In the last week of September 2019, Kaveri Seed announced a 2.8 million shares buyback at 700 per share, amounting to 1.96 billion. While the purpose of a buyback is to signal undervaluation, this one has mostly benefited the promoters who have tendered shares worth 969 million. This includes shares tendered by CMD GV Bhaskar Rao worth 436.7 million. Post buyback, promoter holding has increased from 55.10% to 55.16%. The stock initially gained 5% to hit 548 after the announcement, but ran out of steam and didn’t breach its 52-week high of 623 reached in February 2019. Since the short pop, the stock has been volatile and currently trades near 480.
This loss in steam could be attributed to the company’s lacklustre performance in Q2FY20. While topline grew just 2.97% YoY due to weak non-cotton revenue, its profit also took a hit and net profit fell 42%. Despite the muted performance, some analysts tracking the stock remain unfazed. Analysts at Motilal Oswal Securities point out that the management has maintained its revenue growth guidance of 10-15% for FY20. “Despite the miss in Q2FY20, we largely maintain our earnings estimates for FY20/21, given that nearly 75% of revenues are derived in the first quarter of a financial year. We value the company at 16x FY21 estimated EPS and arrive at a target price of 607,” states their report.
Domestic institutional investors hold 6.6% stock of the largest producer of hybrid cotton seeds in India. While Kenneth Andrade-founded Old Bridge Capital’s Vantage Equity Fund has kept its stake stable at 2.69% over the past year, Franklin Templeton has upped its stake from 1.14% in June to 1.80%. LIC India has also maintained its holding at 2.34%, whereas Motilal Oswal MF has negligible stake at 0.002%. Meanwhile, foreign investors slightly increased their stake in the company from 20.02% in March to 21% in December 2019. Massachusetts Institute Of Technology's MITIMCo has increased its stake from 1.35% to 2.02%; whereas, Mohnish Pabrai’s Pabrai Investment Funds has marginally reduced its stake from 8.85% to 8.61%.