The Kaveri Company began in 1976 when Mr. G V Bhaskar Rao, a young agriculture graduate, through his startup – GVB Rao & Co, developed a proprietary corn hybrid which was an instant hit with the farmers because of its improved yields. They later expanded into large scale value breeding and registered as Kaveri Seed Company in 1986 and subsequently got listed in the stock exchange in 2007.
I have done a three-stage DCF valuation using these assumptions:
- this year profit of 200 Rs. Cr.
- company will grow 20% in the next 5 years, 15% in years 6-10 and 4% thereafter
- discount rates used: 10%, 12%, 14%
In the extremely competitive seed business, cut-throat competition from peers can impact the Company’s trade.
Changing climate conditions such as continuous dry spell, or excessive rainfall may drastically impact commercial seed production of the Company.
Kaveri Seeds is a great company with a bright future, but it might be quite reasonably valued right now. I'm going to either wait for a dip or initiate a small position. The reason is, that some of the best stocks I have seen usually trade at high multiples even before they make huge advances in price. That's why I'm going to be careful with this one, as the risk/reward ratio is a bit worse at this point.