Kaveri Seeds may be able to offset cut in prices of Bt cotton seeds

Shares of Kaveri Seeds, a Hyderabad-based seed producer, have come off 15% in last 15 trading sessions after the Maharashtra government announced 11% reduction in the price of Bt cotton seeds sold within the state to Rs 830 a packet.

The state controls the price of Bt cotton, a genetically-modified seed. But even though cotton seeds contribute over 75% of the company’s revenues, it is in a position to offset the price cut by reducing royalty payments and commission to distributors. Also, a good monsoon could help it achieve a sales growth of 12-15% this year.

Kaveri Seeds is a leading seed producer with a strong presence in Andhra Pradesh, Telangana, Karnataka and Maharashtra. It posted a revenue of Rs 1,011 crore last year, with cotton seeds contributing 76%, maize seeds 16% and paddy seeds 7%. In Bt cotton seeds, the company has 19% market share.

Since Kaveri’s market share in Maharashtra is just 8% for Bt cotton seeds, the price reduction is unlikely to impact it significantly. Also, a chunk of the sales for the season may have taken place before the price reduction.

“Based on our channel interactions, we expect Kaveri to protect its own profit margins successfully by passing on the revenue loss to the channel and to Monsanto (which gets 20% royalty on MRP).

Thus, despite the price cut, Kaveri’s margins in Maharashtra could actually improve due to higher realisations,” said Abhijit Akella, research analyst tracking the company at India Infoline.

The company launched two new Bt cotton hybrids last year. “Much of the growth for these products will come from Maharashtra...we have tested them with very good results,” Mithun Chand, whole-time director with the company, told analysts in a concall.