What is this about?
Jennifer wanted to master web-development in 180 days. The way she proceeded was to build 1 website each day. That is crazy, and the results are fabulous.
I want to try the same craziness on stocks. Over the next half year, I will try to learn more about investing concepts, businesses and industries. Each day I will try to study at least 1 company and write a brief post about it.
Day 1:
I picked up Kaveri Seeds for today. It is a seasonal company and its results are due within a week or two.
The company has an excellent business. It provides high quality hybrid seeds which increases the crop's yield. In 2008, it introduced revolutionary hybrid BT-Cotton seeds, which provided wonderful returns not only to the farmers but also to the shareholders.
In the 2007 annual report company mentioned that "once a hybrid seed is developed and introduced, its acceptability gradually declines from year to year." Five years later, in the 2012 annual report it says "cotton, considered by many as a mature market, we expect to gain market share because of our differentiated and high-yielding hybrid seeds portfolio." At the same time the company is optimistic about the developments in hybrid rice.
The balance sheet of the company is one of the most amazing ones. Of the total 858 crores of assets, 253 crores is financed from advance from customers. Another 237 crores is financed from creditors. June quarter is the most important quarter for the company and thus the closing stock from March balance sheet gives a good estimate about the upcoming results. The March'13 inventory is Rs.491 crores (against 303 crores previous year). Going by these and the good monsoons, I estimate June sales to grow by anything between 30% to 75%.
Based on the above numbers, the forward PE is of around 9 to 12 times. At current PE of 16 (market cap of 2131 crores), it seems that the market has already discounted this upcoming quarter's growth.
One thing that makes me concerned is that the company's annual report does not talk much about the business process. For a 2000 crore company, I expected the details about how the company's seeds are better and the differences in yields (some statistical and quantitative data). I also expected more details about the reasons for the robust growths (i.e whether the company expanded in new states or was it some real yield magic). Another little danger area is of lower taxation. This is one area where the peers (I checked Bayer Cropscience) seem more transparent about the processes and paying higher taxes.
There is enough ground work available and I will take a little time to go through it. As it is a start, I find it hard to derive some intrinsic value for the company and thus will pick up a little smaller company for the next update.