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Venky’s India Ltd. - Multibagger (By Ashish Chugh, Investment Advisor)

Tuesday, September 4, 2007

Venky’s India Ltd. - Multibagger (By Ashish Chugh, Investment Advisor)

Venky’s has the potential to attract the Institutional Investors. Smart investors will do well to accumulate the stock at the current levels and on declines.The stock may well turn out to be the McDowell of the Indian poultry industry.

Venkys India Ltd. is a leading producer of poultry products in India. The company’s product portfolio includes animal health products, pellet feeds, processed, and further processed chicken products, solvent oil extraction, and Specific Pathogen Free Eggs.

The Venkateshwara Hatcheries Group also caters to the related requirements of the poultry sector, such as poultry feed, vaccines, medicines and health products. The Poultry & Poultry Products business accounts for lion’s share of the revenues of the company. The other major contributors to revenue include Poultry Feed, Animal Health Products, and Solvent Extraction. Diversifying from mainstream poultry products, Venkys (India) Limited has added to its credit, manufacturing facilities for nutritional health products for humans, and pet food and health care products. The company has steadily grown to over 30 units spread across India.

The company also produces high-tech specific pathogen-free eggs (SPFE). The company's Specific Pathogen Free Egg unit is among four such units in the world and the only one of its kind in the developing world. These eggs are used for making vaccines for human beings and chicken as well. Though this business accounts for only 6% of total revenues, its profitability is very high. The company produces a wide range of animal health products like antibiotics, growth promoters and feed supplements.

The company faces competition from the unorganized sector in the Processed Chicken segment. However, the company has carved a niche for itself and supplies its products to quality-conscious institutional consumers in the hospitality industry. These include Domino's, KFC, Mc Donalds and Pizza Hut, major five star hotels and flight kitchens. The company is witnessing a good growth in demand from this segment. The company also sells various poultry products in the ready-to-eat segment through a nationwide distribution network. These products are sold under the brand name VENKY’S and are available at Supermarkets and retail stores in all major cities in India.

Financials

The latest financials of the company are given as under :-

Quarterly Results: Venky's (India) Ltd (Curr: Rs in Cr.)

articulars Quarter Ended Quarter Ended Quarter Ended Year Ended Year Ended Year Ended
(Jun 07) (Jun 06) (% Var) (Mar 07) (12) (Mar 06) (12) (%Var)
Sales 120.86 88.54 36.5 410.48 381.69 7.5
Other Income 3.21 1.44 122.9 6.4 2.09 206.2
PBIDT 17.18 7.24 137.3 30.31 27.13 11.7
Interest 1.97 1.14 72.8 4.83 3.17 52.4
PBDT 15.21 6.1 149.3 25.48 23.96 6.3
Depreciation 2.03 1.72 18 7.34 6.17 19
PBT 13.18 4.38 200.9 18.14 17.79 2
Tax 4.1 1.42 188.7 5.1 7.85 -35
Deferred Tax 0.02 -0.09 LP 1.52 -1.83 LP
PAT 9.06 3.05 197 11.52 11.77 -2.1

(Source : Capitaline)

Latest Data As On 03/09/2007
Latest Equity(Subscribed) 9.39
Latest Reserve 112.32
Latest Bookvalue -Unit Curr. 129.62
Latest EPS -Unit Curr. 18.67
Latest Market Price -Unit Curr. 157.05
Latest P/E Ratio 8.41
52 Week High -Unit Curr. 182
52 Week High-Date 7/30/2007
52 Week Low -Unit Curr. 97.6
52 Week Low-Date 2/21/2007
Market Capitalisation 147.47
Stock Exchange BSE
Dividend Yield -% 1.91

(Source : Capitaline)

The company’s performance was severely impacted last year due to the outbreak of bird flu. The situation seems to have improved considerably now. For the quarter ended June 07, the company has reported a 36% increase in its Revenues to Rs.121 crores, the PAT has increased by around 200% to Rs.9.06 crores resulting in a EPS of Rs.9.60 for the quarter. The company has improved its Operating Margins from 8.2% to 14.2%, inspite of the high prices of Maize, a key input.


Conclusion:

Venky's India is the largest and No.1 player in the organised sector in the Indian poultry industry, an industry where it is difficult to even recall a No.2. The company has totally integrated operations and has units spread at 30 locations across the country. The company has set up a new plant which will process 44,000 chickens a day to make Teriyaki, to be exported to Japan.

The business carries some risks, major ones being – 1) The performance of the company can be severely impacted in the event of re-occurrence of bird flu disease; and 2) The increase in the prices of Maize, a key raw material can impact profitability.

We like the business model of the company – the company has presence in both the Institutional and Retail segment and also in Exports. Venky’s is a national brand and enjoys the positioning of a hygienic premium product and has a nationwide distribution network.

Taking a stake in Venky’s India is akin to taking an exposure in the Indian Poultry industry, at a ridiculously low market cap of under Rs.150 crores. The stock is currently underowned by the Institutional Investor. However, given the size and scale of operations of the company and its leadership position in the Industry, the stock has the potential to attract the Institutional Investors. The promoter group acquiring the shares of the company through open markets in the recent past is another positive. Smart investors will do well to accumulate the stock at the current levels and on declines. The stock may well turn out to be the McDowell of the Indian poultry industry.

Ashish Chugh is an equity analyst and investment consultant based at New Delhi, INDIA. At the time of writing this article, he, his firm and dependent family members have a position in the stocks mentioned above. The author, his firm or any of his dependent family members may make purchases or sale of the securities mentioned in the report while the report is in circulation. The author invites readers to send him email and welcomes comments, feedback & queries at nexgenfin@yahoo.com.

Posted by FR at 9:21 AM  

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Investment in equity shares has its own risks. Sincere efforts have been made to present the right investment perspective.The information contained herein is based on analysis and up on sources that we consider reliable. I, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and I am not responsible for any loss incurred based upon it.& take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations given in this blog.