Titan Biotech Ltd and SKM Egg product export ltd-Dark Horses

I picked Avanti Feeds at 32/- in Aug-11 in a hospital room in Punjab when my 6 months pregnant wife was hospitalized due to malaria. When she recovered I bought it and devoted it to our coming Baby…and Boy!!! It turned out to be one of my best pick. I received dividends of around 40/- during the period and finally sold my entire holding at 1200/- in Aug-14. A gain of 40 times of my purchase price…I sold it due to some personal reason. It is still moving ahead with its journey.

Some of my friends are of the view that my picking Avanti feeds was a great feat but nothing compared to the patience I have shown by not selling it at 300/-, 500/- , 800/-

We also picked MPS Ltd at 33/- around the same time. It has given me dividends of 50/- rupees and it is trading at around 600/- and I am still holding it.

Some of my friends have asked me whether it is possible to find these types of shares even at this juncture of market. Well market is never devoid of these types of opportunities. Titan Biotech and SKM Egg product export are the two stocks which I feel can become our next Avanti.

Titan Biotech: This company can be a dark horse…I am holding it since 2010…initially bought it at 21 then at 15 and again at 12 in 2012. It is a microbiological biotech product company producing high tech biological products which are used in the field of Pharmaceutical, Nutraceutical, Food & Beverages, Biotechnology & Fermentation, Cosmetic, Veterinary & Animal Feed, Agriculture Industries, Microbiology Culture Media & Plant Tissue Culture Media etc. The Biotechnology field requires a lot of Research and Development and takes time to develop new products. 

Continuous development of newer products and exports to 35 countries all over the world in short span of time is an exceptional achievement of the organization.

Company has established a strong base for growth and can really grow big time in the future. Its turnover has grown from 16 cr in 2010 to 40 cr in 2014…but this is just the beginning. I was also waiting and watching the progress from sideline and now I feel the time has come for making a big investment in it.

Products produced by it require high degree of technical expertise and there are high entry barriers. Lets look at some of them:

Brewer’s Yeast: it is a type of veg yeast used to prepare alcohol by ferment sugars for the the brewing of the beers. It is also used to bake breads.  However the brewer yeast can also be used as a nutritional supplement as it contains high amount of proteins and amino acid, various types of vitamins and various types of minerals.  This is one of the excellent nutritional supplement and it is also used to control blood sugar levels, improve the skin health, prevent diarrhea, improve cholesterol level, and repel insects.

Protein Hydroslate and Whey Protein Hydrolysate:  It is a delight for bodybuilders and for those who really want to have healthy bodies. Whey protein helps in building lean muscles without adding onto your waist. However in biotechnology field it acts as a supplement to cell cultures. It is used in many fields like agriculture, medicine, bio-remediation, industrial fermentation and many more. The demand for Pharmaceutical protein hydrolysate has also increased due to the increased use of the products in the same field.

The production of pepticides, monoclonal antibiotics and therapeutic proteins includes protein hydrolysate as a major component.

Agar Agar Powder – A Best Vegetable Source of Protein: Agar-Agar is a product derived from red algae and is categorized as a vegetarian form of gelatin. Several products like custards, jelly and other deserts products are formed from Agar-Agar. It is generally used in Biotechnology field for bacterial, yeast transformation and clinical purposes. Apart from biotechnology field, it is even used in paper industry, food industry, textile industry, metalworking, leather industry, cosmetic industry, natural medicines and many more fields. It plays a significant role in the field of Microbiological research by enhancing a greater capacity than any other animal gelatin for the resistance of micro-organisms.

Potassium Silicate Powder is organic approved for use in Agricultural crop, fruits and vegetables. It helps in increased tolerance of environment stress like heat, cold, drought, water and soil toxicity. It plays major role against fungal and insect or attacks.

It has a range of agricultural nutrients for the use in agricultural in the form of Aminofert series. These agricultural nutrients have rich sources of nutrients in concentrated forms.

Other products includes Meat extract powder, beef extract powder, calcium amino acid chelate, Nutrivet which deals with veterinary and pet  food, Bile salt mixture, liver extract etc. The list is long.

It is a member of Pharmexcil (pharmaceutical export council of India), Capexil (Chemical and allied Export Promotion Council in India) and All India Food Processors' Association (AIFPA).

It promotes its products through these organizations overseas by setting up stalls at trade fairs at important locations. Like in Oct- 14 it is participating in events at France and Japan.

It has just completed the installation of new plant and machinery at its new factory in Bhiwadi, near Delhi. Its earlier plant is also based at Bhiwadi. It has embarked a plan for modernization of its old plant, machinery, lab and other facilities at a cost of around 16 cr. It will go for debt route for these as debt levels at present are low. Long term debt is at 3.24 cr that too is from related parties (perhaps promoter group), however working capital loan is also at 3 cr as in 2013-14 it has negative cash flow of 6 cr from operating activities as its trade debtors increased from 2.5 cr in 2012-13 to 6 cr in 2013-14 although 5.3 cr of these are less than 6 month old and good.

However in spite of rising debt levels its interest cost has come down to 23 lac from 35 lac…perhaps it has capitalized interest paid for new plant but I have it yet to be confirmed ( I’ll confirm the same from company).  It is having cash of 2 cr against a market value of only 20 cr.

 It has also converted its authorized preference shares into equity shares and promoter entity is ready to subscribe to the preferential issue of 350000 shares at a price of 60/- per share. It shows the commitment and fairness of promoter group as current price is around 30/-

They are paying dividends regularly that too at a current yield of 2.5% although they are only earning 2 cr as net profit in 13-14. They have updated their website and included a separate section for investors which was not there earlier.  

My avg cost is around 16 and I have received dividends of around rs. 2 in these years. I feel this dividend can grow manifold if company can live upto its potential. I am fairly satisfied with the fairness of group overall…but as it is a small company so it has its inherent risks associated with it. But I am going to invest more in it as the risk is worth taking.

SKM Egg: I bought this one in 2010 at 17/- then as it went on falling upto 5 last year…I just accumulated. My avg now is 10/- This is one of the biggest Egg powder company in the world producing liquid, frozen and dried whole eggs, whites, yolks and blends. With very low demand from india so SKM is currently operate as EOU. Egg powder is used in a variety of products…from fast food to as a ingredient in many packaged foods. Demand for egg white is growing world wide due to increasing awareness regarding health. Fast food chains like Mcdonalds…who are trying to change their image as health brands.

Current prices for dried egg whites are the highest since December 1979. Prices for dried egg whites are up 50% since mid-April, up 75% since February and up 60% from a year ago. SKM went into bad period during 2010-2012 due to global economic  slowdown and incurred losses during that period.

But time changed from 2013 and company earned NP of 6 cr from a turnover of 230 cr. While the previous years saw the the company`s utilization hovering around 65-70%, 2012-13 and 2013-14 have seen near 100% capacity utilization rates. This year 1^st qtr turnover is up at 60 cr from 50 cr…NP is at 3 cr as compared to 70 lac last year. Interest cost is at 1.6 cr as compared to 2.78 cr last year. This indicates improvements at all levels. This year can be the starting of its best times. Company is targeting a turnover of 500 crore in 2017.

SKM egg use almost 1.6 million eggs per day…it sources almost 75% of these from contract farmers where quality is maintained as per global standards. For balance it is operating a captive poultry farm which houses 6 lac birds. From this poultry farm,  SKM has introduced branded eggs in indian market which are fortified with essential minerals and vitamins like calcium, Omega-3 fatty acids. Birds are given healthy diet and hygiene and they are monitored regularly to maintain the highest standard. 

With economic growth and change in eating habits…demand for egg products is also going to rise in india and india will be a huge market due to its population.

I think SKM egg is the starting of a new story. It is having most modern machinery and holds great reputation among global giants like Unilever, Kraft, Nestle.

Great buy around 12-13 and hold it for 2-3 years. (This message was sent on 31.07.14 and I bought some more at 14.50 that day…current price is 31/- I think it is still worthy of investing and at every fall.)

(Views are personal and should not be taken as a recommendation for buy or sell a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)