Technical Charts:
CMP: 426
Buy: 426-413
TGT: 446-487 (1-6M)
TGT: 487-513-668-725 (12-24M)
TSL<395
Also, unattractive cotton prices, deficit monsoon in cotton growing areas and resultant shift in acreages reduced the demand of the cotton seeds and its volume fall by almost 26%.
Thus agrarian crisis and resultant pressure on the Govt to alleviate the suffering of the farmers are leading to more state interference and free market mechanism of the agri seed business, including cotton seeds also.
The overall shabby situation in agriculture, specially in TNG/MH region along with competition from smaller seed companies is leading to inventory pile ups .The Govt's price intervention is also adding wounds and creating an uncertainty over the overall agri seed business outlook.
There is also some royalty payments issue with Monsanto (technical know-how partner). As par reports, for every bag of cotton seeds KSCL sold (around 900-930), it has to pay royalty @120 to Monsanto. But KSCL is paying Monsanto @20 only as par directive from Telangana(TGN) Govt. TGN also issued a directive not to increase cotton seed prices because of weak monsoon. A case in this regard is pending in TGN HC and any adverse ruling from there could cost the KSCL around Rs.64 cr for which the company had not done any provisioning in its books of accounts so far (Q2FY16). This is a significant risk as that could cost the company around 15% estimated EPS (FY:16/17).
All the above issues had led to earnings downgrade by analysts and the scrip reacted so much !! But having said this, the scrip might be discounted to a great extent for the above set of negative news, going be the price action for the last six months.
Looking ahead:
With softening of bank interest rate, we may see overall expected economic growth, better infrastructure which may be also helpful for our rural economy and agri sector in the coming days.
Global commodity prices is perhaps bottoming out and we may see better commodity prices including agri commodity in the days ahead.
Thus, investment in KSCL may not be a bed idea at this stage.
As par BG metrics:
Current median valuation may be around:500
Projected fair valuations might be around:550-600-700 (FY:16-18)
CMP: 426
Buy: 426-413
TGT: 446-487 (1-6M)
TGT: 487-513-668-725 (12-24M)
TSL<395
Note: Consecutive closing below 395 for
any reason, KSCL may dip towards 345-300 zone, where it
can be again accumulated for investment purpose
(depending on the news flow).
KSCL has dropped by almost 60% from its all time high of around 1075 in the span of six months.
Primary reasons of its super fall might be:
KSCL has dropped by almost 60% from its all time high of around 1075 in the span of six months.
Primary reasons of its super fall might be:
Although
the company was expected to to report double digit growth
in revenue, in Q2FY16, KSCL actually delivered 20% drop in
revenue and 5% fall in net profit. The revenue fall was
very disappointing as the company did not take part in
active marketing in high credit markets of Maharashtra
(MH) fearing bad debts amid a very sad state of farmers
there. MH govt also reduced the prices of cotton seeds and
consequently KSCL withdrew itself from the MH market
albeit temporarily.
Also, unattractive cotton prices, deficit monsoon in cotton growing areas and resultant shift in acreages reduced the demand of the cotton seeds and its volume fall by almost 26%.
Thus agrarian crisis and resultant pressure on the Govt to alleviate the suffering of the farmers are leading to more state interference and free market mechanism of the agri seed business, including cotton seeds also.
The overall shabby situation in agriculture, specially in TNG/MH region along with competition from smaller seed companies is leading to inventory pile ups .The Govt's price intervention is also adding wounds and creating an uncertainty over the overall agri seed business outlook.
There is also some royalty payments issue with Monsanto (technical know-how partner). As par reports, for every bag of cotton seeds KSCL sold (around 900-930), it has to pay royalty @120 to Monsanto. But KSCL is paying Monsanto @20 only as par directive from Telangana(TGN) Govt. TGN also issued a directive not to increase cotton seed prices because of weak monsoon. A case in this regard is pending in TGN HC and any adverse ruling from there could cost the KSCL around Rs.64 cr for which the company had not done any provisioning in its books of accounts so far (Q2FY16). This is a significant risk as that could cost the company around 15% estimated EPS (FY:16/17).
All the above issues had led to earnings downgrade by analysts and the scrip reacted so much !! But having said this, the scrip might be discounted to a great extent for the above set of negative news, going be the price action for the last six months.
Looking ahead:
KSCL is
taking various proactive steps for better business in
other agri products, having excellent demand potential
with better margin reducing dependence on cotton seeds.
The Monsanto case will ultimately be decided in the highest judiciary (SC) and there will be ample time. Also as the State Govt and farmer's issue is involved here, the Govt might consider some subsidy in this royalty issue here to ensure proper supply along with required quality.
The Monsanto case will ultimately be decided in the highest judiciary (SC) and there will be ample time. Also as the State Govt and farmer's issue is involved here, the Govt might consider some subsidy in this royalty issue here to ensure proper supply along with required quality.
With softening of bank interest rate, we may see overall expected economic growth, better infrastructure which may be also helpful for our rural economy and agri sector in the coming days.
Global commodity prices is perhaps bottoming out and we may see better commodity prices including agri commodity in the days ahead.
Thus, investment in KSCL may not be a bed idea at this stage.
As par BG metrics:
Current median valuation may be around:500
Projected fair valuations might be around:550-600-700 (FY:16-18)
| SCRIP | EPS(TTM) | BV(Act) | P/E(AVG) | LV | SV | MV | 200-DEMA | 10-DEMA |
| KSCL | 42.26 | 109.88 | 10 | 553.07 | 432.09 | 492.58 | 723.82 | 441.79 |
| KSCL | 51.5 | 158.25 | 10 | 610.55 | 476.99 | 543.77 | 723.82 | 441.79 |
| KSCL | 61.7 | 221.55 | 10 | 668.28 | 522.10 | 595.19 | 723.82 | 441.79 |
| KSCL | 84.25 | 310.15 | 10 | 780.91 | 610.09 | 695.50 | 723.82 | 441.79 |
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