for Indian seeds are
¾ Demographic burden: India's population has been steadily increasing, while farm yields
have not been able to cope with the burden of feeding more mouths. For India to sustain
Many macro drivers positive for Indian
seeds industry a 9% GDP growth rate, agriculture has to grow at least at 4%. Hence, we will have to use
higher yielding varieties of seeds as an effective way of enhancing yields.
¾ Shrinking farmlands: Rapid urbanization, industrial growth and usurping of farm land
for SEZs are leading to less acreage available for farming, further putting pressure on
farm yields.
¾ Alternate crop use: We will also see a global trend of diversion of agri-crops to bio-
fuels, providing seed companies with opportunities to develop products meant for such
¾ Bio-technology and genetic engineering: Biotechnology has enabled development of
newer crop varieties, which hitherto were unthinkable. With the right gene-collection, one
could custom-design a plant with all desirable traits: colour, yield, pest tolerance, oil-
content, etc.

Page 6 October - 2007

¾ Enhancing the SRR (seed replacement ratio): Since, Hybrids cannot be re-used, this
is expanding the markets -- as more farmers adopt hybrid technology.
¾ Unique agro-climatic condition: India has the unique distinction of three climatic zones
and 15 agro-climatic zones, which are both threats and opportunities. Products developed
for one region cannot be planted elsewhere with equal potency, thereby limiting the ramp-
ups. But for companies which have an understanding of the unique agro-climatic conditions,
it provides multiple opportunities for customised products.
It is for this very reason that MNC's have underperformed the local companies, like Kaveri, in

Source: Ministry of Agriculture, AR Research

India could emerge as export Hub for In fact, given these agro-diversities and capable research facilities, India has the potential to
seeds in future emerge as the seed producing hub of South Asia. Many of our neighbouring countries have
similar agro-climatic zones, thereby opening up export opportunities.

Kaveris competitive advantage

Crop Kaveri's Kaveri Yeild Competition Competition
Price (Per Acre) Price Yeild
Rs/kg Q/Acre Rs/kg Q/Acre
Corn 60-170 25-50 20-200 20-50
Sunflower 200-280 7-12 100-280 3-12
Sorghum 60-70 25-35 50-80 15-30
Cotton 350-750 5-20 250-750 3-20
P Millet 125-135 15-20 60-135 5-18
Rice (Var) 15-20 25-30 15-20 25-30
Rice (HY) 225-250 35-40 150-275 35-40
Source: Company

Page 7 October - 2007

Microteck Division
Over the years, increasing application of chemical fertilisers & pesticides has led to deterioration
of soil quality & decline in fertility levels. Application of chemical fertilisers only has a short
term effect on productivity. As per some estimates, around 16.7 mn MT of NPK is applied to
Indian soils annually. Soil contains useful micro-organisms which keep the diseases and pests
under control. These useful organisms are destroyed by constant application of chemicals,
destroying the equilibrium in nature and the result is pests and diseases have become more
virulent. They are fast developing resistance to such chemical control.
Organic Farming offers an natural alternative to nutrietional needs of farmland by providing
the same nutrients, but organically / biologically produced.
Organic farming management relies on developing biological diversity in the field to disrupt
habitat for pest organisms, and the purposeful maintenance and replenishment of soil fertility.
Organic farmers are not allowed to use synthetic pesticides or fertilizers. Currently there are
30,000 farmers and 8,000 farms (Source: The Hindu Survey of Indian Agriculture, 2007)
under organic farming in India.
Organic farming is a multi-billion dollar industry in USA & is growing rapidly in India as well
Organic farming likely to grow most comparabale organic products easily command a premuim of 2x-4x chemically produced
expanentially in India
ones, which makes this a high margin business for companies who can successfully develop
such products.
Microteck division was merged last year in September & hence, only half years revenues were
booked. Going forward, we expect exponential growth from this business.
M ic ro te c k R e v e n u e s

17 0

12 0


F Y 07 FY 08E FY 09E FY 10E

M ic ro te c k R e v (R s . m n )
Source: Company, AR Research

Economics of Organic Farming

Cost of cultivation in case of rice is Rs 9,000 per acre (Rs 4,000 on fertilizers, pesticides Rs
3,000). Yield is about 35-40 quintals per acre and at present price of Rs 600 per quintals, the
Over the long term, organic farming is net income is Rs15, 000 per acre. If the same farmer switches over to organic farming, the
aviable activity cost of fertilizers and pesticides can be reduced to half or less by using organic products. Thus
the cost of production can be gradually brought down to Rs 2,500 to 3,000 per acre. The yield
levels can be reached to 40 quintals over a period of time and once reached, it is sustainable.

Products offered

Crop management Organic farming Export consultancy

Bio-Fungicides Bio-pesticides Bio-Yield


Source: Company, AR Research

Page 8 October - 2007

Financial Analysis
The cumulative effect of the higher-margin hybrids, geographical expansion and business
restructuring has enabled Kaveri to embark on the path to higher operating profits.

700 40
600 35
500 30
200 10
100 5
0 0
FY 05 FY 06 FY 07 FY 08E FY 09E FY 10E

Operating prof it Operating Margins

The margin rise in FY07 over the previous year is due more to the Growmore Farms merger
and the launching of higher-realisation hybrids in various crops.

10.99% 26.10%
Ebitda Margins

Higher margins sustainable with upward
bias 10% 8.26%

FY06 Inhouse Foundation High Value Products FY07 Margins

FY06 Margins Inhouse Foundation Seeds manufacturing

High Value Products FY07 Margins

We see these margins as sustainable, given the favourable macro-economic conditions, integrated
business model and pipeline of high-value hybrids to be launched in the next two years.
Also, the company has historically been debt-averse, which places it in a comfortable situation
for furthur capex or any inorganic opportunity.

160 60
140 50
100 40
80 30
Balance sheet will stay unleveraged
60 20
20 10
0 0
FY 05 FY 06 FY 07 FY 08E FY 09E FY 10E

Long term debt(Rs mn) Interest Cover

Page 9 October - 2007

Which leads to most of the operating leverage gains to be transmitted to the bottom line.

400 22
300 17
200 12
100 7
0 2
FY 05 FY 06 FY 07 FY 08E FY 09E FY 10E

PA T(Rs mn) PA T Margins(% )

However, the working capital has to be more efficiently managed, given the larger distribution
network now and the reversal of earlier practices of receiving advances from the channel



WC mgmt will become crucial 50


FY 05 FY 06 FY 07 FY 08E FY 09E FY 10E

Inv entory Day s WC Day s

Page 10 October - 2007

We expect the company to deliver sales growth of 34.8% CAGR & PAT growth of 37.05%
CAGR for FY08-FY10 period. At Rs.170/-, it quotes at mere 11.9x FY08E & 7.9x FY09E
earnings, whereas most industry players quote at 15x-20x one year forward earnings. Also P/B
of 2.1x FY08 & 1.8x FY09 expected book-value is lower than industry standards

M o n s a n t o P /E


















P /E

Source: Bloomberg, AR Research.

Also, Kaveri has better return ratios than peers.

R e tu rn R a tio s
Kaveri is better at capital efficiency 70
leading to value accretion




F Y 06 F Y 07 F Y 08E F Y 09E F Y 10E
R o C E (% ) R O E (% )

Peer comparison
Kaveri earns higher margins (operating & net margins) than its peers.
Even on an EV/Sales & EV/Ebitda basis, it is available at significant discount compared to its
Peer Comparision
EBITA Margin Net margin RoCE RoE EV/Sales EV/EBITDA Per(x)

FY08 FY09 FY08 FY09 FY08 FY09

Kaveri Seeds Company 35.72 19.68 42.9 28.4 2.3 1.6 6.6 4.4 11.9 7.9

Advanta India 22 12 14 17 4 3.6 18.6 16.2 34.83 24.88

Monsanto 28.78 18.42 18.74 16.21 3.9 3.7 13.71 11.05 16.05 14.33

Given the strong visibility of earnings, wide product portfolio provide necessary comfort for
attainment of our estimates.
We initiate coverage on the company with a BUY rating & a price target of Rs.236/-,
implying an appreciation of 66% from IPO price. At our target price, it will trade at 16.6x
FY08 & 11x FY09 earnings.

Page 11 October - 2007

Annexure 1 : Seed Basics

Seeds are of 3 types:

1. Open Pollinated: Here,
breeding happens naturally by
free cross pollination or self
2. Hybrids: They are the first
generation offspring's of two
genetically distant and distinct
parental lines of the same species.
Though they deliver higher yields,
farmers cannot use the harvest
of previous crop to sow in the
current season.
3. GM Seeds : They mutate a new
plant variety by introducing a
foreign gene onto an existing
plant to realise a specific trait

Annexure 2 : Indian & Global Seeds Data

Type of Seed(MT) FY02 FY03 FY04 FY05 FY06 FY07
Breeder Seed 4,554 4,842 6,048 6,646 5,470 6,000
Foundation Seed 54,400 61,400 65,000 69,000 74,000 80,000
Certified Seed 918,000 980,300 1,085,900 1,131,000 1,385,000 1,460,000
Source: Annual Report(2006) Dept of Agriculture & cooperation

Page 12 October - 2007

Global Seeds Market(USD Mn)
Country Size of Domestic Market
USA 5700
China 4500
Japan 2500
France 1930
Brazil 1500
Germany 1000
India 1000
Argentina 930
Italy 780
Canada 550
Russia 500
Korea 400
Australia 400
Mexico 350
Taiwan 300
Others 4436
Source: ISF

Annexure 3 : Key Success factors for a Seeds company

Germplasm: Marketing:
Quality of germplasm. Placement of right product, right quantity, right place
and at right time is crucial
Needs substantial investment
Determines product pipeline
Technological edge- R&D: Inventory:
Newer Agricultural technologies Prudent working capital management
constantly being introduced
Disease & pest tolerance Plan production 2-3 years in advance
have become key areas
Advance breeding techniques Plan for foundation-breeder seed 3 years in advance
Consistent product performance Usually 6-10 months inventory
–Brand reliability
Production: Product portfolio:
Relationship-based contracts Product mix- reduces market risk
Technological assistance Across regions & across crops is ideal

Page 13 October - 2007

Annexure 4 : GM benefits & current status
Benefits to Growers
• Far Higher Yields than conventional Seeds
• Introduction of desirable traits in the end product i.e.: More vitamins, addition of certain
• Better pest control
• Reduced Insecticides/Pesticides consumption
• Thus, overall better ROI
Benefits to Consumers
• Increased Dietary components
• Longer Shelf Life
• Can be used to administer additional Nutrients/Medicines
• Far greater Choice

Some key GM facts

• Since 1996, world has seen consistently rising (in double-digits) growth rates for Biotech
• The global acreage for Bio-tech crops has grown from 1.7 Mn Hectares in 1996 to 102
Mn hectares in 2005
• Significantly, far higher proportion of this growth came from developing countries (7 Mn
Hectares) as compared to developed countries (2.75 Mn Hectares)
• In the Indian context, BT Cotton is a glaring example of benefits of GM. From 6.2% of
the total cotton area under cultivation of BT-Cotton, it has risen to 39% in the current
year & the yields have gone up from 11.2 Tons/Hectare to 22 Tons/Hectare. Today, we
can claim to be self-sufficient in cotton (and exporting too!) mainly to a large extent of
GM technology.

Annexure 5 : Plant biotechnology basics

Biotechnology is an Extension of Plant Breeding


Genes are made of DNA.It is like a string of pearls.
Many genes are
Desired Gene

Commercial New Plant
Donor Plant Plant Variety Variety

Using plant biotechnology, you can add a single gene to
the string. A single gene is transferred
Desired Gene Desired

+ Improved
Commercial Commercial Plant
Donor Plant Variety Variety

Page 14 October - 2007

Income Statement (Rs m) ARG Estimates Balance Sheet Statement (Rs m) ARG Estimates
Y/E Mar Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Y/E Mar Mar-06 Mar-07 Mar-08 Mar-09 Mar-10
Net sales 482 658 991 1,500 1,800 Networth 77 265 1,110 1,320 1,537
- Operating expenses 442 486 653 993 1,199 Debt 144 119 20 20 20
Operating profit 40 172 338 507 601 Minority interests - - - - -
+ Other income 16 15 16 19 21 Capital employed 221 384 1,130 1,340 1,557
- Depreciation 7 12 29 45 38
- Interest 7 14 20 21 12 Fixed Assets 93 208 742 697 659
- Tax 12 54 110 167 205 Investments 135 73 20 20 170
PAT 29 106 195 294 367 Working capital (41) 54 349 578 669
+ (Associates-Minorities) - - - - - Cash 34 48 19 45 58
Consolidated PAT 29 106 195 294 367 Capital deployed 221 383 1,130 1,340 1,557

Key Ratios ARG Estimates Cash Flow Statement (Rs mn) ARG Estimates
Y/E Mar Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Y/E Mar Mar-06 Mar-07 Mar-08 Mar-09 Mar-10
Topline growth (%) 1.3 36.5 50.6 51.5 20.0 Consolidated PAT 29 106 195 294 367
Bottomline growth (%) 124.5 261.3 84.5 50.5 24.8 + Non-cash items 7 13 28 45 37
Operating margins (%) 8.3 26.1 34.1 33.8 33.4 Cash profit 36 119 224 339 404
FDEPS (Rs/share) 16.5 10.9 14.3 21.5 26.8 - Inc. in working capital 61 95 295 228 92
CEPS (Rs/share) 20.4 12.3 16.3 24.7 29.5 Operating cash flow (25) 24 (71) 110 312
DPS (Rs/share) - - 3.0 5.9 9.9 - Capital expenditure 47 128 562 0 -
BV (Rs/share) 43.3 27.3 81.0 96.4 112.2 Free cash flow (72) (104) (634) 110 312
PER (x) 10.3 15.6 11.9 7.9 6.3 - Dividends - - 47 94 157
P/C (x) 8.3 13.8 10.4 6.9 5.8 + Equity raised 16 85 734 - -
Dividend yield (%) - - 1.7 3.5 5.8 + Debt raised 41 (25) (99) (0) -
P/B (x) 3.9 6.2 2.1 1.8 1.5 + Inc. in minority interests - - - - -
EV/Sales (x) 4.8 3.5 2.3 1.6 1.3 - Investments (16) (63) (53) - 150
EV/ EBITDA (x) 42.0 12.5 6.6 4.4 3.7 - Miscellaneous items - 4 36 (10) (8)
Debt/Equity (x) 1.9 0.4 0.0 0.0 0.0 Net cash flow 1 14 (29) 26 13
Working capital turn (days) (54.1) 3.7 74.3 112.8 126.4 + Opening cash 33 34 48 19 45
Dividend payout (%) - - 24.0 31.9 42.7 Closing cash balance 34 48 19 45 58

Dupont Analysis ARG Estimates

Y/E Mar Mar-06 Mar-07 Mar-08 Mar-09 Mar-10
EBIT margins (%) 10.0 26.5 32.8 32.1 32.4
Capital turn (x) 2.7 2.2 1.3 1.2 1.2
RoCE (%) 26.9 57.5 42.9 38.9 40.3
Leveraging factor (x) 3.3 1.8 1.1 1.0 1.0
Interest impact (x) 0.9 0.9 0.9 1.0 1.0
Tax break (x) 0.7 0.7 0.6 0.6 0.6
Consolidation factor (x) 1.0 1.0 1.0 1.0 1.0
RoE (%) 53.9 61.9 28.4 24.2 25.7

Peer Comparision
Mkt. Cap EBITA Margin Net margin RoCE RoE EV/Sales EV/EBITDA Per(x)
FY08 FY09 FY08 FY09 FY08 FY09
Kaveri Seeds Company 2329 35.72 19.68 42.9 28.4 2.3 1.6 6.6 4.4 11.9 7.9
Advanta India 17666 22 12 14 17 4 3.6 18.6 16.2 34.83 24.88
Monsanto 12185 28.78 18.42 18.74 16.21 3.9 3.7 13.71 11.05 16.05 14.33

Page 15 October - 2007


Recommendation Guide

Buy ................................................................................................................................................................ > 30%

Outperformer ................................................................................................................................................................ 20 to 30%
Market Performer ................................................................................................................................................................ 10 to 20%
Underperformer ................................................................................................................................................................ 0 to 10%
Sell ................................................................................................................................................................ < 0%

Telephone Numbers Email

Tarun Sisodia (Director - Institution) 91-22-6626 6777 tarunsisodia@rathi.com

For any queries please email us at institutional.desk@rathi.com

Anand Rathi Securities Limited Member, The Stock Exchange, Mumbai

Navaratan Capital & Securities Private Limited Member, National Stock Exchange of India
Victoria House, 3rd Floor, Kamala Mills Compound, Pandurang Budhkar Marg, Lower Parel, Mumbai - 400 013. Tel.: +91 22 6626 6666 Fax: +91 22 6626 6700

This report has been issued by Anand Rathi SecuritiesLimited (ARSL), which is regulated by SEBI. The information herein was obtained from various sources; we do not guarantee its accuracy or completeness. Neither the
information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities ("related investments"). ARSL and
its affiliates may trade for their own accounts as market maker / jobber and/or arbitrageur in any securities of this issuer(s) or in related investments, and may be on the opposite side of public orders. ARSL, its affiliates, directors,
officers, and employees may have a long or short position in any securities of this issuer(s) or in related investments. ARSL or its affiliates may from time to time perform investment banking or other services for, or solicit investment
banking or other business from, any entity mentioned in this report. This research report is prepared for private circulation. It does not have regard to the specific investment objectives, financial situation and the particular needs
of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should
understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may rise or fall. Past performance
is not necessarily a guide to future performance. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report.

Page 16 October - 2007