Bayer CropScience may acquire under 26% stake of Kaveri Seeds in India

Date:10-10-2013

Bayer CropScience is in preliminary talks to purchase a minority stake in Hyderabad-based Kaveri Seeds as double-digit growth in hybrid seeds sales make India an attractive and automatic investment choice for global giants. Bayer, which is increasing its investments in India, may buy a stake that is less than 26% in Kaveri, people close to the development said. Kaveri Seeds' chairman and managing director GV Bhaskara Rao has indicated his willingness to induct a foreign partner to gain access to technology. "We may consider divesting stake if any company with rich technology wants to join us as a strategic partner," he told ET. Bayer's spokesperson Michael Preuss declined comment.

The Indian seed industry is expected to grow by 53% to Rs 10,700 crore by 2015 on increased demand for high-yielding varieties to ensure food security, industry body Assocham said in a recent report. The Indian hybrid seed market, estimated at $2.4 billion in fiscal 2013, is expected to grow to $3.2 billion by 2016, a compounded annual growth of 11%.

Kaveri Seeds is currently valued at Rs 1,991 crore on the BSE. It posted a net profit of Rs 191 crore for the 12 month period ended June 2013, giving it a price to-earnings multiple of 10.5 times. Rival Advanta is valued at Rs 1,021 crore with a multiple of 14.8 times.

The proposed deal may value Kaveri Seeds between Rs 1,422 crore and Rs 2,133 crore—or close to two to three times its annual net sales, investment bankers said. The company has achieved a 49% cumulative annualised growth rate ( CAGR) in net sales for last five years to Rs 710.8 crore in FY13, while the net profit grew at 56% to Rs 128.4 crore for FY13.

Many potential investors have earlier approached Kaveri Seeds to buy out promoters' stake. But the promoters are not keen on an outright sale. "I want to make it clear that we are not going to sell our stake in the company on an outright basis. Several investors had earlier approached us," Bhaskar Rao said.

The planned alliance may boost Bayer's product development initiatives as its crop protection company Bayer Crop Science is making significant investments in India to develop new hybrids. On October 3, Bayer Crop Science, which plans to spend 2.4 billion for the period 2013 to 2016, opened a multi-crop breeding station in Hyderabad—home to the operations of Kaveri Seeds.

Started in 1976, Kaveri was mainly focused around the southern and western states of Andhra Pradesh, Tamil Nadu, Karnataka and Maharashtra till 2007-2008. It, then, started developing different productive hybrid seeds and created a pan-India presence. Kaveri is the second largest player in the BT Cotton space after Nuziveedu. "With its success in BT cotton, scale up in hybrid rice and strong presence in corn, jowar and sunflower segments, we believe Kaveri is an interesting and scalable model in the seeds space," IDFC Securities wrote in a recent research report.