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Ratings Assigned Facilities/Instruments Long-term Bank Facilities Total Facilities Rating Rationale The rating draws strength from the strong promoter group, professional & qualified management team, strategic investment by private equity investors, established track record of seed business, strong R&D facilities, existence of own germplasms yielding high quality hybrid seeds & leading to product differentiation, expansive marketing network with presence in 16 States & occupying a dominant market share in cotton hybrid seed segment in the country, high profit margin and comfortable gearing level. The rating is however, constrained by sales concentration risk on hybrid cotton seeds, seasonal nature of business, dependence on vagaries of nature (particularly rainfall) and competition from large MNCs. Ability of the company to maintain/increase its cotton hybrid seed market share, reap benefit from its R&D endeavors and improve share of other crop & vegetable seed sales would remain the key rating sensitivities. Company background Nuziveedu Seeds P. Ltd. (NSPL) belonging to NSL Group of Hyderabad was incorporated in March, 2008 as NSL Seeds Ltd and was renamed to the present one in September, 2010. NSPL is, currently, engaged in production, processing and selling of hybrid/open pollinated seeds of various crops and certain vegetables. Cotton hybrid seeds are the major product of the company, occupying market share of about 35% in the country. The business of the company was once the unit of the erstwhile flagship company of the NSL group, Nuziveedu Seeds P. Ltd. [NUSPL, presently operating in the name of NSL Renewable Power P. Ltd. (renamed in June, 2010)] which was transferred to NSPL, as part of demerger of the major business units of NUSPL, w.e.f April 01, 2010 NSL group is an established player in the field of hybrid seed development with more than three decades of rich experience in the segment. The group also has presence in generation of renewable power, cotton ginning & pressing, textiles, sugar, real estate infrastructure, etc. The main promoter, Shri M. Prabhakar Rao has considerable experience in the segment and has been on advisory board of several major seed industry associations operating in the country. One of the group companies, Mandava Holdings P. Ltd., holds about 59% equity stake in NSPL. NSPL has private equity player, Blackstone, having strategic investment in the company. The PE player has, at present, invested in the form of share application for Compulsorily Convertible Preference Shares and has also undertaken 10 equity shares of NSPL. Operations Production, processing and selling of hybrid/open pollinated seeds of various crops (cotton, maize, paddy, bajra, jowar, sunflower, mustard, wheat) and certain vegetables (brinjal, chillies, tomato, ladyfinger and cabbage) is the main business of NSPL. Cotton hybrid seeds are the major product and NSPL has about 142 varieties of hybrid commercial cotton seeds, approved by the Genetic Engineering Approval Committee (GEAC) under the Ministry of Environment & Forests, Govt. of India. Hybrid cotton seeds contribute about 80% of the revenue followed by maize, paddy, sunflower and other crop seeds. Vegetable seeds occupy a small proportion (about 1-2%) of the sale revenue at present. The business of the company is volume driven one, given that there exists a ceiling on the hybrid cotton seed prices in the country. While operating under NUSPL, the sales volume of hybrid cotton seed registered a CARG of about 19% during FY08-10 and growth of about 115% (annualized) during 7MFY11 under NSPL. The two major types of cotton hybrid seeds sold are Bt I & Bt II with Bt II occupying share of more than 60% (during 7MFY11) of the hybrid cotton seed portfolio. The share of Bt II has been increasing for the last three years (under NUSPL) in view of resistance against all types of worms & accordingly higher demand in the market. The cotton seeds are sold Amount (Rs. crore) 233.6 233.6 Ratings1 CARE A+ (Single A plus) Remarks Assigned

Complete definition(s) of the rating(s) assigned are available at and in other CARE publications.

under three brand name; Subeej, Sarvodaya & Sasyasyamala and within these brands, Bunny, Mallika and Super Mallika varieties occupy about 75-85% of the revenue share. NSPL holds about 35% market share in the field of hybrid cotton seeds. There is sales concentration risk with sales skewed towards cotton hybrid. Besides, major revenue (more than 80%) accrues in the first half of the year and thus, the business is seasonal. NSPL has presence in about 16 States, however, major sale comes in from three major cotton producing regions Maharashtra, Andhra Pradesh and Gujarat (contributing about 75% of total sales during 9MFY11) indicating some concentration risk. In order to diversify sales portfolio, NSPL is increasing its focus on other crops and is strengthening research efforts on paddy, maize, sunflower & vegetable seeds. During 9MFY11, the company exported sunflower seeds to Sudan. Major raw material for hybridization process is germplasm (stored as seed collection). The company has its own germplasm (for the different varieties of hybrid seeds) developed through several years of R&D. The relatively superior quality of germplasm differentiates NSPL from other cotton seed players in the market. About one lakh farmers are engaged with NSPL in cultivating hybrid seeds through contract farming/corporate farming arrangement with them in across seven states of the country. Raw material consumption cost, at about 55% of the total cost of sale during 9MFY11, is the major cost element followed by royalty on sales (about 18%). NSPL pays royalty to Mahyco Monsanto Biotech (India) Ltd. for Bt cotton technology sub-licensed (enabling crop protection against worms) to be incorporated into the companys own cotton hybrids. NSPL receives volume discount on royalty due to its significant volume sales and market share. Research & Development NSPL has well equipped R&D facilities comprising biotechnology, seed testing and quality testing labs at more than six locations in the country. The main research centre located at Kompally, Hyderabad is accredited by the International Seed Testing Association. Besides, the company has multi location trial centres, Grow out Test (GoT) farms (spread across 450 acres) to test the genetic purity of a seed sample. NSPL also has in place collaboration with crop research institutes viz. Indian Council of Agricultural Research, International Crop Research Institute for the Semi Arid Tropics, etc which facilitate research activities. Besides, NSPL has 12 captive seed processing units which facilitate increased operational efficiency. Marketing Sales & Marketing network consists of 9 regional office, 8 Carrying & Forwarding (C&F) agents, 5,000 distributors and more than 55,000 dealers & sub-dealers spread across 16 states of the country. Besides, NSPL has tie up with various agricultural institutions and has partnered with several institutions viz. Krishak Bharati Cooperative limited, National Seed Corporation, ITC, Hariyali and Coromandel International Limited to increase its presence. This apart, NSPL conducts several farmer educational programs. The strong marketing network has enabled the company to develop a client base of about 10 mn farmers. Project Details NSPL has undertaken expansion of seed processing units/facilities and warehouses at an aggregate project cost of Rs.27.5 crore to be financed through internal accruals. The company has spent about Rs.9.3 crore till December, 2010 and the facilities are expected to be commissioned by March April, 2011. Financial Analysis Financial analysis is based on the unaudited results of the seeds division of erstwhile NUSPL for the last three years. As per the same, net sales increased at a CARG of about 22% during FY08-10 with y-o-y growth of about 18% in FY10 triggered by increased sale volume of hybrid cotton seeds (particularly Bt II variety) and growing contribution from sale of other seed crops (maize, paddy, sunflower). PBILDT however, witnessed a volatile trend during FY08-10. It registered significant increase of about 69% in FY09 over FY08, however again declined by about 5.1% in FY10. The decline in FY10 was mainly due to significant increase in royalty expense during the year (by about 96%) in view of non receipt of discount on royalty generally availed by NSPL (subsequently refunded in FY11). While, PAT (after defd. tax) registered y-o-y growth of about 25% in FY09, decline in PBILDT during FY10 led to decline in PAT (after defd. tax) by about 16% and PAT margin during the year. Current ratio as on the last three account closing dates was below unity. However, the same is an industry phenomenon as the companies receive significant advance against sale in the third quarter of the financial year from dealers for supplying the required quantity of hybrid seeds (particularly cotton) in the first half of the immediate following financial year. Advance against sale comprised about 38-52% of the current liabilities in the last three years. Average inventory period has been significantly higher for the company. However, the same is again an industry phenomenon common for all cotton seed companies. The kharif crops are sown during April June and harvesting takes place during the month of October February. Accordingly, while the processed seeds (for supply) of Kharif crops (the major revenue earner of the company) are ready by February, supply of same

takes place April onwards. This results in accumulation of huge inventory at the end of March resulting in high average inventory period. As per unaudited working results for 9MFY11 (Dec.31, 2010), NSPL achieved net sales and PBT of Rs.628.1 crore and Rs.132.7 crore respectively. The overall gearing was comfortable below unity at 0.19x as on Dec.31, 2010. Industry Outlook & Prospects Indian seed market, estimated at US$1.1 billion is the 6th largest in the world. Over the years, the Indian seed market has grown at a rate of 12% compared to less than 5% growth of the global seed market. In India, the use of hybrid seeds is mostly confined to cotton, and to some extent to corn, millet, sunflower, and few vegetables. Bt cotton, the only biotech crop technology approved for cultivation (first released in India by MMBIL), helped India become the worlds second largest producer and exporter of cotton by doubling the nations cotton productivity (from 15.8 million bales in 2002 to 31.5 million bales in 2008) within seven years of the launch of the technology in 2002. The prices of official Bt cotton seeds in India are to an extent regulated. Prior to 2006, the prices were exorbitant (roughly Rs.1,600 per packet of 450 grams which included MMBILs royalty of about Rs.1,250). However, two price reductions took place in 2006 & 2008 which brought down the prices to level of Rs.650 and Rs.750/- per packet for Bt I & Bt II respectively. The seed companies are seeking an increase in MRP of BT I and BT II by Rs.200 per packet. As per the industry norms, the royalty of MMBL (in most of the States) stands at about Rs.96 & Rs.150/- (Rs.144 and Rs.225/in some of the northern states) per packet of Bt I and Bt II respectively. Private companies account for 90% of the seeds distributed in India. The market is dominated by MNCs such as Monsanto, DuPont, Cargill and Syngenta and private seed companies including NSPL, Rasi Seeds (occupying about 24% of market share), Vibha Agrotech Ltd., JK Seeds, Namdhari Seeds, etc. The MNCs exert indirect control over the seed market as well. They supply the germplasm to almost all Indian seed companies. Strong marketing and distribution network, access to good quality germplasm & technology, diverse product portfolio and farmer & dealer relationship are utmost important in the seed sector. Financial Results For the year ended/ As on Mar. 31 Working Results Net sales Total income PBILDT Interest Depreciation PBT PAT (after defd. tax) Gross Cash Accruals (GCA) Financial Position Total capital employed Key Ratios (%) Growth (%) Growth in Total income Growth in PAT (after defd. tax) Profitability (%) PBILDT/Total operating income PAT (after defd. tax)/Total income ROCE (operating) Solvency Interest coverage (times) Liquidity (times) 2008 2009 (12m, unaudited) 472.6 475.6 162.3 39.5 4.2 121.6 107.8 111.2 340.3 (Rs. crore) 2010

374.7 377.0 96.3 4.9 3.4 87.1 86.2 80.3 332.0

556.6 559.9 154.0 47.7 5.4 104.2 90.8 96.2 439.6

37.58 71.60 25.71 22.86 25.64 18.97

26.16 25.12 34.35 22.67 48.08 4.11

17.72 (15.81) 27.67 16.21 40.32 3.23

For the year ended/ As on Mar. 31 2008 2009 (12m, unaudited) 0.35 0.35 0.07 0.09 2010

Current ratio 0.30 Quick ratio 0.06 Turnover (days) Average collection period 8 7 11 Average creditors period (including advance against sale) 289 331 312 Average creditor period (excluding advance against sale) 52 44 29 Average inventory period 260 221 217 Working capital cycle (21) (103) (85) NSPL, though incorporated in 2008, the seeds business of the NSL group is more than two decade old and was transferred to NSPL only with effect from April 1,2010. Accordingly, the unaudited results for the seeds division of the group during the last three years have been considered for the purpose of analysis. Further, advance against sale have been considered for the purpose of calculation of average creditor days.

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