Thursday 6 September 2007

Kaveri Seeds - IPO Analysis

Competition Crops Prospects

MAX. ISSUE SIZE (Rs) : 68 crores
PRICE BAND (Rs) : 150 - 170
ISSUE OPENS/CLOSES : 6th to 11th September, 2007
LISTING : BSE, NSE.

Engaged in the business of agri-inputs and providing crop solutions to farmers for over two decades, this company is raising funds primarily for expansion, land acquisition and bolstering its R&D division.

With 3000 dealers and 750 distributors, the company sells under the Mikrotek brand name. Its production is focused on hybrid seeds that caters primarily to relatively unconventional agri-crops like sunflower, bajra, corn and cotton etc rather than the conventional cereals and pulses.

The reason therefor is clearly its competition which comprises deep-pocketed MNC’s like Bayer, Monstanto and Syngenta whose R&D spends and capabilities are clearly far superior. While the resultant strategy of focusing on relatively unconventional agri-crops is thus more of a necessity, it is also a high-risk one that hinges heavily on the success of its hybrid seed production.

Whereas the financials , prima facie, pass muster with a topline of Rs 65.8 crore and bottomline of Rs.10.5 crore, the sting for investors comes in the form of a 40 per cent equity dilution post-IPO which will hamper its servicing in FY08.

Coming, as this does against the backdrop of a hardly cheap historic P/E demand of over 15, chances are investors might prefer to stick to the known MNC big boys from the segment and give this IPO the miss.