Kaveri Seed Company Ltd
NSE:KSCL
Earnings Call Analysis
Q3-2024 Analysis
Kaveri Seed Company Ltd
The company has demonstrated its commitment to shareholder returns by executing its sixth consecutive and largest ever stock buyback in its history. Despite growth in the last nine months being subdued at less than 4.5%, which was below the rate of inflation, the company maintains a long-term growth perspective, expecting to grow by 10% to 12% on a long-term basis. The management's confidence is underscored by their belief in the company's future growth being reflected in their current spending, particularly in research and development and market expansion initiatives.
In the Indian market, the company has observed its competitors, like Rasi, capturing significant market share, especially in cotton seeds. Although the company currently holds approximately a 14% to 15% market share in cotton seeds and a modest 2% to 3% in pearl millet, there is optimism about reclaiming and growing these shares based on positive developments in their product pipeline. Furthermore, the impact of illegal seeds has remained consistent at around 8% to 10% of the market, with the expectation that it will diminish as new legal technologies become available.
The company is eyeing significant opportunities to expand revenues through exports, particularly targeting neighboring countries such as Bangladesh and Nepal, as well as markets in Africa and Southeast Asia. The focus on exporting crops like rice, maize, and vegetables, like gourds, tomatoes, hot peppers, and okra, is part of a strategy expected to more than quadruple export revenues from the current ballpark of INR 45 crores to INR 50 crores to over INR 100 crores within the next 3 to 4 years.
The company's diversification strategy beyond cotton has led to growth in other crops and is expected to continue to do so. Non-cotton crops like maize, rice (including hybrid rice), and vegetable seeds are identified as areas of growth, with cotton reducing to about 35% of the total revenue composition. EBITDA margins in non-cotton segments remain robust at 35% to 40%, albeit with expectations for further improvement as sales volumes increase.
With an estimated overall Indian seed market size of around INR 55,000 crores to INR 60,000 crores, about half of which is organized, the company is aiming to capitalize on the increasing trend of farmers moving towards organized seed use. The management is confident that leveraging the company's strengthened product lineup and industry expansion will result in a company growth rate of 12% to 15% over the next 5 to 7 years, maintaining a revenue mix of 30% cotton and 70% non-cotton.
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Ladies and gentlemen, good day, and welcome to Kaveri Seed Company's Q3 and 9 months FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. Joining us today on this call are Mr. Mithun Chand, Executive Director. Before we begin, I would like to mention that some of the statements made in today's call may be forward-looking in nature and involve risks and uncertainties. For a list of such considerations, please refer to the earnings presentation.
I now hand the conference over to Mr. Mithun Chand. Thank you, and over to you, sir. Thank you.
Good evening, and welcome, everyone, to our quarter 3 and 9 months financial year '24 earnings conference call. We hope you have had a chance to review the presentation of our results, which is also available on our website. I will touch upon the operational and financial performance of the company and then open the floor for question-and-answer session.
Our revenue from operations was at INR 981.89 crores compared to INR 939.93 crores, a very steady growth of 4.46%. EBITDA was at INR 321.13 crores, that's compared to INR 303.67 crores and increased by 5.75%. Net profit was at INR 290.22 crores as compared to INR 280.93 crores, a very steady growth of 3.3%. Cash on books stands at INR 587 crores as against INR 403 crores.
Our quarter 3 financial highlights. Revenue from operations was at INR 118.47 crores as compared to INR 123.4 million crores, down by 4%. EBITDA was at INR [ 222.25 ] Crore and net profit at INR 11.66 crores. As envisaged, maize and vegetables are growing in both volumes and revenues and the same trajectory will continue in the coming quarters too. Company continues to deliver good realization in both cotton and rice in spite of volumes remaining stable. Increasing trend of new products contribution in bajra and maize. Efforts in export, yielding results and put the company on the fast track in international markets.
On a quarterly trend, other income was down by INR 19.14 crore and depreciation increased by INR 1.5 crores, and the rest of it remained flat. The higher other income in quarter 3 financial '23 was on account of redemptions done from investments made by the company for the implementation of early buyback done during the last financial year. As part of our continuous endeavors to reward our investors, the company had announced a buyback of shares at INR 275 (sic) [ INR 725 ] up to INR 325 crores.
Operational highlights. Cotton volumes are stable, but revenue increased by 6.03%. The contribution of new products was up from 45% to 59.67% of volumes in bajra. Hybrid rice volumes are stable but revenue increased by 9.26%. Selection-wise, volumes are stable, but revenues are increased were 8.16%. Maize, increase in maize revenue by 5.36%. Contribution of new products was up from 36.67% to 49.45% of volumes in maize.
Vegetables seed sales volume increased by 22.13% and revenue increased by 24.4%. Revenue -- vegetable crops like bitter gourd, tomato, okra and watermelon had showed good performance. Contribution from exports to revenue has increased by 139%.
I will now open the floor for questions and answers.
[Operator Instructions] The first question is from the line of [indiscernible] from Goodwill.
Can you hear me?
Yes,.
Yes. So my first question was employee benefit expenses have really shot up this quarter, and it's our highest ever for any quarter. So any reason as -- any one-offs? Or is it a higher expense in general?
No, that is a continuous trend what we are seeing in the last 5 to 6 quarters, as we are increasing the headcount and that's reason the employee cost is going up.
Okay. So we can expect...
Sorry?
We can expect it to be around INR 3,500 crores as a base, no? Sorry, INR 3,500 lakhs?
Yes. INR 3,500 lakhs, yes.
Okay. My second question is...
This quarter it was around INR 29 crores.
This quarter is around INR 3,497 lakhs, right, employee benefit expense?
Yes. I'm missing the standalone. You're talking about the consolidated?
I'm sorry, yes. Okay. My second question is on a longer term 3-, 5-year basis, how much can we expect our R&D expense as a percentage of sales to be because it has gone up over the years?
If you see in the last 5 years, we have spent close to INR 200 crores. Year-on-year, it's coming up to like 5% to 6% of our total revenue. So I think this will continue. And going forward, the trend will continue. Further, it may go up.
Okay. Any views on new genetically modified seeds that can be allowed in the market by the government? And when can we expect that to happen?
As of now, we are not working on any genetically modified crops. Working in a sense, we are not developing any technology for that. We are dealing in cotton crop, which is only one crop which is genetically modified crop. But recently, we had an argument in the Supreme Court regarding the genetically modified mustard but the judgment is reserved. Based on the judgment, new technologies may come for it and the government is favoring for new technologies. So I think if that is clear, most of the technology is going to come to India.
So how quickly can we ramp up in case of mustard or a maize or any crop that is allowed, [ GM ] ? Can we ramp it up?
The technology is already available outside of the country and the most of the trials are also done in India. So once it's approved, it may take 3 to 4 years to get introduced.
Okay. 3 to 4, years. Okay. That's a good time guidance. Okay. My other question was, can we expect the promoters to participate in this buyback?
Yes. Our offer is that even the promoter will participate in the buyback; to what extent, that we will decide later on.
That you will decide later on. Okay. I just wanted to understand this accounting query. What is the difference between your CWIP and your biological assets because you have classified them as both in the current...
Biological assets are the crops, which are, I mean the standing crops which are there in the field. When we give it for the production, some stock will be there on the field, so that we call it a biological asset.
Okay. And then the RM, CWIP and finished goods will be what assets?
That are which is already received as a client, which we can physically see that.
Next question is from line of Yash from [ Dante Equity ].
I just wanted to know contingent liabilities for the tax issue that...
You are not audible. Your voice is...
I just wanted to know if there is a retrospective tax on tax-contingent liability...[Technical Difficulty] Covered.
Yash. Sorry, we lost your audio in between.
Hello?
Yes. Go ahead.
Yes. If you have a retrospective tax on our contingent liabilities for the case that's going on, till what extent are we covered?
So what do you mean by that retrospective? We have one case, which is going on, which is already disclosed to the exchanges and we already mentioned in the annual report. That's the only thing which we are kind of now. Any other thing of concern, we will definitely disperse.
Yes. So what is the extent of liability if you lose the case?
So that we have given, like for one year financial year, the demand was like for INR 65 crores or INR 70 crores. I don't remember exactly, that we have already mentioned in the annual report. You can for that reference, you can get it.
Also, are you sticking with the growth guidance of 12% to 15% consolidated profit and the 12% to 15% consolidated profit growth, does that include the buyback EPS growth or not?
Sorry?
Does the 12% to 15%, you've given a guidance, right, 12% to 15% of consolidated profit growth?
Yes.
Yes. Are you still sticking by that guidance?
Yes. We -- that's a long-term guidance what we have given for that. We need to see -- we still go with the same thing.
Next question is from the line of Sanjeev from [indiscernible]. It was regarding the -- this INR 1 lakh crore allocation that the government has done regarding the agricultural sector and R&D. Do you stand to benefit from this initiative, sir?
Sorry, I'm not able to understand.
No. I was asking about the government allocation of INR 1 lakh crore in the budget regarding agriculture. So do we expect to benefit from this initiative?
Definitely. Anything in agriculture, we will definitely get benefited, may not be directly, but a lot of indirect benefits will be there. If you can give farmer subsidy or if you can provide some sort of an irrigation facility or some sort of logistics or to maintain processing anything in respect to agriculture, definitely that will help us indirectly. As the farm income goes up, definitely we will effort for good sales. Right. That's it from my side and all the best.
Next question is from line of Dhruv from [ Fluid Aura ]
I just wanted to understand by what time are we expecting the buyback?
So we have already given the postal ballot. The results are on February 8. Once we get the shareholders' approval, after that it may take other one month's time. So most probably, it will complete by March 10, [indiscernible] March 10.
The next question is from the line of Madhur Rathi from Counter Cyclical.
So firstly, thanks a lot for the sixth consecutive buyback and the highest ever buyback in our history. So sir, thank you very much.
Sorry to interrupt you, can you please speak through the handset?
Thank you very much for the sixth consecutive buyback, which is the largest in our history. I want to thank you on behalf of all the shareholders for the buyback. Now sir, the concern is that, sir, you are constantly mentioning that we hope to grow by 10%, 15% but in the 9 months also, we grew by less than 4.5%, which is less than the rate of inflation. So till when do you think we can again come back to our growth path?
So given a growth of 10% to 12% as a long-term growth, still I'm very much confident that if you take the long-term rate that will match. But based on the seasonality, a year or two, we may lose it, but on a long-term basis, we'll grow in that fashion.
Sir, also wanted to understand that what is our market share in cotton seeds in this financial year?
We have close to like 15% market share -- 14% to 15% market share for cotton.
Sir, also, sir, in FY '15, we used to have 12% market share in pearl millet. So what is the status of this now?
Yes, we are working on pearl millet. There are very good pipeline hybrids in pearl millet. We think that we can get back market share and much higher market share what we used to have earlier. We are pretty bullish on pearl millet and we have already tested a couple of hybrids, which are doing well. We can expect pearl millet sales coming in the next years.
Sir, what is our market share in the current financial year?
As of time, it's very low. It's like 2% to 3%, not more than that. But we have huge scope to grow in that area.
So now the thing is that our revenues are flat since FY '15. But sir, if we see our R&D expense has increased from INR 12 crores to INR 63 crores. And similarly, our employees have increased from 814 to 1,275. And so similarly, our sale promotion, farmer meeting expenses, staff and dealer meeting expenses, everything has gone up. So now the thing is that we are spending more on everything, then why are we unable to get the business?
So if you see the '14, '15, the mix was like more than 75% was from cotton. The other contributor -- other crops contributed only 25%, 30%. The scenario was different. The margins were pretty high in cotton earlier, 35%. But right now, if you see, the cotton margins are like only 15% odd. And if you see the present composition, cotton hardly contributes 35% and we are growing in all other crops except for cotton, where we have declined.
And so that's the reason for the flattish revenues and being normal for the last 10 years. But if you see other crops, if you take minus cotton, we are growing in each and every crop.
The other thing regarding the costs, it is quite visible that how much we are spending in R&D. We have increased our headcount. We have increased our -- I mean to say, like our network. We have more dealers now than what we used to have in 2014, '15. But as we said, we are working for the future. We are very confident about our product pipeline. And what we are spending now that will be reflected in the future growth.
So the line for the participant dropped. We move to the next participant. Next question is from the line of [ Rohan ] from [ Turtle Capital ].
Sir, lately, our market share in cotton in Andhra Pradesh and Telangana has decreased. So whom have we lost our market share to? And what can we do to recover that market share? And do we have already plans to recover our market share?
So basically, across India, the majority of the market share was taken by Rasi, from one of the companies. Here also, Rasi is the main player. And we are pretty confident about, as I said earlier, we're very confident about a new pipeline hybrids where we can think that we can get back on market sharing going forward in cotton as well.
Are you saying that Rasi is a market leader?
Yes.
Okay. And lately, we are also having issues with illegal cotton seed. So how big is illegal cotton seed as a market?
As a percentage, it remained same over the years, like 8% to 10% that remained same for the -- same for over the years. But going forward, once the new technology comes in, we don't -- we might not see this illegal cotton. So I think that will remain sideways for the next year or 2 on a percentage base.
And when it can reduce?
Sorry?
Can you please speak through the handset?
Okay. Am I audible now?
Yes, Rohan.
Yes. So for a year or 2, the market share of illegal will be sideways, but afterwards, it can reduce?
No, what I mean to say that is as the technologies are pretty old. This sounds like BG-II RRF is legally -- is already available, what they say is already available in the market. That's the reason we are seeing illegal cotton. Once the new technology gets into place, then we don't see this type of illegal product coming in.
Okay. So another question is that what are the challenges you are having in scaling vegetable business because in the last few years, it has not grown very highly but you are lately saying that you want to double it up or grow 25%, 30% in 3 years. So what are the actions you are going to take? What are the new hybrids you are going to bring in vegetables.
If you recollect what we are saying is that in vegetables we will grow at year-on-year at 20%, 25% for the next 5 years. For last year, we were a bit flattish. I mean to say we just grew by 7%, 8%. This year, we have grown by almost like 10%, 12% compared to previous year. But as it stands, as I said earlier, because we are more dependent on season and climatic conditions, some years might be good and some years might not be. But as a long term, you see that we'll attain that 20%, 25% growth over a 5-year period of time that we are pretty confident and we are already seeing the results for that.
Okay. And on export side, what are the geographies that you are targeting for export? And have you created any crop or vegetable portfolio that you want to focus on in export side?
Yes. Basically, in vegetables, we are considering on gourds, tomato, hot pepper and okra. So these are the crops we are already exporting also. We have done INR 1 or INR 2 crores of exports of vegetable this year as well. So -- and if you see our export sales have increased comparatively than previous year.
We are considering countries like neighboring countries, especially Bangladesh, Nepal, the other countries like African countries and countries like Indonesia, Thailand.
Okay. So are you also focusing on field crop side for exports? Because America is a bigger market.
Basically in crops like -- basically, we are mainly focused on crops like rice, maize. These are the 2 crops which are there in the countries where we are operating, and we are targeting those markets. And how big including vegetable? As such, this year we have done sunflower also. Yes, we have sent sunflower to Tanzania. I don't think that might come next year because it's a onetime sale what we have done and that's a government order. Further going down the line, if we get a government order of that size, we can do. But otherwise if you take that out of the entire export sale, from INR 20 crores, we'll be having that INR 45 crores, INR 50 crores of exports year, minus government sale.
Okay. And in next 3 to 5 years, how big can export be for us in revenue size, like how big it will contribute?
What we are seeing is that export from last year, it was around INR 20 crores, INR 25 crores -- INR 20 crores, INR 20-odd crores of exports. We feel like in the next 5 years, it should cross more than INR 100 crores, in the next 3 to 4 years.
Next question is from the line of [ Ankit Gupta ] from Bamboo Capital Partners.
[Technical Difficulty] we are likely to end this year...
Your audio is unclear.
Mithun, is it better now?
Yes.
Yes. So we are likely to end this year sale of around INR around 1,150 crores and almost I think the sales, which we had done in 2015. So Mithun, from here on, will it be possible to reach INR 2,000 crores kind of revenue over the next 3 to 5 years? And if it is, which all segments are expected to contribute towards delta of 850 or greater crores a year mark?
From here, taking the base year of '24, up to by 2030, we can easily by like INR 2,000 crores. We have a very good pipeline. And as I said, these are the 3 main crops, field crops like cotton, maize and rice and other crop is vegetable, these 4 will contribute to the majority of the growth. And on the crop, what I mentioned above, we have very good pipeline coming up. We have very good hybrids, which we are there already trialing, so we are fairly confident that we can go back to our main market shares, and we can further increase our market shares also. From here on, INR 2,000 crores, it looks quite possible and not far away.
[Technical Difficulty]
Can you be a bit louder?
Yes, sure. So if you look at it, cotton sales that cotton, of course, because of the price controls, revenues have fallen, but even our volumes have not grown over the past 7, 8 years. Even if I look at maize, there is hardly any growth in volumes that we have seen in maize and revenue also in 2015 was around INR 160 crores, which last year was around INR 230 crores. So how -- what efforts are we taking to grow these 2 segments for cotton and maize specifically so that our revenue can touch the guidance that you have given?
If you see maize, it was like INR 130 crores, INR 140 crores at that particular time. I just need to check it out. I don't know if it is like INR 240 crores, INR 250 crores. It's INR 250 crores. And if you take rice, rice was hardly INR 20 crores, INR 30 crores at that particular time. Now, it's more than INR 225 crores. Vegetable, we were 0. Now we will be closing around INR 50 crores, INR 55 crores of vegetables. So except for cotton, on as a crop, we have grown. And we are very confident that we'll grow going forward. Cotton, one thing; one, the acreages were down. I rightly said, because of the price control order and all other things, the margins were down in cotton. The overall acreages were down. And over and above that, we lost some market share in cotton. So 3 contributed for a decline in cotton. But going forward, what we see, we have very good average. We have enough pipeline. We're already testing a couple of hybrids in Northern India also, which is doing well and in central base also. So in the next 3 to 5 years, we think that we can get back our market share to what we used to have earlier, like the 20-odd-percent market shares and we are fairly confident about that.
Okay. Cotton, we can understand, but even in maize, we haven't done well over the past 7, 8 years.
So maize, I just need to check it out. Maize is like for INR 140 crores, INR 150 crores...
[INR 150 crores to INR 160 crores ] in FY '25 and we'll lose somewhere around INR 230 crores. It was around INR 160 crores in FY...
That was one year where we had done huge sales that was in 2013, '14, after that it came down, but the portfolio has also changed now. Earlier, the entire market share was in Karnataka and Andhra, combined Andhra but now we are expanding across India and our market shares are up and we're all moving to single crop hybrids.
Okay. What is the market size of rice seeds and vegetable seeds in India?
Market size, like 8% is like hybridization, you can see like 55,000 tonnes of rice, 55,000 to 60,000 tonnes of rice -- of hybrid rice. And vegetable market size is close to INR 2,500 crores to INR 3,000 crores, slightly more than that.
Okay. Okay. Even in vegetables, although we were hardly present in vegetables in FY '15. But over the around 7, 8 years, our sales have hardly grown to let's say we'll end up this year with somewhere around INR 60 crores. So although this has gone from 0 to INR 60 crores, but its impact on our overall revenue hasn't been that significant.
So one thing. As I said earlier, cotton has contributed to 75% of the total sale in 2015, 73%, 75% of the sale. That's come down to 35% now as a percentage. You can see the growth in other crops. Yes. That's the main difference as of now. But if you see any crop portfolio minus cotton, they are growing in a good pace. As going forward, you can see that what is the amount that we have spent in the last 5, 6 years in terms of the R&D or in terms of the headcount we have in terms of the increase the market presence, increasing the network, setting up these facilities, costing facilities. And if you see the grower base of more than 1 lakh -- farm of 1 lakh acres. So that shows how fast we are going on all the crops except cotton. But as the cotton is a major portion for the company and for the industry as well, so from the cotton also we will grow from -- will grow in the next years to come. So that the entire growth will come going forward.
Next question is from the line of Udhayaprakash from Value Research.
My first question is regarding the export market. You've already answered it...
Udhayaprakash, can you please speak through the handset?
Yes. Am I audible right now?
Can you come a little closer to the phone?
Yes. Am I audible right now?
Yes.
Yes. Sir, I know that you already answered the question on exports. But if you could give us a little bit on what is the constitution of exports to total revenue on a 9-month basis. And what is the growth too year-on-year?
So for the 9 months, we have done around INR 40-odd crores, I think, exports right now, I just need to check this. But -- it was -- for the entire year, it was INR 20 crores, INR 22 crores last time. It is -- it is almost like doubled this year, INR 40 crores. And we will end up in between like overall for the year, it will be around INR 60, INR 55 crores to INR 60 crores of exports because some orders are pending. So we'll do that. Out of which INR 15 crores to INR 20 crores of exports are a onetime sale, as I said earlier, what we have done doing sunflower, we have shipped one to Tanzania. That may not come next year. But overall -- on an overall basis, we are like 75%, 80% more than last year.
[Operator Instructions] The next question is from Sandeep Abhange from LKP Securities.
So I had a question regarding your growth from the noncotton space. So -- and you can see the overall noncotton volumes -- can you... hello? Hello, yes, can you hear me?
Yes, yes.
Yes. I'm saying I had a question regarding noncotton volumes. So your noncotton volumes have grown significantly in the past 5 years. We may see in the hybrid rice and in vegetables as well as in election time. So I just wanted to have an outlook going forward, like how big are we seeing in terms of the noncotton. Apparently, it is contributing around 65%. Are we expecting similar kind of contribution going ahead like in the next 2, 3 years? Or it will like go past the 65%.
So what we see is that as we were saying earlier, cotton should contribute in between the 30% to 35% because cotton is a very big market. And from the base where we are right now, I may not comment upon in a year or 2, but down the line, we have a huge scope of doing cotton also. So I don't think the composition will change much. It will be in that about 70%, 30%. 30% will be around cotton and 70% will be non-cotton.
Okay. And secondly, I have a question...
As we see growth in cotton also, that's the reason we say that cotton will also contribute to that 30% going forward.
So we can expect a 70/30 kind of ratio going forward?
Yes. Yes.
Okay. And secondly, I have questions regarding your margins in terms of your like -- vertical wise, can you give some clarity on your margins in hybrid rice, maize, vegetables, like you say in the quarter you have 15% approximately margins in cotton. So can you give some like the ballpark number in terms of margins in your verticals, like if you can give us an idea of...
You see our EBITDA margins are in between the 27%, 28%. It was in last 4, 5 years between 27% to 30%. So in cotton, we are in between the 15% to 18% margins. And noncotton segment will have that 35% to 40% segment. Even in each crop, each hybrid has got a different margins. So overall I am just giving a benchmark of the 35% to 40% EBITDAs.
Okay, okay. And is that -- do we have high margin in hybrids, hybrid rice and vegetables? Or is it kind of [ similar scene ]?
Margins are a bit high in vegetables, but the volume is very low. As of now, we are operating as a separate division. So the expenses are also pretty high. Once the volume goes up -- once the price goes up, then -- once the sales goes up, then the chance of margins going up are pretty high.
Okay. And just ending in the same note, like in the same verticals, like how is the overall market share, like in hybrid rice and selection rice and maize, if you can give some clarity on that?
Maize, roughly, we have 8% to 9% market share. Hybrid rice, we have more than 10% market share as of now, 10% to 11% market share. In selection rice, we have other 10% market share, 10% to 12% market share.
Okay. Okay, sir, that's very helpful. And overall, how is the realization in terms of value growth as well, like are you seeing good value growth across the noncotton portfolio? I just wanted to take a view on the value growth, how is the value growth doing?
Volume growth?
Value growth, value growth. Like volume growth, I'm not talking about volume growth, I'm talking about the value growth, the realization growth in the realizations across your noncotton portfolio?
So as I said that we work on margin in between that 35% to 40%, in between 30% to 40% crops. So that will remain the same going forward also. But as most of the costs, you can see the headcount and if you see, the R&D expense are pretty high, even the depreciations are pretty high. Once the sales volume goes up, definitely the margins will be slightly 2%, 3% better than what it is right now.
Okay. Okay. And just one question on the followup on another participant to whom you've given a guidance of INR 2,000 crores in next 5 years, it is like almost doubled.
Can you be a bit loud?
Yes, you have given a guidance of INR 2,000 crores by FY 2030. So in that, like what we have seen in FY '15, you had a major contributor cotton. But right now, you have quite diversified. So how are we expecting the non-cotton portfolio to majorly contribute to the INR 2,000 crores revenue? And as well as exports like you said exports would be around 100% and all. So how would be the split of domestic and export and how much will be the cotton and non-cotton, like on the INR 2,000 crores?
So majority of that will be a domestic one. We see at least like 7% to 8% from the export market like around INR 150 crores from the export market. But as I said, the composition will be 30%, 70%; even in that scenario, 30% will be from cotton and 70% will be noncotton.
Next question is from the line of Amit Doshi from Care Portfolio.
Sir, recently, there's been news about this maize in focus going for this ethanol production and the news that sugarcane farmers are also shifting to maize crop. So do you see anything on the ground and what -- would just want to have your comments overall on that and impact on Kaveri?
So maize is a very good crop both in terms of climatic conditions and in terms for the farmers. And with the ethanol coming up, as of now the estimated like 1/3 of the total production is required if all the plants are commissioned. And going forward, we see that the maize acreages may go up and that will help definitely Kaveri because we are one of the major players in maize. So that will help Kaveri also. And if the maize crop will definitely go up, and that will help Kaveri.
And do you see that thing changing on the ground in terms of farmers shifting their sugarcane crop to the maize?
It's too early because the plants seem to be commissioned. But down the line, we will definitely grow.
Next follow-up question is from the line of Madhur Rathi from Counter Cyclical.
Sir, I wanted to understand. [Technical Difficulty] saying that they will also double...
Sorry. I am not able to hear you.
Madhu, may I request you to come in a better reception here? I believe network is not clear at your end. The network is not good, sir. Your voice is breaking.
My network? Is it okay now?
yes.
Yes. So I was saying, I hope my voice is audible now.
Yes.
So I was talking about a news article which appeared recently, which said that [indiscernible]will double their revenue in 5 years and they hope to recoup their lost market share in cotton from 15% now to 30%, sir, and we are also more or less talking about the same thing. Sir, so I mean, everybody cannot take market share because the market is constant. So basically, what edge do we have vis-a-vis the competition? And sir, what has changed in the past 2 years that market share that we have lost in cotton, what gives you confidence now that this will get reversed?
So in terms -- I may not comment about the other companies about their projections and what they do. But coming back to Kaveri, we are pretty confident about our hybrids. The entire projection base or entire comment what we are doing as of now, it's only on the base of the hybrids, which are there in the pipeline. So we -- by seeing the performance of the pipeline hybrids, we are pretty confident that we can go to those levels.
Okay. And sir, there was like news articles regarding the cotton association telling that the seed production would be 30% to 40% less in this Kharif season. So do you see an impact of that on our seeds?
I may not say that 30% to 40% down but this as slightly compared to last year production, overall cotton is down, down for this year, but going forward, even I see the same issue for the next year as well because we see a shortage in the seed.
And sir, what about our production?
As of now, we have not received the entire production, even we will be also shortage of that seed. But as now, we are still receiving in this year, and we are testing the quality of it. Once we get that report, we definitely we'll let you know. By next quarter end, we'll give a clear picture for that. But as of now, initially, what we say is that even our production got impacted that we were saying for the last 2 quarters, to what extent, that we need to see.
And sir, do we see some kind of price spike in this year Kharif season as well as the next year when the production will be down?
I don't know. Again, it's all again the government need to decide, the central government need to decide on the pricing. We need to see that. But definitely production costs and everything has gone up. So in that view, the price also needs to go up.
Next question is from the line of Mohammed Patel from Care Portfolio.
Can you give some more qualitative details on the products in the pipeline, both cotton and noncotton?
So this year, the entire production, both cotton and noncotton got affected this year. But in non-cotton, we have enough inventory, enough production, we have planned in different locations. So we are quite saved when compared to industry. But in cotton, as the areas are very limited, we got affected in cotton production.
To what extent, that only after the next 1 to 2 months, you can get to know because as we are yet to receive the stock, we need to test for the quality. Then only we can get to now. But for sure, we have been impacted. To what extent that I can give in the next 4 or 5 weeks later.
So you are saying that FY '25, the cotton sales could get impacted because of this?
Yes, definitely, definitely. To what extent, I don't know, but whether we'll have the same level of production or slightly above or lower 5%, 10% that we need to see.
Okay. Can you give some more details on the pipeline, both cotton and non-cotton, based on which we are confident of growing?
So we have a very good pipeline in hybrids, both cotton and non-cotton segment in all the crops, in fact, we have been in different zones, as I said earlier, we had tested one in Northern India, one in Central India. So we see a good performance as of now, and we are pretty confident about that.
Can you share the number of products in pipeline for cotton and non-cotton?
That's a different thing because there are N number of products. So only 1 or 2 will be there. So once we launch officially, we will [ begin sending them off ].
Okay. And next question is, how many products have we launched in FY '24?
I just need to take the figures, but across the crops, we might -- we have done like 12 to 14 products approx.
Okay. And how much do we expect on...
Just we need to check on that number. Usually, we don't track that number, how many products because we have got like 8 to 10 crop portfolio. For example, only in vegetables, we have 10 crops. So each crop will have different hybrids in different segments. So usually, we don't track that number.
But do we expect to launch more than 12, 15 products on an annual basis?
No, that's a minimum number what we test every year. That's just a minimum number of what we do every year. So tracking that number is not -- that will not give any figures as such.
Okay. Okay. So I just wanted to understand out of this 4% growth that we have done in the 9 months, how much of that would have come from the new products?
That we have already given in the presentation, each crop has got a different contribution. What we see is a new introduction, new products, everything has contributed more and each crop details, we already shared in the presentation.
Next question is from -- next follow-up question is from the line of Sandeep Abhange from LKP Securities.
Just had a follow-up question on your -- on the size of the market, like can you give a number in terms of how big is the unorganized market like versus organized one in the seed, hybrid seed market?
Overall Indian seed market, they are estimating around INR 55,000 crores to INR 6,000 crores, out of which hybrid seed market, most of it is organized market is like around INR 22,000 cores to INR 25,000 crores.
Okay. So almost half of it is organized and half is unorganized?
Yes. Basically, the unorganized market is there -- were idle crops, wherein unorganized is the sense that the farmer reuses his own feed, but basically in the last 15 years, the feed replacement ratio has also gone up to 60%, 65% level from 20%, 25% levels. So they are all moving to the organized market.
Okay. So what is the seed replacement pattern in the non-cotton portfolio, like across your noncotton portfolio?
No. Only in varieties we talk about seed replacement ratio, whereas in hybrids, there are 100% seed replacement.
Okay. And just to understand the hybrid penetration of like you mentioned in hybrid rice, the hybrid penetration is still 6% to 8% between -- 6% to 8%. But what is the -- it is for non-cotton portfolio, how is the hybrid penetration in that area?
So the rice is also year-on-year increasing but not to the pace as we thought, but right now it has reached like 8%, 9% of the overall portfolio, 7%, 8%. Whereas in maize, it's almost like 75% to 80% is hybridized. So majority of that is already hybrid. Only area which is not hybridized is rice. That is slowly going up. And there are different reasons for that because there are different segments in rice, we are trying to get good hybrids which can replace varieties which are high yield level there. But year-on-year, it's changing, and we see a huge potential in rice. And going forward, it will definitely increase.
Next follow-up question is from the line of Siddhant Dand from Goodwill Warehousing.
I just wanted to understand what the worst case scenario that cotton will be affected this year?
As I said earlier, it's too early for us to say. But might be a 5%, 10% plus/minus than the previous years.
Okay. And in case -- I just had a question that in case there's a proper disaster or something, do we have insurance over our crop or something like that?
We had some but not successfully done here. We don't have insurance for that.
Okay. Apart from that, the rice, there's some restrictions on rice exports, will they affect the production or sale in the year?
I don't think so because what we are doing is a very -- I'm going to say, we are doing in the hybrid market. So the exports imports are to the government policy, usually that will not impact the acreages as such. When we have seen the acreages in the rise in the last 15, 20 years, it remained stable at that 40 million, 44 million hectares.
Okay. Are we present in Basmati over there?
Right now, no. Right now, no, but we are working on Basmati also.
Okay. Any potential market size for us in basmati?
Potential is already there, but usually, we are working on the hybrid, which has got major market shares like medium [indiscernible] or something like those type of grains maturity. We are working on those. These are very niche markets, very specialized markets for that. We are doing well, but our main focus is on the mainstream.
Next question is from the line of Anurag Jain, individual investor.
Good afternoon. Am I audible?
Yes.
My question is, in the quarter gone by, how has been the performance of mustard seeds?
Mustard is good. We have tested one hybrid last year. That's still in a trialing stage. It's still in sleeves. Last week, we visited, but it's good, it's doing well. Mustard is a crop which will have a good scope in India, and we are working on hybrid mustard. So definitely that will also contribute going forward.
Okay, sir. And one earlier answer, I wanted to clarify on the R&D expenses, the R&D expenses are around 5% of sales. And you mentioned that you expect this to increase. So at what level do you think this will stabilize; R&D expenses as a percentage of sales, at what level they will stabilize from the current 5%?
So it might go up to 8% to 9% going forward, that includes your capital expenditure.
Next follow-up question is from the line of Dhwanil Desai from Turtle Capital.
So, my question is, looking at your commentary in the current call and in the past, essentially 3 things are clear that you will gain market share in the cotton side. And then I think your noncotton portfolio will grow at 15%, 20%, all put together. So -- and noncotton has a higher margin. So I'm slightly not sure how to read into that 12% to 15% growth guidance because if you put this all together, I think it should be higher. So what am I missing here?
So that's the guidance what we have given that right now. So 12% to 15% is what we see. The next 6 years, it is almost like 70% to 80% growth.
Okay. But is it fair to assume that your noncotton portfolio will grow at 15%, 20% because your export and vegetables will grow at much faster pace?
Yes, that's all comes to the non-cotton segment?
Okay. So by saying that noncotton as a segment can grow at 15%, 20%, is that a fair assumption?
So what we say is that overall, as a company, we will go in between the 12% to 15% growth for the next 5 to 7 years. And the percentage will be like 30% cotton and 70% in the non-cotton, the mix might remain same.
And I think you guys are at 8% to 9% in the maize and in the hybrid, right, I think you said around 10% market share. And we have been in this segment for a long time. So how do we see room to increase our market share from 10% to like 15%, 17%? What are the levers to do that?
One thing the cotton market itself -- sorry, the maize market itself is expanding. We may not be necessarily that from the other market share we'll take it. If you see in the last 7, 8 years, it has gone up by 20%, 30%. And as a trend as an industry trend, what we see, they give a growth rate for 8% to 10% for the -- as a flatish 7% to 10% for the next 20 years for the seed industry. So we'll grow in that respect as a company as we are there in money crops. We are adding new portfolios, which aim between the 12% to 15% will be our growth. And by seeing the pipeline hybrids and wherever what we have done in the last 5, 7 years, we're pretty content that we will reach the position what we have laid on this.
Next question is from the line of Manisha, Individual Investor.
Sir, our seed business, cotton seed business might be affected due to lack of production. You told that it should be minus 5%, 10% but it should be maximum minus 5%, 10% or it can go more, sir?
As of now it looks like that. As I said earlier, it may take like other 3 to 4 weeks. But as of now initial 5% to 10%.
So 5% to 10%, I think it's the normal. I think every year 5%, 10%, even the acreage is also dropping by 2%, 3%. So I think 5%, 10% should not...
Usually we maintain inventory. This time based on that inventory and everything, we are -- I think that we are getting short of it. But I tell, it's too early for me to say, but as a guidance, I'm just saying, but I will get to know only after 3 to 4 weeks later.
But sir, if the production itself is affected in the whole industry, then the acreage should also get affected and farmers will go for other crops. So what do you think the other crop should be?
Usually, in the inventory, as an industry, they have 15% to 25% more inventory than required. So the acreages what it was laid, it may remain same or slightly come down by later. But this time, for a good quality seed, there will be shortage. I mean to say that my hybrid is in demand. I may not be having those hybrid seed, but a different hybrid seed will do.
So do you think the price should go up then?
I said it's a government controlled thing. And it being an election year, I'm not particularly sure how much will it go up.
Sir, what are the other products which we are going for in this Kharif season? Are there big launches?
So basically, we are there in rice, maize and other crops. So all other crops will do well. We don't have any issue with the inventory.
And sir, one thing I wanted to ask you is that the cash on book size has dropped from quarter-on-quarter. What is the reason, sir?
What was that on September?
Yes, it was from INR 787 crores, INR 780 crores. Now has come to INR 587 crores.
We may have done some investments. I mean, we have made some farmer payments, additional cost, inventory we will be receiving it, the payments we have made.
So you are building up inventories?
Yes, yes. These are time where we pay for the inventory.
Sir, what are the other new products which will be targeting in this Kharif season like new hybrids or something other new products, special products or something like that?
No, all whatever products we launch will be in those hybrids in those crops where we are dealing with. As I said, like rice, maize, cotton and vegetables are the major crops we will be focused on and that there, the launches will be also there in these crops.
And sir, one more question about the consolidated employee cost, which has gone up by 30%. It should be because of some temporary hiring or something like that or what?
No, no, no, no. One, we have had many people in R&D. We have increased the same to close to 200 now. And we have appointed many people across in all locations. So that's the main cost for us.
So that would be a permanent cost now?
Yes, yes. That will go up.
So what is the reason for hiring -- are you very hopeful of the present next year? Or what is the reason...
This is a continuous activity, we have developed many hybrids. We are marketing in to areas as of now. That's the reason the headcount and the salaries year-on-year, both are going up.
So we are pretty confident that next 2, 3 years will be very good?
We are pretty confident about our business, not for just 2, 3 years, on a long-term basis, also, we are very confident, bullish on business.
Next question is from the line of Udhayaprakash from Value Research.
Yes. Sir, I just want to ask if you could elaborate between what is the difference between the selection rice and hybrid rice? And what is the margin profile? is it same or are they different?
Hybrids are nothing but where two different parents are involved. Selection rice is like the varieties. That's it. But these are the verities which are developed by their own company, that is the reason they are called the selection rice.
And the margin profile for both, is it same or is it different, sir?
Hybrid rice has got a slightly higher margin.
Okay. And sir, in the last con call you stated, we are focusing more on vegetables because it is not as seasonal as our other crops and also the use cases in most states, the [indiscernible] are limited to few states. So do we...
Sorry. Can you be a bit louder? I don't know if it's my network or something, but I'm not able to hear you.
Yes, sir. An I audible now?
Yes.
Sir, the last con call, you had stated that we focus more on vegetables not just because of the margin but also because it is not as seasonal as other crops. And also the use cases in most states are the [indiscernible] other costs. So do we have to focus -- do we have to do something special for the supply chain in order for the growth to territory of the seeds or what are we trying there on a supply chain front for vegetable seeds?
So we have a separate division for vegetables even though that is part of Kaveri. It's 100% part of Kaveri, but we run it as a separate division because as I said, it's a year-long crop. The payment, the collection, the crop cycles are entirely different. The [indiscernible] is also different. That's the reason we have set up a new team for that from the last 6, 7 years. That's how they are running the business that operates independently.
Okay. So my next question is also in the last few years, hybrid rice and selection rice have been the growth driver for us and since [indiscernible] the focus on cost then started shrinking. So do you believe that rice will be the growth driver going forward to -- or do we have -- have you identified any specific growth driver or all the crops that you're focusing on, we are betting on them for future growth?
So we, as a company, we are there in many crops and all crops are important for us. But based on the conditions like acreages and conditions, these are the 3 main crops; cotton, maize, rice and all vegetables including. These are the 4 main crops, which we need to focus on. And majority of the growth will also come from this because the other crops are also there like mustard, like pearl millet, Sorghum, Sunflower. But the overall size, overall size of the market to the entire seed market is very low. Even though we are big in that, we cannot make a big impact in terms of the revenue. But these are the 4 crops where -- which have the growth and which should contribute to the major revenues. Saying that, that we do not regress those crops also, we are working on those crops also.
And so sir, is it safe to assume that whatever R&D that we are going to do going forward in 3 to 4 years, it is for 3 to 4 crops, it appears. Is it safe to assume that?
So we are doing R&D in many crops. But as I said, as these 4 crops are contributing to 80%, 85% of our sales, even the R&D spend will be 80%, 85% on these crops only?
Okay. And finally, my question is on exports. Can you give the revenue contribution to export on a 9-month basis? And what has been the year-on-year growth?
Sorry?
Contribution of exports to total revenue on a 9-month basis, and what has been the growth on a year-on-year basis?
So overall, the growth is like 140% like or so. The production, the overall export for the 9 months in within INR 40 crores to INR 45 crores. But I think we have given in the slide in the presentation also -- but for the entire year, it should be around the INR 60-odd crores, INR 55 crores to INR 60 crores. By the percentage, it will be like 4% to 5%.
Okay. And finally, you've answered this enough, but it's hope that interprets in the [IP ]. So in 2015, let's say, till [ ATM ] basis, our revenue has been around the same level, and that is mostly because of the contribution of cotton has fallen over the years. But on the other crops also, we had to start almost from scratch and only now let's say, we have a very established trends on all the crops. So can we say that this stagnation won't persist going forward now given that we have good presence in all the segments?
So as I said that like more than 70% was contributed by cotton in 2014, '15. From there now 70%, 65% to 70% of the total volumes or the total revenue is contributed to noncotton crops. Even in non-cotton crops, we are having portfolios like rice, which was very low earlier, then vegetables which also we have added. So in that way, we are focusing on more crops and we are increasing revenue in most of the crops where we are operating.
Cotton is the only product where we have lost our sales and revenue and margins. Even in these tough conditions, we were able to maintain the entire margins. If you see the last -- if you go back to those levels, the EBITDA margin was around 30-odd percent. Now also with very low margins in the cotton, we are able to maintain the 20%, 30% EBITDA. And if you see the R&D spend or if you see the infrastructure and -- or if you see the head count what we have now and compare to 2014, '15, it is pretty high now. I have rightly said that employee costs sits at double or triple compared to those levels.
So what we see as we are adding more crops, we see good years coming forward. And whatever we have spent in the last 5, 7 years, that will convert to revenue in the next 5 to 10 years.
As there are no further questions, I thank all the participants for joining the call. For further information, please be in touch with Rama Naidu from Intellect IR on 992-020-9623. On behalf of Kaveri Seed Company Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.