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com September 05, 2007

Kaveri Seed Company

IPO Fact Sheet

Shareholding pattern
Issue details
Particulars Pre-issue Post-issue
Issue opens : September 06, 2007
No of shares % No of shares %
Issue closes : September 11, 2007
Promoter & 8,355,000 86.13 8,355,000 60.99
Issue size : 40 lakh equity shares promoter group
Reservation for employees : 2 lakh equity shares Others 1,345,000 13.87 5,345,000 39.01
Total 9,700,000 100 13,700,000 100
Issue to public : 38 lakh equity shares
Face value : Rs10 each Company background
QIB's portion : 19 lakh equity shares KSCL, incorporated on August 27, 1986, is engaged in the
Retail portion : 13.3 lakh equity shares agri-input business and providing crop solutions to farmers.
Non-institutional portion : 5.7 lakh equity shares
The company is mainly in the business of production,
processing and marketing of high quality hybrid seeds for
Price band : Rs150-Rs170
different crops like corn, sunflower, cotton, paddy etc. It
has recently forayed into the micronutrients and bioproducts
businesses.
Objects of the issue
Kaveri Seed Company Ltd (KSCL) is planning to issue 40 The company has production, processing and R&D facilities
lakh fresh equity shares to raise Rs60-68 crore (depending in Andhra Pradesh and Karnataka. The R&D facilities mainly
on the price band of Rs150 to Rs170 per share) to increase focus on developing superior hybrids for different crops like
corn, cotton, sunflower, paddy, bajra etc. The revenues from
its production, develop research and development (R&D)
corn and sunflower contributed 42% and 26% respectively to
farmland, set up offices and godowns and meet its working
the total revenues in FY2007. In 2004, the company entered
capital requirements.
into a sub-licensing agreement with Mahyco Monsanto
Biotech (India) Ltd (MMBIL)for introducing various Bt. Cotton
Particulars Amount
(Rs crore) hybrids. In August 2007, it entered into a licensing agreement
with JK Agri Genetics Ltd to use insect tolerant seed lines.
Seed processing plant:
- upgradation from semi-automatic to fully automatic 9 In CY2002 the company started a new venture M/s Kaveri
- additional processing line of 4 tons/hour 6 Agritech, a partnership firm, to produce and market bio-
Corn cob drying plant 4 pesticides, bio-fertilisers, micronutrients, fertiliser mixtures
Biotechnology lab extension by 7,500 sq. ft. 2 and plant growth regulators.
R&D farmland 20 Sales mix FY2007
Marketing offices & godowns in North & West India 12 6% 2%
7%
Working capital requirements 10 6% 42%
Total 63

After the issue, the total number of outstanding shares of 11%

the company will increase from 97 lakh to 1.37 crore and
26%
the promoters' stake will be brought down to around 61%
from 86% prior to the issue. Corn Sunflow er Paddy Cotton
Bajra Micronutrients Others

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 sharekhan ipo flash Kaveri Seed Company

Industry scenario
The agri-input industry provides essential support to the
modern agriculture. Seeds are one of the most critical inputs
in agricultural production. The Indian seed market is among
the ten largest in the world and was estimated to be around
$1 billion in 2005. The government of India (GoI) formulated
the national seed policy in 2002 to replace the older seed
policy of 1988 and thereby laid down comprehensive reforms
in the seed sector to encourage the private sector
involvement. The measures include protection of
intellectual property rights (IPRs), provisions for tax rebate
and concessions on expenditure for in-house R&D of new
varieties. It is estimated that about 46% of seed
commercially sold in India is produced by the private sector
seed companies, out of which the organised sector accounts
for 55%. The major crops produced in India are wheat, jowar,
bajra, corn, ragi, barley, small millets, pulses, cotton, jute,
mesta and sugarcane.
Production in FY2007
300.00
250.00
million tonnes
own-saved seeds. This is mainly due to the rising diversion
of agri-crops for bio-diesel and ethanol production.
Shrinking farmlands
With urbanisation and industrialisation, the area under
agriculture is rapidly shrinking. This is leading to an
increased demand for a higher yield per hectare.
Key positives
Presence in hybrid seeds (value product)
KSCL is already a major volume player in the industry for
the last two decades. It has already made a decent progress
in moving up the value chain by developing high yielding
hybrids for corn, sunflower, cotton and paddy. Through
continuous focus on R&D, the company is targeting to enter
into different varieties of crops that can help it inflate its
operating margin. The company recently forayed into the
development of mustard, watermelon, hot pepper and soya
crops, which will give it a natural hedge against the
dependence on any particular product.
Operating performance

200.00
(Rs crore) FY2004 FY2005 FY2006 FY2007
150.00
Revenues 38.9 47.6 48.2 65.8
100.00
EBITDA 0.9 1.8 4.0 17.2
50.00
EBITDA margin (%) 2.3 3.8 8.3 26.1
0.00
Sugarcane
Cotton*
Bajra
Jowar
Wheat

Corn

Pulses
Rice

The revenue of the company has increased at a compounded

* lakh bales of 170 kg each
There are different types of seeds available in the market
such as varieties and hybrids. Further, the introduction of
improved traits in crops using biotech tools (which includes
genetically modified crops) has enhanced the value of the
seed market by allowing products which command a premium
due to their unique qualities. More than one-third (38%) of
the global biotech crop area in 2005, equivalent to 33.9 million
hectares, was in the developing countries, where the growth
continues to be strong. The global value of the biotech crop
market was estimated at US$6.8 billion in 2007.
Growth drivers for Indian agri-input industry
Demographic issues
India's population is expected to grow to 1.26 billion by
2016. The increased population will lead to a rise in the
demand for food.
Enhancing Seed Replacement Ratio (SRR)
There has been an increase in the divergence of farmers
to high yielding varieties & hybrids from the traditional
annual growth return (CAGR) of around 19% in the last four
years. The earnings before interest, tax, depreciation and
amortisation (EBITDA) margin in FY2007 improved
significantly due to a shift towards more value based selling,
which has improved realisations in paddy, cotton and bajra
hybrids.
Licensing agreement can further enhance sales
portfolio
The company has entered into a (non-exclusive) licensing
agreement with JK Agri Genetics Ltd on August 2007. Under
the terms of the agreement, KSCL will use the insect
tolerant seed lines of JK Agri Genetics Ltd to produce, test,
market and sell genetically modified hybrid cotton planting
seeds in India. This agreement could further boost
company's sales profile as value added products attract
higher realisations and margins.
Key concerns
High product and geographic concentration
The company's focus is concentrated mainly in Andhra
Pradesh and Karnataka. The two states contributed around
67% of the revenues of company in FY2007. Over and above,
around 68% of the revenues in FY2007 were contributed by

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 sharekhan ipo flash Kaveri Seed Company

only two of its products—corn and sunflower. Further, the Peer comparison
majority of the area under corn and sunflower plantation is Valuation KSCL KSCL Monsanto Syngenta Advanta
located in these two states. Any adverse weather conditions at UB at LB
in these two states can negatively impact the company's PER (x) 19.5 22.1 17.6 35.8 22.3
results. Price/book value 7.7 8.7 3.3 5.3 6.0
EV/EBITDA (x) 12.4 14.0 13.2 8.0 10.7
High competition could pressurise margins EV/sales (x) 3.2 3.6 3.6 1.1 2.3
The company is operating in a highly competitive segment, Cash & cash 8.8 8.8 227.0 19.9 149.8
equi/share (Rs)
where it is pitted against big companies and multinationals
with much deeper pockets and a global presence. High Financials
competition from local players and multinationals could lead
Profit and loss account Rs (cr)
to lower price realisations and in turn could affect the
Particulars FY2004 FY2005 FY2006 FY2007
EBITDA margin.
Net sales 38.88 47.55 48.17 65.77
Non-exclusivity of the of the agreements remain a Total expenses 37.95 45.75 44.19 48.66
concern Operating profit 0.93 1.80 3.98 17.12
Other income 0.76 0.67 1.56 1.47
KSCL has entered into a non-exclusive sub-license
PBIDT 1.69 2.47 5.53 18.58
agreement with MMBIL on March 2004 for using Bt. Cotton Interest 0.08 0.14 0.67 1.43
technology for development of its own hybrids. On account PBDT 1.61 2.32 4.86 17.15
of non-exclusivity of the agreement, MMBIL reserves a right Depreciation 0.41 0.53 0.74 1.24
to enter into a similar agreement with any of its present or PBT 1.20 1.79 4.12 15.92
potential competitors. This could pressurise the company's Tax 0.25 0.48 1.19 5.38
margins and adversely impact its growth prospects in the PAT 0.94 1.31 2.93 10.54
Bt. Cotton seed market. KSCL has entered into a similar Extraordinary items 0.00 0.07 0.03 0.00
agreement with JK Agri Genetics Ltd. Adjusted PAT 0.94 1.25 2.90 10.54

Balance sheet Rs (cr)

Highly regulated sector
Particulars FY2004 FY2005 FY2006 FY2007
The Indian seed industry is a substantially regulated sector.
Share capital 0.15 0.15 1.60 9.70
Presently it is regulated by the Seeds Act, 1966, The Seeds
Reserves & surplus 1.68 2.92 5.83 16.94
Rules, 1968, the Seeds (Control) Order, 1983 and the
Net worth 1.83 3.07 7.43 26.64
National Seeds Policy, 2002. The statutory and regulatory
Total debt 0.13 10.36 14.42 11.89
framework may see some changes in the future, which can Deferred tax 0.05 0.10 0.06 0.15
be extensive and hence could adversely impact the Share application money 0.00 0.00 0.18 0.00
company's business. Total liabilities 2.01 13.53 22.08 38.68
Net fixed assets 3.16 5.30 8.04 19.86
Financials and valuation CWIP 0.00 0.00 1.21 0.98
KSCL's sales and profits have grown at CAGR of 19% and Investment 4.09 15.10 13.52 7.26
124% respectively from FY2004 to FY2007. In FY2007, the Net current assets -5.25 -6.88 -0.69 10.22
sales grew by 37% yoy to Rs65.8 crore. The operating profit Misc expenses 0.00 0.00 0.00 0.36
grew by 330% to Rs17.1 crore followed by a 1,777 basis Total assets 2.01 13.53 22.08 38.68
point increase in the operating profit margin to 26%. The Key ratios
net profit increased by 263% to Rs10.5 crore in FY2007 as
Particulars FY2004 FY2005 FY2006 FY2007
compared with Rs2.9 crore in FY2006.
OPM (%) 2.4 3.8 8.3 26.0
At the price band of Rs150 to Rs170 per share, the company PBIDTM (%) 4.3 5.2 11.5 28.3
would trade at 19.5x to 22.1x its FY2007 earnings (on post- NPM (%) 2.4 2.6 6.0 16.0
RoNW (%) 69.6 50.8 55.3 61.9
diluted equity). We believe the valuations to be expensive
RoCE (%) 41.0 45.7 65.9 115.3
as compared with its peer group.

The "views" expressed in this report are our views only and have been arrived at after analysis of the public offering
details. This is not a recommendation under our "Stock Idea" category. It may/may not be included in the Stock Idea
by our analysts at a later date.

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 sharekhan ipo flash Kaveri Seed Company

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