NUZIVEEDU SEEDS P. LIMITED
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 MNC’s. 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 www.careratings.com and in other CARE publications.
decline in PBILDT during FY10 led to decline in PAT (after defd. The company has spent about Rs. ITC. Current ratio as on the last three account closing dates was below unity. the company exported sunflower seeds to Sudan. This apart. Marketing Sales & Marketing network consists of 9 regional office. supply of same
. at about 55% of the total cost of sale during 9MFY11.
under three brand name.1% in FY10. Andhra Pradesh and Gujarat (contributing about 75% of total sales during 9MFY11) indicating some concentration risk. tax) by about 16% and PAT margin during the year. The company has its own germplasm (for the different varieties of hybrid seeds) developed through several years of R&D. Project Details NSPL has undertaken expansion of seed processing units/facilities and warehouses at an aggregate project cost of Rs. PBILDT however. sunflower). The kharif crops are sown during April – June and harvesting takes place during the month of October – February. the business is seasonal. paddy.000 dealers & sub-dealers spread across 16 states of the country. however again declined by about 5. However. There is sales concentration risk with sales skewed towards cotton hybrid. major revenue (more than 80%) accrues in the first half of the year and thus. NSPL holds about 35% market share in the field of hybrid cotton seeds. Besides. NSPL pays royalty to Mahyco Monsanto Biotech (India) Ltd. NSPL also has in place collaboration with crop research institutes viz. for Bt cotton technology sub-licensed (enabling crop protection against worms) to be incorporated into the company’s own cotton hybrids. sunflower & vegetable seeds. seed testing and quality testing labs at more than six locations in the country. the company has multi location trial centres. major sale comes in from three major cotton producing regions Maharashtra. is the major cost element followed by royalty on sales (about 18%). Besides. maize.3 crore till December. Average inventory period has been significantly higher for the company. The main research centre located at Kompally. Subeej. Raw material consumption cost. 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. NSPL receives volume discount on royalty due to its significant volume sales and market share. NSPL conducts several farmer educational programs. NSPL has 12 captive seed processing units which facilitate increased operational efficiency. It registered significant increase of about 69% in FY09 over FY08. The strong marketing network has enabled the company to develop a client base of about 10 mn farmers. Major raw material for hybridization process is germplasm (stored as seed collection). however. Advance against sale comprised about 38-52% of the current liabilities in the last three years. Indian Council of Agricultural Research. 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). In order to diversify sales portfolio. The relatively superior quality of germplasm differentiates NSPL from other cotton seed players in the market. International Crop Research Institute for the Semi Arid Tropics.9.27. NSPL has tie up with various agricultural institutions and has partnered with several institutions viz.000 distributors and more than 55. While. National Seed Corporation. Hariyali and Coromandel International Limited to increase its presence. etc which facilitate research activities. 2010 and the facilities are expected to be commissioned by March – April. PAT (after defd.5 crore to be financed through internal accruals. 2011. Krishak Bharati Cooperative limited. Hyderabad is accredited by the International Seed Testing Association. Research & Development NSPL has well equipped R&D facilities comprising biotechnology. Accordingly. Financial Analysis Financial analysis is based on the unaudited results of the seeds division of erstwhile NUSPL for the last three years. Bunny. the same is again an industry phenomenon common for all cotton seed companies. 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. while the processed seeds (for supply) of Kharif crops (the major revenue earner of the company) are ready by February. As per the same. Mallika and Super Mallika varieties occupy about 75-85% of the revenue share. Grow out Test (GoT) farms (spread across 450 acres) to test the genetic purity of a seed sample. Sarvodaya & Sasyasyamala and within these brands. 5. During 9MFY11. Besides. 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. NSPL has presence in about 16 States. 8 Carrying & Forwarding (C&F) agents. Besides. tax) registered y-o-y growth of about 25% in FY09. witnessed a volatile trend during FY08-10. However. NSPL is increasing its focus on other crops and is strengthening research efforts on paddy.
the only biotech crop technology approved for cultivation (first released in India by MMBIL).31. the prices were exorbitant (roughly Rs.628.6 475. tax) Profitability (%) PBILDT/Total operating income PAT (after defd. Private companies account for 90% of the seeds distributed in India.9 3. the use of hybrid seeds is mostly confined to cotton. The prices of official Bt cotton seeds in India are to an extent regulated.60 25. The market is dominated by MNCs such as Monsanto.6 107. 31 Working Results Net sales Total income PBILDT Interest Depreciation PBT PAT (after defd.150/. The overall gearing was comfortable below unity at 0. They supply the germplasm to almost all Indian seed companies. two price reductions took place in 2006 & 2008 which brought down the prices to level of Rs. As per unaudited working results for 9MFY11 (Dec. estimated at US$1.1.11
17. sunflower.6 559. Cargill and Syngenta and private seed companies including NSPL.12 34.4 104. However. Prior to 2006. DuPont.86 25. access to good quality germplasm & technology. the royalty of MMBL (in most of the States) stands at about Rs.3 4. Rasi Seeds (occupying about 24% of market share).31.per packet for Bt I & Bt II respectively.64 18.1 billion is the 6th largest in the world. crore) 2010
374. and few vegetables. JK Seeds.4 87.71 22.7 377. helped India become the world’s second largest producer and exporter of cotton by doubling the nation’s cotton productivity (from 15.67 48. the Indian seed market has grown at a rate of 12% compared to less than 5% growth of the global seed market.132. tax) Gross Cash Accruals (GCA) Financial Position Total capital employed Key Ratios (%) Growth (%) Growth in Total income Growth in PAT (after defd.0 96.2 90.23
.5 million bales in 2008) within seven years of the launch of the technology in 2002.3 39.08 4.600 per packet of 450 grams which included MMBIL’s royalty of about Rs.2 340.58 71. Namdhari Seeds.1.8 111. millet. 2010).16 25.32 3.21 40. Vibha Agrotech Ltd. The seed companies are seeking an increase in MRP of BT I and BT II by Rs. The MNCs exert indirect control over the seed market as well.225/in some of the northern states) per packet of Bt I and Bt II respectively.96 & Rs.97
26.81) 27. tax)/Total income ROCE (operating) Solvency Interest coverage (times) Liquidity (times) 2008 2009 (12m.19x as on Dec. and to some extent to corn.3 (Rs..(Rs.6
37. Strong marketing and distribution network.2 121.250). diverse product portfolio and farmer & dealer relationship are utmost important in the seed sector. As per the industry norms. 2010.7 5. Over the years.72 (15.9 154.1 crore and Rs.7 crore respectively. Financial Results For the year ended/ As on Mar.2 80.1 86. Industry Outlook & Prospects Indian seed market. This results in accumulation of huge inventory at the end of March resulting in high average inventory period.0 47. Bt cotton. NSPL achieved net sales and PBT of Rs.144 and Rs. etc.650 and Rs.35 22.750/.8 million bales in 2002 to 31.8 96.0
556. In India.200 per packet.
takes place April onwards. unaudited) 472.5 4.6 162.3 332.2 439.67 16.
unaudited) 0. adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee.35 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. guarantee the accuracy. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. disburse or recall the concerned bank facilities or to buy. Accordingly.
DISCLAIMER CARE’s ratings are opinions on credit quality and are not recommendations to sanction.
.30 Quick ratio 0. though incorporated in 2008. based on the amount and type of bank facilities/instruments. advance against sale have been considered for the purpose of calculation of average creditor days. the seeds business of the NSL group is more than two decade old and was transferred to NSPL only with effect from April 1. sell or hold any security.07 0. the unaudited results for the seeds division of the group during the last three years have been considered for the purpose of analysis. CARE does not.
For the year ended/ As on Mar. Further. 31 2008 2009 (12m.35 0.09 2010
Current ratio 0.2010. however. renew.
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