Indian Accounting Research Analyst, Trudence Capital Advisors

Nitin Mangal

Nitin is founder of Trudence Capital with more than 15 years of experience in Indian equities. He is Pioneer of Corporate Governance and Accounting Research in Indian Market and has successfully developed product for Institutional Investors named as "Analysis Beyond Consensus" during his association with Edelweiss Securities Ltd, Mumbai.  Later during the career, he has worked with Veritas Investment Research Corporation, Canada as Asia Consultant covering Indian and US equities. He has been profiled by leading financial news papers such as Wall Street Journal, Financial Times, Business Standard etc.

Indian Accounting Research Analyst

Equity Bottom-Up

Multiple challenges faced by the cottonseed majors in the country are projected to, in particular, aggravate the situation for <a href="https://www.smartkarma.com/entities/11278" target="_blank" data-smartkarma-citation="entities:11278:1">Kaveri Seed Co Ltd (KSCL IN)</a>.The past few years have been challenging for the cotton seed players because of drought situation that aggravated the concerns posed by the Pink Bollworm, lower acreage sowing, rising production cost and discouragement of cotton crop by the Government of India and government campaign incentivizing the sowing of other food item crops.KSCL is one of the largest cotton seed companies with a market share of 20%. The cottonseed business is a low margin business as compared to other seed businesses. However, owing to changes in the Indian government’s stance over cotton crop in the country, the company started diversifying its business by adding other seeds in its product portfolio. Notwithstanding the diversification efforts, cotton seeds continue to contribute 64% of KSCL’s total revenue as at 9MFY18. KSCL management also does not foresee any drastic change in cotton seed’s dominant share in revenue at least for the next 2-3 years.Domestic seed companies passing through tough times saw a change in government policy in 2016 as a blessing in disguise. They all welcomed the move by the Ministry of Agriculture.Good monsoons coupled with favorable government policy resulted in very high growth in F18 (ref table: Production, supply, and demand statistics)which can be called as one of the best years for cotton seed industry as well as KSCL in past few years.In the year 2016, the Ministry of Agriculture came up with regulation under CSPCO (Cotton Seeds Price Control Order) 2015, to cap the price of seeds sold to farmers and capped trait fee (licence) for genetically modified (Bt) Cotton, after being recommended by the panel constituted to determine a uniform national price of cotton hybrid seeds.From April 2017 the price of Bollgard – II (Bt II Cottonseed) prices were fixed at INR 800 and trait fees (royalty) payable to Mahyco Monsanto Biotech Limited, were fixed at INR 49 for a 450 gm packet.Recently, Government has announced a further price cut in Bt II Cottonseed prices at a fixed retail price of INR 740 and trait fees fixed at INR 39. Despite the fact that National Seed Association of India has made a representation to the Government for an increase in the price of seed by INR 150.Given the price cut and other concerns (highlighted in the detailed note), KSCL may see shrinkage in gross margin by 200 to 580 bps and dip in net income by 7% to 30% for F19 over F18 estimates.

Multiple challenges faced by the cottonseed majors in the country are projected to, in particular, aggravate the situation for Kaveri Seed Co Ltd (KSCL IN).The past few years have been challenging for the cotton seed players because of drought situation that aggravated the concerns posed by the Pink Bollworm, lower acreage sowing, rising production cost and discouragement of cotton crop by the Government of India and government campaign incentivizing the sowing of other food item crops.KSCL is one of the largest cotton seed companies with a market share of 20%. The cottonseed business is a low margin business as compared to other seed businesses. However, owing to changes in the Indian government’s stance over cotton crop in the country, the company started diversifying its business by adding other seeds in its product portfolio. Notwithstanding the diversification efforts, cotton seeds continue to contribute 64% of KSCL’s total revenue as at 9MFY18. KSCL management also does not foresee any drastic change in cotton seed’s dominant share in revenue at least for the next 2-3 years.Domestic seed companies passing through tough times saw a change in government policy in 2016 as a blessing in disguise. They all welcomed the move by the Ministry of Agriculture.Good monsoons coupled with favorable government policy resulted in very high growth in F18 (ref table: Production, supply, and demand statistics)which can be called as one of the best years for cotton seed industry as well as KSCL in past few years.In the year 2016, the Ministry of Agriculture came up with regulation under CSPCO (Cotton Seeds Price Control Order) 2015, to cap the price of seeds sold to farmers and capped trait fee (licence) for genetically modified (Bt) Cotton, after being recommended by the panel constituted to determine a uniform national price of cotton hybrid seeds.From April 2017 the price of Bollgard – II (Bt II Cottonseed) prices were fixed at INR 800 and trait fees (royalty) payable to Mahyco Monsanto Biotech Limited, were fixed at INR 49 for a 450 gm packet.Recently, Government has announced a further price cut in Bt II Cottonseed prices at a fixed retail price of INR 740 and trait fees fixed at INR 39. Despite the fact that National Seed Association of India has made a representation to the Government for an increase in the price of seed by INR 150.Given the price cut and other concerns (highlighted in the detailed note), KSCL may see shrinkage in gross margin by 200 to 580 bps and dip in net income by 7% to 30% for F19 over F18 estimates.

Kaveri Seed

Kaveri Seed: Wilting Sprouts