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Wednesday, 17 February 2016

SKM Egg Products Export (India) Ltd- A Revisit

For earlier study, click  here





Quite a few queries are coming for SKM Egg as it has fallen to 90 levels from the high of 230. However i do not see anything wrong with SKM Egg except for the fact that it has started its fantastic journey from around 7 to 230 and actually this was the reason that i was telling everybody to refrain from buying it at higher prices unless it shows some marked improvement in its next leg of journey which is exploring new products and new markets for the existing and new products. It is coming into buy zone now and those who have entered at higher prices should continue to hold without any worry and can think of buying more at every fall from hereon.

I usually never buy a stock who has run up too much discounting every chance of growth in its high valuation and then if something does not happen as per valuation or expectation...you will see another Shreyas shipping.

I entered in Shreyas shipping at 20 as i wanted to buy something linked with coastal shipping which shreyas was but in one year it touched 700 when other bigger and high quality shipping stocks like GE Shipping was on anchor. Its valuation was way above fundamentals. I remember some of my friends wanted to buy it around 500 but i stopped them strongly and when it touched 700 they were very angry with me. But seeing its rich valuation, i sold it at 690 and it touched 840 after that but i was sure that it would fall due to poor fundamentals and management issues. Now after 2 quarters of ordinary show it is at 170 and no one is happier than my friends. I am investing in GE Shipping slowly now as i feel it is very cheap and it can show great performance with favorable policy making and if it decides to enter coastal and inland shipping in india.

But SKM Egg is no shreyas shipping. Its shells are getting thicker. Its turnover has touched 300 cr from 120 cr in 2012, net profit at 30 cr vs loss of 12 cr. Its debt stand around 30 cr vs 90 cr which is a great feat. Also like a high class management, they have started sharing dividends again, last year gave one rupee dividend (Which for me is 10% of my investment price of 10/-). As shared in my earlier posts and queries, the products of SKM are a class apart due to their unmatched quality and high technology which acts as a high entry barrier.

After showing a stellar feat it is on breather now. Its performance this year is not bad but market may be demanding much more due to high valuations at 200. It is now running cheap at a market valuation of 240 cr with PE ratio of 8-9. The reason for the not so fast growth may be its exposure to export markets which are fighting with their own problems. Another reason may be of the capacity constraint. If I can remember they were running close to their full capacity (90%) and they have plans for capacity expansion also. I have earlier also opined that they are at somewhat risk in global markets as they are riding on a turnover of  just 300 cr (Although I have no idea about the bigger player) so for them it is best to enter into indian market also which is way underpenetrated in processed egg products and scope is huge; as they are having very low debt so they can plan their next journey into india….and I am going to wait for that…till then I am happy with boiled eggs and generic omelets.




(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. I am not a certified Sebi Analyst and holding the stock discussed in this Post)




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14 comments:

  1. Vipul17 February 2016 at 00:59

    Thank you so much Gurpreet !
    Feeling a sense of relief and belief from the long term perspective about SKM. It is indeed a quality company and management has also won some awards in the past. Have to agree human sentiments is a crazy thing which can affect everyone unless knowledgeable people like you keep us sane during turbulent times.

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  2. Jagadish17 February 2016 at 10:38

    Thanks a lot Gurpreet for your reasoning on SKM Egg.

    ReplyDelete
  3. ramesh17 February 2016 at 23:21

    Hi Gurpreet,
    Did you have a chance to look at Maximaa Systems? Also what do you think about the concept of Proyurveda(Probiotics+Ayurveda) in India?
    It has recently hived off IT and Storage Divisions and concentrating fully on Proyurveda.

    ReplyDelete
    Replies
    1. Gurpreet singh17 February 2016 at 23:43

      Hi Ramesh, had a small look at it once...being a small cap with new business model so need to be extremely careful. Need to check the regulatory clearances, financial strength for production and marketing etc.

      Delete
  4. rakeshzunzunwala18 February 2016 at 21:22

    Hi Gurpreet, though future of skm looks bright but recent raw material (egg) price rise and declining exports to japan is a worrying factor.Do you still think they could achieve targets of 500 cr topline in f.y 17-18 ?

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    Replies
    1. Gurpreet singh19 February 2016 at 23:22

      Hi Rakesh, Cost of raw material has in fact declined in Dec-15 Qtr vs Dec-14. It is at 70% vs 72%. It is flat at 70% vs Sep-15 Qtr. Even turnover is flat at around 80 cr vs sep-15 Qtr. This is why I am thinking about capacity constraint. I do not see any major problem in Japan, if you have any data kindly share it.

      Also its promoter Shiv kumar has purchased around 5 lac shares in 2014-15 from the market. I would have also sold it if not for the next frontier of growth which Mr. Shiv Kumar has also in mind when he is buying these shares. SKM has now settled…and it can now focus on next frontiers like Indian market, new value added products.

      In India, we use only around 1000 tonnes of egg powder….we means only Army and bakeries. Eggs are the cheapest source of best quality protein. Also Egg powder and Liquid Eggs are more economical to transport and store than whole eggs.

      I am sure very sooner we will see something around these lines from SKM. I am also not reading too much of self or market imposed target of 500 cr turnover…SKM should achieve much more than this as we are one of the biggest egg producer in the world but processing is at bare minimum.

      Delete
  5. ramesh20 February 2016 at 09:52

    Hi Gurpreet,
    I would like to share with you and the readers of your blog that SKM egg products has started receiving international attention. There are a few paid research reports on reutersdotcom for various prices. http://www.reuters.com/finance/stocks/overview?symbol=SKME.NS
    You may also read the article on thedollarbusiness- eggs-not so fragile, if you have access.

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    1. Gurpreet singh20 February 2016 at 10:20

      Thanks so much Dear. But i do not have access to these sites. If you have then you can send the pdf or some other formats of articles at the email id of this blog...i'll share the same to others.

      I also feel that SKM needs to cross this variable phase by focusing on smooth flow of raw material at stable prices, capacity expansions and newer markets. It can invest further for in-house production of raw material to ensure the quality, quantity and low prices.

      Delete
  6. Unknown20 February 2016 at 23:23

    Hi sir

    As always good write up ... added skm from 50 and 190 also.. tempted by its strong move over an year...anyway still holding it and ignoring the noise these days in market.
    I read in your profile you worked for BHEL would love your views on it as it is at decade low, could it be a safe bet going forward?
    also NMDC whose dividend yield is way above FD?
    dont mind sir also about a fine microcap Orient beverages betting in cold drink segment could it be a game changer (as the same management did once for thumsup goldspot limca)

    Thanks and keep writing! Pleasure to read always.
    Sanjeev

    ReplyDelete
    Replies
    1. Gurpreet singh21 February 2016 at 14:00

      Hi Dear, For BHEL Wrote a separate post on it as so many queries were coming. NMDC i am also holding from 190 levels. First time i bought a commodity stock thinking that NMDC would push up the value chain. But for time being it is better to leave it...i am not sure whether it will be able to maintain its dividend payout ratio.

      Orient beverages, it is not from the house of Ramesh Chauhan’s Parle…india’s first brand builder. It is a franchise holder of Bisleri which is a product of the Parle house. I have looked it long time back when I was looking for some small wonders but left it due to scale limitations. In fact I think it was at very low around 30-40 at that time. I have invested in Tata Global Beverages which is having a big beverages portfolio including Himalayan Natural Mineral Water. But if you have something which is worthy like linkage to Parle etc then kindly share.

      Regards

      Delete
  7. ramesh23 March 2016 at 21:13

    Hi Gurpreet,

    Came across a blog http://smallcapvaluefind.blogspot.in/. Here the blog owner mentions that SKM Egg products has business in two verticals : egg powder/liquid egg that we know and branded eggs "BEST", that atleast I did not know.
    What I understand is that SKM Universal is a separate associate company with which SKM egg products deals at arms-length basis, also evident in related party transactions. What is your take?
    However, on websites like zauba and thedollarbusiness, good exports of table eggs(10 Cr in March itself) is seen. Why are two different companies needed for exports in your opinion? Or egg exports is also being done by SKM Egg products only and not by SKM Universal?

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  8. ramesh23 March 2016 at 21:16

    SKM Universal operates on contract farm model and supplies eggs to SKM egg products on cost basis. BEST eggs are sold by SKM Universal and not by SKM eggs is what I understand. Can you please apprise us with your views.

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    Replies
    1. Gurpreet singh25 March 2016 at 00:44

      Hi Ramesh, yes you are right in that SKM Best eggs are not sold by SKM Egg products export ltd.Universal is one of the family owned company which supplies raw material to it just like Venky's india which sources almost all of its raw material from group companies.

      The one thing that i liked about the Venky's india is that there is no cross holding of group companies. However SKM is having around 8 lac shares of SKM Universal costing around 1.20 cr (i don't have any information regarding the total equity capital of SKM universal) which is not a huge sum relative to its business volume...so we can ignore it...but if you like SKM Best eggs then it is good news :) :)

      Who knows someday it may list SKM Universal :)

      Delete