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Kaveri Seed Company Ltd
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Ladies and gentlemen, good day, and welcome to the Kaveri Seed Company's Q1 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference will be recorded.
Joining us today on this call is Mr. Mithun Chand, Executive Director. Thank you, and over to you, sir.
Thank you. Good evening, and welcome, everyone, to our quarter 1 financial year '23 earnings conference call. We hope you have had a chance to review the presentation of our results, which is also available on our website.
I would touch upon the operational financial performance of the company and then open the floor for a question-and-answer session.
We have achieved pre-COVID level revenue and on growth path to achieve better volumes and revenue during the year. Despite an increase in sales during the quarter, the company managed to keep production costs and other expenses constant resulting in higher EBITDA and PAT levels. EBITDA and PAT margins during the quarter grew by 427 and 332 basis points, respectively.
Increased cotton acreages during the current year was driven by high cotton prices and market share gains on account of renewed marketing efforts. Use of illegal cotton seed has come down and organized players have gained market shares in cotton seed. Higher growth of cotton acreages is reported from the states like Andhra Pradesh, Maharashtra, Gujarat, Karnataka, Rajasthan, Orissa and Tamil Nadu. And less areas reported from the states of Telangana, Haryana, Madhya Pradesh and Punjab. The delay in the arrival of the monsoon across India until June 15, '22 has impacted farmer sentiments.
Now with the onset of the monsoon across India and fairly good rainfall, we are expecting double-digit growth in maize, rice and sunflower and vegetables in the second half of the year. Despite a 15% decrease in rice acreage due to rain shortage in some region of the nation, we have surpassed the market in terms of the volume growth. We continue to see encouraging growth in vegetable seed acreages, volumes and revenue growth. Across all segments, including cotton, rice and vegetables, we have introduced new variants, have witnessed a growing contribution from new variants across the segments.
Financial highlights. Revenue from operations was at INR 731.95 crores as compared to INR 682.41 crores in quarter 1 financial year '22, registered a growth of 7.26%. EBITDA was at INR 239.93 crores as compared to INR 194.55 crores in financial year '22 -- quarter 1 financial year '22, increased by 23.32%. Net profit was at INR 240.67 crores as compared to INR 201.75 crores in quarter 1 financial year '22, registered a growth of 19.29%.
Cash on books stands at INR 559 crores.
Segment-wise highlights. Cotton volumes increased by 8.33% and revenue by 3.8%. New products in North market include VIPLAV, KCH 111, Money Maker and KCH 9333. Hybrid rice volumes grew by 6.09% and revenue by 1.02%. Robust growth has been possible by the introduction of novel hybrids KPH471 and KPH473. Selection Rice volumes grew by 15.2% in financial year '23. The contribution of new products were up from 18.02% to 23.49% of volumes.
New products in Selection Rice are doing well, like KRV0511 and KRV0501 help us in increase the volumes. Maize volumes increased by 24.43% and revenues by 13.46%. Contribution of new products was up from 18.08% to 28.62% of volumes. Vegetable Seed volumes increased by 25.9%, while revenue decreased of 2.54%.
R&D continues to be the backbone of the company. We continue to launch new products every year across these segments and drive the revenue growth.
Now I would now open the floor for question-and-answer session.
[Operator Instructions] The first question is from the line of Nitin Awasthi with Ingrid Equity.
So the first question I would like to ask is, we have seen volume growth far exceeding the revenue growth in almost every segment. And why is this -- why is the revenue not matching our volume growth or exceeding our volume growth in most of the segments because our volume growth are very well ahead, very far ahead of the revenue growth in most segments. So are we taking price cuts? And specifically, this question goes for the cotton segment, because cotton segment, are we selling cotton is per packet and lower than what we saw last year?
Yes. Good observation. You see most of the segments, we have done lower growth in terms of the revenues than the volume, especially in cotton. Basically at this time, we have seen a lot of competition in the cotton segment, even though the illegal Bt was not sold, the smaller companies with the low realizations have made an impact in the market. That's the reason we have lowered our realizations in cotton, and we are expecting to give more discounts to dealers going forward. That's the reason we have provided for more provisions and that's what impacted a decline in the realizations of cotton crop. That has impacted the growth.
In terms of the maize. This time, some quantity came from subsidy. Government sales. Usually government sends are lower in terms of the realizations when it comes to the mainstream hybrids and the hybrids what we sell in, government subsidy is also lower. These 2 have impacted to some extent.
And for hybrid rice?
In rice, there's a marginal decline because we were -- as the acreages were down significantly, and we had a good market share. So we have given some sort of an incentive for our hybrids. So there's a marginal decline in the revenue when compared to the growth.
And whatever scenario we have seen, it's a temporary process, only for this year, that has impacted the -- to some extent the margin. But when you compare the margins with respect to the previous year, the margins have improved, we have managed well in terms of the production costs and in terms of the operational efficiency. So going forward, this should not impact much.
Okay. That's fair. Sir, the second question is, although your margins are better than last year, but if you still compare yourselves to something like in FY '20, your gross offer margins are lower. And I just want to understand what -- what do you call impacting the gross profit margins? Is it are costs going up? Or is it the discounting we have given which is impacting our gross profit margins because of which compared to previous glory years -- what you call gross profit margins are lower than 50%.
If you go back to those levels, there's a decline in the margins of close to 2.5% to 3% compared to the [ '20 year ] where we had a high margin. That's basically because of the discount what we are given. And even in the R&D spend, what we spend on a year-on-year, this is much higher than what you use spend in 2020, when that comes in the cost of consumption. So these -- both have impacted marginally. So once we grow our revenues, it should not make impact.
Okay. And how do you see this going forward? Because discounting is, like you said, smaller players are becoming more stronger in the cotton segment. So how do you see the scenario playing out in the future? Do you think you'll have to keep cutting prices or smaller players will go out of the market? Or will they become more dominant?
This is a very temporary phenomenon. If you see the quarter production cost and the cotton commodity prices, both have gone up. Usually, the production costs are in line with the commodity prices. As the commodity price goes up, the production cost is also higher. And that's the reason if you see the cotton selling price, the MRP has gone up by INR 40-odd this year when compared to the previous year. But in fact, because of the high competition in the market and the smaller players were able to push it for a lower price because most of the hybrids are pretty old hybrids. So that -- that we were not able to realize from the market.
But as I said earlier, it's a very temporary phenomenon. Usually, we see 1 or 2 years of this side in the cycle of 10 to 15 years. So that should come back. But the other point of what we need to see is that even the government has realized and increased the cotton prices per packet this year. But we were not able to pass it on to the farmer. But we are pretty confident that going forward, we will be able to realize more in this quarter segment, that will again improve the margins.
Got it, sir. Sir, last question from my side. What is your market share in cotton for this year?
We will be close to 16% to 17%, slightly up from the previous year. We will maintain in the same way. We have increased our market in states like Gujarat, especially, we have invested a lot in Gujarat. We have made -- able to make some sort of a penetration in Haryana and Punjab. Maharashtra, we were not able to increase the market share. But whereas in the states like Telangana and Karnataka, we were able to maintain our market shares.
And lastly, illegally cotton seeds, what would be that as a proportion of the wholesales?
Illegal cotton seeds have come down when compared to the previous year. We have seen a loss sort of an impact in terms of the productivity last year. Even the farmers have realized that the illegal Bt cotton may not fetch more in terms of the productivity, and most of the seeds are not getting in, which will not control [indiscernible].
So they have moved to the organized players, but the smaller players where, I mean to say, not the highly brand, highly priced one, but more to the organized segment. And I don't see going forward, the illegal Bt will increase. It should come down now going further. It should not -- as a percentage, it should not increase.
[Operator Instructions] The next question is from the line of [ Yogesh Mittal ], an individual investor.
Hello. Yes. I'm I audible?
Yes, sir, you are.
The question is regarding jowar and the sunflower. I wanted to understand the sales contribution for these 2 seeds separately. And what do we see as the outlook for these for next few years, please?
In terms of the jowar, it contributes very small, but it's a crop, which is slightly gaining some sort of a momentum, but it will not be as big as the other crops. Whereas sunflower, we have seen a huge increase in the oil prices that has impacted the commodity price of sunflower as well. So that has made farmers to move towards an sunflower. This year, we have almost doubled our quantity in sunflower when compared to previous year. In fact, in terms of the revenues, sunflower contributed close to 22 -- I mean to say a INR 23 crores, INR 24 crores of revenues with sunflower against INR 7 crores or INR 8 crores last year. Still, we see a good contribution coming from rabi. But it will not be big, but in terms of the base, it would be like it is like -- at least like 50%, 60% more in even in rabi. And sunflower still continue for next year or 2, we see a good -- as the oil prices are high, we see a good intake, I mean to say increase in sunflower sales. But going forward, sunflower being as big as a cotton or rice, that we doubt. It has got same sort of potential. As we are one of the largest players in sunflower, we try to take the advantage of that.
Right, sir. Great. Sir, the second -- the question is about the illegal seeds. I wanted to understand -- so does -- there is a mechanism for the crop insurance. If a farmer buys illegal seeds, are his crops covered with the crop insurance in case there is a failure for the yield.
I'm not sure that like all the crops are covered under the crop insurance. Very few crops with very few insurance agents cover it. But basically, it not depends on the productivity. It depends on the like rainfall and all the parameters of the -- I mean to say, on which they -- decided on the rainfall and the other aspects, not on the hybrids.
Right. The question was regarding -- basically, in case any crop is covered and if the seed is illegal, whether that will be covered or not. My understanding is it should not be covered whether -- because it cannot be produced as a bill invoice for that. Does that make sense?
What I was trying to say is that illegal Bt is only there in cotton, that's only a few parts of the entire segment. If you take India, India has grown in 56 million hectares, out of which cotton is grown in 11 million hectares, and out of which illegal Bt is like this 0.5 million hectares, not more than that. So that's a very small portion. And usually, insurance companies doesn't go in depth with that, and insurance is not covered across. And most of the crops are not under insurance. So once they cover the entire crops and they formulate a policy, then they may come up with that.
[Operator Instructions]
The next question is from the line of [ Anurag Jain ], an individual investor.
I'm I audible?
Yes. Yes.
Sir, my question is in Q1 FY '23, the Other segment, which is basically apart from cotton, maize, rice and vegetables, they have grown 90% to INR 42 crores, INR 43 crores from INR 22 crores last year. So one, as you have explained just now that sunflower was a big contributor. Apart from sunflower, which is the other seed, which has been a big contributor in this segment?
That is already mentioned in the earlier comments and in terms of the presentation as well. The major contributor is maize, which have grown by more than 13% in terms of the revenue as an individual crop.
No, sir. Let me explain the question again. Apart from the top 4 or 5 crops for which you disclose the details separately, there is the Other segment. The Other segment has grown, last year it was INR 22 crores, this time it is INR 43 crores. So in this segment, as you've explained earlier, sunflower is a major contributor, which has grown significantly. So apart from sunflower, in the Other segment, which is the other seed which has grown significantly because this has almost doubled from INR 22 crores to INR 43 crores?
In terms of INR 22 crores to...
Sir, -- the growth is like INR 20-odd crores.
The INR 20-odd crores, majority of that, 80% to 90% of the growth is from sunflower. The Other segment like jowar,, pulses are the other segments which have grown. But the very -- it's largely hardly INR 1 or INR 2 crores, not more than that. Even pulses is 1 part in that.
Okay. And sir, this means that now sunflower is contributing as much as vegetable seeds and is becoming a segment closing in terms of size to the vegetable segment. Am I correct in saying this?
We were big in sunflower from the last many years, the sunflower acreages are coming down. And the acreages coming down and we were not able to do revenues. But last year and this year, we have seen a huge growth in sunflower and that may continue for some time, but vegetable as a segment is a much larger segment than sunflower and vegetables is growing at more than 20% year-on-year.
What we see going forward is a vegetable will surely surpass the sunflower sales. When you compare on a first quarter to first quarter basis, both looks similar or comparable but at the year-end vegetable should be far better than the sunflower. And going forward, vegetable will easily surpass the sales of sunflower in the coming years.
The next question is from the line of Nishith Shah with Aequitas Investment.
Sir, I wanted to understand, is there any update on Bt3 side, any regulatory update?
That's a government policy, we don't have much decision to make on it. But in terms of the progress of the other new technologies, the technology provider, now Monsanto is taken out by Bayer -- taken over by Bayer. I think they are forwarding their case and they're submitting the samples and the reports on that. In terms of the moment of the -- of the technology in the present year is far better than the previous year. So we are pretty much hopeful that definitely in a year or 2, we'll definitely have some sort of a clarity in terms of introduction of new technology, not only for this one, and for the future technologies as well.
Okay. And sir, I would like to understand what is our target for the R&D spends for the year?
We are year-on-year increasing by more than 15% to 20% in R&D spend, and now we are setting up a new R&D center, which it will cost like INR 35-odd crores, that will be spent across 2 to 3 years, and we are constructing the facility for biotechnology and for the genomic advanced technology. So -- and that should -- that is an integrated part of both the technologies.
So we're continuously spending on it, and we are adding new staff and the breeding programs are more specific now. And apart from the new -- some of the crops are also being added. For example, we have added mustard in the previous year. Now we are working on soya. And wheat is also there. So we are working on different crops. So R&D going forward year-on-year, 15% to 20% more should come for at least for the next 4 to 5 years, apart from some sort of CapEx. And then even the CapEx is like -- whatever spend is like -- the expense of that should not be given at a separate heading.
Okay. And sir, lastly, how do we see our exports and outlook over there?
Exports look good, in fact, we have given samples, and we are trying to raise some of our companies in other countries. It's a very procedure drawn process. We need to test it, and it takes a longer time. But we have spent like 3 to 4 years in most of the countries. In the next 1 or 2 years, we'll be able to make some sort of development there. And in terms of the exports in absolute terms, we have done close to INR 18 crores or INR 19 crores last year. This year, it should be like 15% to 20% more than , but with a small base. And in the previous 2 years, we were not able to export it properly because of the COVID restrictions. Now most of the countries are free to do. We are very much confident that we will make an inroad in the export market. And once we get the approvals and the formal registrations across all countries, then that will definitely go. And the exports as a market, will contribute a decent size going forward in the next 4 to 5 years. That's what work is being done at the company level. And our progress is very good in that way.
The next question is from the line of Vidit Shah with IIFL Securities.
So my first question was, you had previously guided of around 15% to 20% volume growth in the non-cotton segment. So now given that we've been taking price cuts, could you give some sense on where we can expect revenue to be at like, should we expect something like 5%, 10% revenue growth? Or would it be more flattish?
As far as I recollect, I said that 5% to 10% growth in cotton, 10% to 15% growth in non-cotton and the profitability, it should grow in between 15% to 20%. So we are slightly down in terms of the revenue growth. But in terms of the profitability, we are up by more than that 15-odd percent. But anyhow, going forward, we see that we see a very good rabi coming up. We see very good sales in maize and even in vegetables should contribute a decent number this year compared to previous year. So we should be in line with that 10% to 15% growth as a company as a whole.
And this time was an exceptional year where you have seen that the volumes have grown, but the revenues are slightly down because of the competition and other aspects. But that's a very temporary phenomenon, a seasonal phenomenon. But going forward, that should not be an issue. And we are pretty confident of 10% to 15% as a growth in the next 3 to 5 years, as a revenue growth.
Got it, sir. So just to stay on the line of this competitive factor, you said it's a temporary phenomenon and shouldn't last more than a year or 2. So can we expect like these EBITDA margins at around 28%, 29% in FY '21 -- and '20 -- Can we expect these to return by the FY '24? Or should it take slightly longer time, either?
I don't think it should -- it will take longer time because if you see the margins when compared to the '22 to '23 when compared to the first quarter of it, we are up by around like 4% to 5% of the EBITDA margins. If you compare to the year-end, it should be like that 26% or 27%, slightly lower than 1% or 2% lower than those years. But it's a very thin -- like it's a very small gap between those levels. I'm pretty confident that a year or 2, it should come back. By '24, definitely, I think it should come back to those levels. As I said earlier, even the cotton prices were increased from the government. The MRP were increase in cotton prices, but we are not able to realize because of the competition, but that should not last long.
Okay. So if you could just explain some further on how to -- like what are these smaller players and like how was it possible for them to sort of gain market share? Or what was the competitive advantage other than [ low prices ] that farmers opted to take their seeds and how will this situation reverse in the coming years?
Basically, if you see the hybrids which are there in the market, most of the hybrids are the old hybrids. I mean they said these were all delays like 4 or 5 years, not only for the Kaveri, entire industry were not able to produce newer hybrids.
And now most of the companies, including Kaveri are searching new hybrids, wherein we get new market shares in that. And we were not able to show much of a -- like difference between the existing hybrids and the new one. But the pipeline hybrids and the newly tested hybrids are doing well. So that will contribute to the majority of the revenues for the industry in the next 2 to 3 years. Then we will have -- I mean to say that, visible productivity difference in the hybrids, then that will go to the organized players.
The next question is from the line of Yogesh Tiwari with Arihant Capital.
My first question basically is, you had mentioned that the illegal seed that is facing some challenges. So just wanted to understand if there is a structural change in illegal seed being disrupted? Or is it just a one-off?
We were saying that last year, the illegal Bt has gone up because of the COVID condition, the availability of the organized seed was also lower, and we were not able to distribute it properly. And last year, the illegal Bt has gone up when compared to the previous to previous year.
And the farmer has seen that the productivity issues and most of the illegal Bt, what they sold, claiming that it is [indiscernible]. I mean to say, [indiscernible], but that was not the fact. So most of the crops were not able to withstand those things and the productivity was also lower as we -- the technology is only one factor, but the other things like the productivity, like the hybrids, that they were not able to demonstrate it and the farmers are not happy with that. That's the reason they've returned back to the legal or the organized players.
So sir, we can assume that this is irreversible. Now like illegal seeds will not be able to take away market share from organized players?
I don't say that it will be 0, but I don't see the growth coming in those segments. It will be gradually [indiscernible] based on the commodity price and the availability of the organized seed, but it will not grow like what -- how it's grown in the last couple of years...
And sir, it will be helpful if there can be some quantification of how much market share can the organized players take away from illegal players, illegal seed players?
Usually, the illegal Bt is sold in like the 50-odd lakhs packets, the 40 lakh to 60 lakh packets roughly. But that should not so much.
Sure. Sir, and my second question is on Vegetable Seed volumes. So it has increased by about 25%, while revenue has declined by about 2.5%. So I assume that, as you mentioned, it is because of discounting. So...
Not exactly in terms of the vegetables because Vegetable Seeds, it's very difficult to compare with volumes to revenues because most of the OP went in vegetable this year. For example, the hybrid okra and varietal okra, the volumes and the price are very much differentiating. I mean to say that the Other segment seed went in vegetables. That's the reason you have shown some sort of a decline. But in vegetables, the realization as same when compared to last year. but other seeds went in vegetables. Vegetables, we market close to 15 varieties of vegetables with, say, high volume and low price, and with low volume and high price.
So basically, it is more related to the product mix between the vegetables?
Yes, exactly. That's right.
And discounting is not much in vegetables, right?
Yes.
Okay. And sir, if you can give any blended -- so as you told that there was some discounts given to the dealers. So can you -- if you can share any blended numbers, what would be the percentage of discount on...
Basically, the majority of the discount, this is the first half, first quarter, that there's a huge gap between the revenue. I mean, there is like 6% or 7% gap in between revenue and the realizations, volumes and revenues only in cotton. That's why we have provided more discounts to the dealers. And if you see maize, we have not provided much in some sales. Because of government sales, the revenue is slightly down. But otherwise in sales, we've not given much discounts when compared to the previous year. And in price, it's very marginal, 1% or 2%. But if you see the major difference comes in cotton. That's the only crop where we've given more discounts.
And lastly, like going forward, the discount in cotton will also be not -- will not be there, right? It will...
It will be normalized. I don't see this sort of pressure coming up.
The next question is from the line of [ Vijay Atle ], an individual investor.
My question is because of late monsoon, is there any slippage of sales for Q1 to Q2?
Not much. The cropping pattern was slightly deferred. We don't see much of a sales coming in second quarter. It should be in line with last year. But only in terms of the rice, we were not able to do that. But the entire cotton area came up. Maize also came in the first quarter. So we don't see much of a carryforward sales in the second quarter. In terms of the -- to say -- to come to answer straight to your question, most of the crops were accounted in the first quarter itself.
Okay. And the second question is, what is the update on INR 15 crores, which was due to receive from MP government?
Sorry?
What is the update on INR 15 crores, which was due to receive from the MP government [indiscernible] Q4 '22.
Yes. We had the INR 13 crores of bad debt accounted in terms of Madhya Pradesh government, that we're not able to realize it. But we have realized like from the other companies. For example, last year, we had INR 49 crores as on quarter 1 '22 as the bad debt accounted for the last 6, 7 years, which were accounted as accumulated bad debt. That came down to INR 43 crores for this quarter 1 '23. So that INR 13 crores is still pending. We have filed a case, I think. I'll just need to find out the update of that. But that will come. That -- Definitely that will be received by the company as the couple of government bodies are involved, we're already following it up. That should not be a problem. It's a matter of time.
The next question is from the line of [ Anurag Jain ], an individual investor.
Am I audible?
Yes.
Sir, my question is in FY 2021 and FY 2022, around 50% of the CapEx was on purchase of land. My question is like for what is the purpose for which this land was purchased, was it for farming of seeds or for R&D farms or for setting up processing plants?
It is a mix of that. If you see in the financial year '21, we have bought a property for the office purpose. That might be a part of it, and the CapEx is also for the new office building. The other majority of something related to the agriculture land, which is mentioned in the annual reports of what we have spent for. If it is agricultural land, that we have dedicated for the R&D. And some facilities also we've created for the processing facilities. That is also there a part of it. But if you see the overall CapEx year-on-year, is not more than INR 35 crores to INR 40 crores, a combination of all. And this year, it's much lower than last year.
Okay, sir. And my next question is around 1 year back, the company was expecting that mustard seed as a segment should grow significantly as there is a lot of stress on oilseeds business from government side and prices of oil seeds are increasing and there's a shortage of oilseeds as well. So how do you see the mustard seed business for the company in the next 3 to 5 years?
We are very much confident on mustard seeds as the oilseed prices are going up and the government is still pushing for the production of the oilseeds. Mustard is a crop where it has a potential to grow much higher than the present standing crop.
So we have intensified our grading in mustard. As you know that it takes a lot of time to get new hybrids, but we have introduced a couple of smaller hybrids, but to gain a good amount of sales in that, it may take another 3 to 4 years, but we are in line with our strategy. We are working on mustard crop.
Okay, sir. And if you actually permit me to ask 1 more question, like is wheat seed focus area for Kaveri Seed for wheat?
Wheat is also a part of our production plan, but it's not as mustard. In wheat, we don't have hybrids. So that's the reason the focus is much -- I mean when compared to the new crops like mustard, it's the lower priority one, but we are working on wheat also.
Okay, sir. If you permit me 1 more question. What -- if you can throw -- there is assets held for sale, some assets which you thought would be useful, but later on then you decided that you would sell those, so if you could throw some light on what is the status regarding the disposal of these assets held for sale.
Sorry, sorry.
Sir, there are -- in the balance sheet, there is an item assets held for sale. -- some assets which you had earlier purchased thinking that they will be useful for the company. But later on, there was a change in thought. So it was decided that you would sell these assets. So what is the status of these assets held for sale?
Nothing. There's only -- I think there's only 1 asset which is like that. We have bought an office property earlier before the present one. So that we have kept it on sale. Whenever we realized that, that we'll come back to that. The commercial space, which we thought will set up an office there, but it was becoming a crowded one, so we have taken our own building. So that we have kept it for sale. Once we realize it, it will come under the...
Good. This building is being used or this is not being used...
No, we never [indiscernible] that building, we kept it [indiscernible].
[Operator Instructions] The next question is from the line of [ Shrikant Verma ], an individual investor.
Sir, the cash on books is around INR 570 crores. This year, are you planning to go for a buyback? Or are you seeing at some organic growth in the company...
I may not comment on this because that's not an individual decision, that's a Board decision. But as a Board, we always see that if we are not able to use cash properly, then that need to be rewarded to the shareholder, distributed to shareholder. That policy, I think, will still continue for that. As of now, we have not taken any decision on that. Whenever we take a decision, we'll definitely let you know.
Sir, due to the sowing delay and due to the delayed monsoon, some of the Kharif crops got delayed. So can we expect any sales in Q2 -- something?
Not much. I've just answered to the earlier caller as well that we don't see much of a [ poor ] sales in the second quarter. Most of that are already accounted.
The next question is from the line of with [ Manoj Shah ] with [ Let's Go Investments ].
My question is with respect to this hybrid cotton seeds. As you're saying that the smaller players are selling the older seeds, can you just comment on what the life of the hybrid cotton seed and how does it impact over a period? Like 3 or 4-year , how does it impact the productivity? And also, if you can explain what do you mean by here the illegal Bt cotton seeds, sir?
So basically, the productivity of the hybrid doesn't fall with the age, but the other circumstances, other conditions determine the productivity of that, as such new insects or some sort of soil-borne diseases or some climate change will impact the productivity of the hybrids. Usually, what -- with the experience, what we see in cotton, after the peak, the hybrids will get replaced in 3 or 4 years. This time it took a longer time. That's one of the reasons where we are not seeing much of a new hybrids in the industry, which came in the last 3 or 4 years. But if you see in the last 1 or 2 years, there's a lot of trialing happening. And in the next 2 to 3 years, you see a majority of the hybrids will be replaced with the new hybrids.
And in terms of the illegal Bt, as I said earlier, I don't think it will move further from here. There should be a tight break of that from the current condition based on the commodity prices and the availability of the organized seeds.
So if I have understood correctly, once the hybrid cotton seed -- once it is produced, if you kept it in a preserved manner in the sense that moisture and air and other stuff, then the productivity doesn't get impacted by its aging. Only when the insects or anything [indiscernible], then only it will impact the productivity. Is that correct?
Yes, there are 2 things. One is the how do you protect the seed? And the other part is that after sowing the seed, how the productivity differs? I was talking about the seed after sowing, after the seed is sown. So that will not have any impact. But storage of the seed is a different subject. Based on the hybrid conditions and the storage conditions, it will stay for 2 to 5 years, that depends on the hybrid to hybrid.
So you are saying once the hybrid seeds are produced, you have got a shelf life of 4- or 5-year, after that they get replaced and the new seeds are produced. So you're saying that currently, the earlier seeds which were produced years back, they are still in stocks. So these smaller players are using those seeds to sell at discount...
No, that's the wrong thing. What I was saying is that new variants should come in hybrid. So each hybrid is a different variant. I mean a new combination should come. Usually, a combination lasts for 3 to 4 years at peak. After the introduction, it takes 3 to 4 years to get to peak, and after that, it will take 3 to 4 years on -- say, on peak for 3 to 4 years based on the hybrid quality. But we are not able to produce new variants in the last 3, 4 years, not as -- I mean to say, not as a Kaveri, as an industry. So that's where [indiscernible] products into the market this year, that we don't see going forward as most of the companies are testing new variants, which are much -- have much more productivity in the existing months with a better, I would say, advantages.
Sir, if I may say, like, okay, some seeds -- a few years back, some seeds are produced, which are better resistant to the low rainfall or some, what I call, some pest on the cotton crop. So like based on the climate conditions, you try to produce new and newer seeds to try to incorporate new things so that they are able to give you a much better output to the farmer. Is that what you're talking about here? And you say new seeds will get replaced every 3 to 5 years with a new quality?
Yes. What I mean to say is new seeds are new variants with new parents, new combination.
The next question is from the line of [ Anil Jain ] with [indiscernible].
Congratulations on a great set of numbers. Yes, I just wanted to ask you, I think somebody asked you before also about the reduced OPM or the gross profit margin, right? Just wondering now we were doing well in June 2019 and in June 2020, we had an OPM of about 36%, 37%. You said that there are increased discounts that you had to provide this time. So how -- and then you said that it's a temporary phenomenon. So I didn't quite follow how exactly is that? Like what does that mean? Could you explain that further?
If you see when compared to the margins of that 36%, 37%, we are down by 3% to 4% number. The 3% to 4% majorly has been impacted in the cotton realization. If you see the revenue growth is up by 7%, 8% and the -- volume growth is up by 7%, 8%, but the revenue growth is only 1%, 2% in that. So because of the competition, because of the more availability of the seed across in the players and there was much of a price competition, -- now we are giving more discounts to the dealers. That's the reason we are lower on realization. So that this one of the year in the last 7, 8 years or 10 years. So what I said is that in once in 10 to 15 years, we'll continue for 1 or 2 years, and then it will get normalized. So that's the reason I said that is a very temporary phenomenon.
Okay. But ideally, what do you think caused that you also, I think, justified by it was caused by some prices going up. I wasn't able to really hear you clearly at that point. So if you could repeat that part, I would be obliged.
What I was saying is that if you see the commodity prices when compared to this year, the prices are up. So that impacts our production cost as well. Even our production cost goes up as the commodity prices goes up. But usually, we pass it on to the farmers. But this year, because of the competition, we were not able to pass it on. Even though the government has increased the [indiscernible], but the realizations are much lower than last year.
Okay. Fair enough. And do you think this is a 2-year phenomenon, it should play out in the...
[indiscernible] comment about the next year also. But what we think is that technically, the discount should not be higher than the sale when compared to next year. It should come back...
but as I said [indiscernible] I said 1 or 2 years.
Thank you all for joining the call. For any further information, please be in touch with Rama Naidu from Intellect PR. On behalf of Kaveri Seeds Company Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.