Kaveri Seed sets up Rs 500-crore war chest for acquisitions

India's largest listed hybrid seed maker Kaveri Seed Company (KSCL), which sealed a compromise deal with global seed giant Monsanto for BT cotton technology, has readied a war chest of Rs 500 crore for buyouts to fill product and technology gaps. The Hyderabad-headquartered company is also preparing to expand its business in high-margin non-cotton segment that include rice, maize and vegetable seeds, while eyeing at least 20-25% annual topline growth over the next three-five years.

With substantial control over inventory write-offs in channel network now, the hybrid seed firm is also looking to improve profits and reward shareholders through buybacks, backed by huge reserves and surplus of over Rs 1,000 crore.

"We have more than Rs 500 crore of cash reserves as at the end of March 2017 and have been earning an average of Rs 200 crore of cash reserves every year, "said executive director of the company, C Mithun Chand.  "We are preparing a war chest of Rs 500 crore for acquisitions, both in domestic and overseas markets, mostly towards R&D capabilities, germ plasm and new technologies that help consolidate our position in the market,"  Chand told ET.

The cotton business contributed nearly twothirds of overall revenues, but the company has of late shifted focus towards high-margin non-cotton business with focus on vegetable seeds, rice and maize, he said. The company is looking to strengthen its distribution network to 20,000 over next couple of years from 15,000 now.

"We see a significant shift in revenue mix over the next 2-3 years where 40% of revenues will come from cotton and 60% from non-cotton business, "said Chand. "Kaveri Seed plans to launch 50 products in vegetables segment over next 2-3 years, eyeing margins of around 50% against the current blended margins of 20%, he said.

The revenues of Rs 753-crore for nine months to December 2017 and infrastructure to support its aim of doubling the topline, Kaveri estimates meagre annual capital expenditure needs of Rs 30-40 crore over next few years.

Being probably the first Indian listed firm to go in for back-to-back buyback of shares, the zero-debt seed company is weighing options to reward stakeholders regularly.

"Given the focus on high-margin non-cotton business, we expect the profit growths to be attractive at 200-300 basis points more than the growth in topline,  " said Chand, adding that the company could surpass Rs 1,000 crore mark in annual revenues in next couple of years.