Kaveri Seed is entering the capital market on 6th September 2007, with a public issue of 40 lakh equity shares of Rs.10 each, in the price band of Rs.150 to Rs.170 per share.
The company is into production, processing and marketing of high quality hybrid seeds, for different crops like Corn, Sunflower, Cotton, Paddy, Grain and Sorghum etc. The company has recently, diversified into micro-nutrients and bio-products and also produces non-hybrid seeds, primarily for paddy. The other listed peers are Monsanto, Syngenta, J K Agri-genetics and recently listed Advanta.
The financial performance of the company was lacklustre, till FY 06. In FY 02, topline was at Rs.23.65 crores, while PAT was just Rs.10 lakhs. Even in FY 06, total income was at Rs.49.72 crores with PAT of Rs.2.90 crores. Suddenly, in FY 07, though topline rose to Rs.67.24 crores, registering a growth of 35%, PAT increased sharply to Rs.10.54 crores, registering a growth of 263%. EBITDA rose to Rs.18.57 crores in FY 07 from Rs.5.53 crores in FY 06, recording, a growth of 235%.
Inspite of such an average performance of the company, promoters issued bonus of Rs.2.25 crores on 04-08-06 and equity shares of Rs.5 crores at par on 20-09-06 to themselves. Due to this, equity base increased to Rs.9.70 crores with net worth of Rs.26.28 crores as at 31-03-07, resulting in a book-value of Rs.27.10 per share.
The company is now implementing an expansion of Rs.63.30 crores, mainly to acquire farmland near Hyderabad for R&D, setting up marketing offices, corn cob drying plants, bio-technology lab, seed processing plant as also upgrading existing seed processing plant. The entire requirement is being met from proposed issue, is expected to be to the tune of Rs.60 crores to Rs.68 crores, depending on price discovery. Strangely, company mobilized Rs.3 crores in February 07, by private placement of 2 lakh equity shares at Rs.150 per share but this amount is not for meeting this capex. Existing operations seem fund starved. Post-issue, equity will rise to Rs.13.70 crores.
On pre-issue equity, EPS for FY 07 is at Rs.10.86 and hence at upper band, PE multiple works out at about 16. On fully diluted equity of Rs.13.70 crores, EPS comes at Rs.7.70 and PE multiple, in that event, works out at 22, at the upper band.
Monsanto, a leader in the segment and having highest EBITDA margin, is ruling at a PE multiple of 20. Even other players like Bayer Crop, Advanta and J K Agri-genetics are ruling at a PE multiple of 16 to 18.
Advanta, a recently listed peer, is ruling at Rs.820 with a high low of Rs.1,088 and Rs.585, with not very high investor interests. The track record and financial performance of the company, does not encourage one to go for the stock. Probably, secondary market price may be a better option, if someone has to urge to have this stock in the portfolio.
A mediocre issue, which certainly looks expensive at the upper band of Rs.170.