Tuesday, 20 October 2015

EID Parry Ltd: All Sugars are not Same

Click here for the old post on EID Parry.

I do not like sugar at all. I seldom feel the craving for sweet. But regardless of whether I like sugar or not, my body converts everything I eat into sugar to use it as energy because our bodies are designed to operate in this way…nothing big here…it is just a Design. Here I want to share something about sugars as most part of my early life was about sugar when the passion of a great powerful body blessed upon me. In bodybuilding or we can better say in muscle building world (bodybuilders look too big sometimes); we usually say that every carb is not same (to point out the difference between useless calories like cold drinks and a nutritious fruit). However, amazingly every sugar is also not always the same. But sugar is sugar. Right? Wrong!!

Actually there are three types of sugars; Glucose, Fructose and sucrose. Fructose is the sugar of fruits. Glucose is almost in everything we eat and this is the sugar that our bodies recognize. Sucrose is our normal sugar which is a combination of both glucose and fructose (50:50). Our bodies need minimum processing for glucose and it is sent directly into blood stream to be used as energy. But if the same is not required for energy, then the same excess glucose can be stored as glycogen in liver (around 100 gm) and in our muscle cells (around 400-500 gm). Liver glycogen can be used by entire body when needed, but muscle glycogen is used only by muscle. But when we take fructose, it is treated differently by our body…for body it is not a fuel so it is broken into by our liver into glycogen and if our stored glucose levels in liver and muscles are full then our body has no other option but to store this fructose generated glycogen into FAT.

I have always reservations for most of fruits like apples, grapes, mangoes etc due to very high levels of fructose and very low levels of nutrition  (due to today’s extreme farming). Most of fruits are low in antioxidants. Fruits are nature’s candy…sweet. Glucose is less sweet than fructose and most of today’s beverages like colas use high fructose corn syrup which is way too sweet…these are disastrous. So quite contrary to the belief most of our fruits can make us fat if not used properly; a fruit's non fattiness is not isolated but it depends upon our other sources of glucose also. So a high glucose diet if further supplemented with fruits will do more harm than good.

But I am always having a revolving head which keeps on turning to some out of the norm notions. Like few years back, a thought struck my mind that if we take that glucose is the preferred fuel for our body but when we look at the stored levels of glucose in our bodies, it doesn’t look like that. You know our blood has just one tablespoon of glucose; Our liver has just a day’s stock of sugar, our muscles have just enough sugar for 60-90 minute mild level activity. Can we say that our body really wants this as a main source of fuel? I really doubt. On the other hand our body has huge amount of stored fat.

I also doubt on the role of insulin. It is said that insulin controls the blood sugar levels by storing the excess as fat. But if glucose is the main source then why our body wants to keep it to minimum by removing the excess?? Can it be other way around that our body treats this as toxic and so wants to remove it? Because our ancestors were used to live on a diet full of protein and high fat…carbs were not in their life. There was no diabetes in their life…it is the new age phenomenon. Our body treats fats in another way for fuel…it uses another set of enzymes to use fat as direct energy by sending fatty acids directly to blood stream just like glucose where they are used as energy by a process ketogenesis and the excess is stored as fat in the body for later use.

And because we are using glucose for ages so our bodies has sort of forget the use of fat as primary source of fuel because using glucose and fat for energy require separate set of enzymes or pathways. As we are using one particular pathway more so our body shuts down the another pathway of using fat as a primary source of energy and keeping glycogen only for the emergency like a sudden need of high glucose or energy. Because it just does not make sense that if glucose is the preferred fuel then we need to eat carbs continuously after every 2-3 hours. I also feel that if we switch onto a diet mainly composed of protein and healthy fats then slowly our bodies will also switch to its original source of fuel; Fat. 

So I am using fat more for last few (8) years and results could have been much better if I could have avoided carbs mostly but I could not as I was busy in too many things. But i am thinking of taking body first again and move to a diet full of nuts, meats, fish, whole eggs, dairy products and using very minimum of flour, rice, fruits etc. I am not an Neutritionlist nor a doctor, these are just my views after devoting more than 15 years of my life for muscles...and there are high chances that i may be wrong. 

I think we should move onto EID parry. I was just sharing my views…reviews are welcome. It was about the Energy part of our blog :) :) So just as every sugar is not the same; similarly every sugar company is not the same and always about sugar alone.

Indian sugar sector is a great example of something which can be made a hell by shabby politics. Politicians need the votes of poor farmers, so they declare high prices of sugarcane as minimum support prices. This MSP is done by central government and in order to surpass them, state governments use something like SAP ( state administered prices) which are always above MSP. Sugar mills have no choice but to buy the sugarcane at these prices from farmers. Current SAP is around 2500/- per tonne in most states and it costs around Rs. 33-36 for sugar mills for producing one kg of sugar. Wholesale prices are around 25-28 so they are losing on every kg sold. Prices are low due to global glut of sugar mainly in Brazil and USA. Also both are the largest producers of ethanol from sugarcane and corn, but as global oil prices are low so they are using more sugarcane for producing sugar than ethanol. This supply glut will take some more time to correct, but india has made the situation worse due to its illogical policies.

Sugar mills generally produce around 100 kg of sugar per tonne of sugarcane and they also produce around 10 litre of ethanol/alcohol. Bagasse can also be used for paper manufacturing and for generating power. EID is using bagasse for both.

As prices of sugarcane are always rising and profitable so many farmers have left other crops and are growing sugarcane for more profits which is not good at all. Take Maharashtra, it is not best suited for sugarcane due to huge water problems but still it is number 3-4 in sugarcane production in india. Maharashtra is more suited for pulses and oilseeds both of which india imports.

In fact, some parts of india are not suited at all for sugarcane production like most of north india like Punjab, Haryana, UP etc. sugarcane crop requires a mild temperature around 20-25 degrees, no excess heat, no frost…but north india has all of these negatives that is why per acre productivity is low in this part as compared to south india which is best suited for sugarcane. South india sugar mills can crush cane for 300 days in a year against 120 days of north Indian sugar mills. EID parry has all of its mills in south india and no doubt that its per acre productivity is highest also due to its use of high technology and bio fertilizers.

Further india do not allow direct production of ethanol from sugarcane due to fears of diversion of sugarcane to ethanol which can be a threat to food security. Hence sugar mills produce ethanol from molasses which is a byproduct of sugar. So sugar mills have to make white sugar first. Sugar is in excess supply for last 5-6 years which has created havoc for sugar mills and most of them are at the verge of closing. Farmers, even at higher prices, will lose much bigger due to nonpayment of their crops by these ailing sugar mills. So no doubt that our government would like to avoid any such situation.  Although EID parry is only one such company which has no dues pending for farmers.
Also Indian government is now very serious about implementation of blending of ethanol in oil to reduce our dependence on oil imports which will be great thing for sugar mills. I mean most of the negatives have already happened; now the time is very near to clean this mess otherwise whole industry will collapse.

The much needed reform in the sugar sector is to link the cane prices with the final selling price which will be more beneficial for both the farmers and mills. Very soon we are going to hear something along these lines.

Apart from sugar, EID has a very promising Biofertilizer and nutraceutical business. Both of these contribute around 165 cr out of 1600 cr total turnover. EID’s Neem based biofertilizer is growing very fast and it is best suited to preserve both the soil and the crop. Chemical pesticides are destroying the soil and whole bio ecosystem and the world is wakening fast to their misuse. EID has already got Bonsucro certification for sustainability practices followed in its area of cane cultivation and so many food companies like Coca Cola, Pepsico etc  have already announced that in the future they will procure their sugar only from sustainable companies like EID.

In its nutraceutical business, EID is focused to healthy products from natural sources like it was the first company in the world to produce organic spirulina from microalgae which is approved worldwide. It is also producing other nutritional products like Tomato lycopene for cancer. These are high margin business and I feel that these will grow much faster due to superior research capabilities of EID parry.

As mentioned in the previous post, EID has already got into branded sugar sector with the launch of vitamin based Vita sugar and a natural brown sugar Amrit. This step will be the distinguishing factor for its supernatural growth in the future.

Its 62% stake in Coromandel is valued around 3400 cr and even after giving 30% discount it is at 2500 cr and current market capital of EID is just 3000 cr . Coromandel has fallen all the way from 300 to around 200 now...its fair value is also much above 300 but even of we take 300 then value of EID's holding at 30% is valued at around 3500 cr which means we are getting original EID parry for free. Even during present phase of losses, its dividend yield is 2%!!

EID is known for the revolutions in setting up the first Indian R&D centre for sugarcane, great visionary management. I feel this is the best in sugar sector.

I have entered around 166, CMP is 172/-

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


  1. very good write up... keep up the good work.. it is always interesting to read your blog!

    1. Hi Gurpreet ,
      Apart from Bangalore where the branded sugar is initially launched , I see it in all Heritage stores in Hyderabad (3 different packing's) .

    2. That's great...that day i was looking for the same in Nagpur but it is not here although didn't check Big Baazar. But the main catalyst will be the brand promotion via TV/Digital/print media. I am thinking of buying more sooner. Thanks

  2. Dear Gurpreet sir,

    Can I request 10-15 mins of your review of Mangalam drugs? I took small position in it at 77 because of hurried warrants allotment to promoters and visibility into their orders in Q1 results (of 100cr). Promoters have already converted warrants and pumped in 17cr, but in Q2 results no visibility of order position. Q2 they reported great results (as I expected), but this company has paid dividend only once in 2006 and taxes includes deferred tax - so I don't know how much and if any tax was paid.

    Last year 6cr NP, no dividend, 0.6cr cash on books. I'm seeing many things on books, in AR, and in website but real things (taxes paid, dividend) missing.

    If you could cover their Balance sheet and cash flows that will be very helpful.

    Thanks for your time :)

    1. Hi Dear

      You have already pointed out the most material things…Taxes and dividends. We can see these types of companies showing great results in bull market…promoters make great plans. But we have to be very careful. Making money in stock market is not that easy. Malaria is a gonner for most of the export market except third world countries…i doubt what has changed now all of a sudden in these countries that the company is growing 100 %!! These malaria medicines are procured at cheap rates; so scale is the differential.

      I have seen some strange things in their balance sheet…first of all there are only 7700 public shareholders which is very less as compared to other companies of the same scale like Piramal Phyto has 60000 shareholders. Promoter group is very long…16-17 members holding 42% shares, out of which 72% is pledged for getting loans of around 60-70 crore…although they are having 92 cr worth of gross assets with net value of 50 cr…but still they have 57 cr worth of inventory!!

      They have some strange current investments totaling 11.84 lac rupees…they have invested 11.81 lac in two companies…but they are having exactly 1 share of all the top pharma companies of india like sun, torrent, Ajanta…some 16 companies !!! what is this man…is it some type of omen to get good results?? Although if it is then this seems to be working !!

      Also all of a sudden as warrants have been bought, their debtors have been reduced from 44 cr to 23 cr in sep-15 results, trade creditors from 55 cr to 33 cr…things getting better? But inventory again high at 64 cr from 57 cr.
      As you have mentioned, there are enough doubts to dismiss this as an investment grade…better to get the money and invest in some better stock.

    2. (Also all of a sudden as warrants have been bought, their debtors have been reduced from 44 cr to 23 cr in sep-15 results, trade creditors from 55 cr to 33 cr…things getting better? But inventory again high at 64 cr from 57 cr.)

      Debtors and creditors are reduced by around 21-22 cr...just matching !! But inventory is increased by 7 cr to show the use of excess cash generated by GREAT results!!!

    3. haha, amazing analysis sir as always. Thanks so much :). Although the amount is small, but will be getting out at the next available opportunity.

      Thanks for your time.

    4. :) :)

      out of 11.81 lac they have invested, 11.62 lac is invested in some IMP power which is a group company but with even strange accounts...great debtors and inventory figures!!!

    5. :) :) see the caption, IMP power : The power to 'Power' your future :)

  3. Dear Gurpreet, firstly, super blog. Came across your blog recently when I was googling for multibaggers :-) and ever since hooked to your site reading your past articles. Nice clarity of thought actually. More than the stock recommendations, your articles on general things are very good. Your build up to a stock story, the background information is very very good.

    Now coming to the point, I request you to analyse "Virat Crane Industries Limited" (maker of Durga Ghee). Strong brand in Andhra/Telangana/Orissa. Looks like turning around. Good promoters - http://www.deshvidesh.com/success2.htm.

    The financial metrics look good. Dividend paying (1 rupee paid out of 2.63 EPS in FY 15 and 0.5 rupee paid out of 0.69 EPS for 2 years). Pays Tax at 33% rate. RoE/RoCE at 30/50% approx (adjust for 10 crore good will while calculating). Of course, your independent analysis will be much better, hence requesting your view.