Friday, 10 November 2017

Venky's India ltd: Results Update

Venky’s India has given us great returns so far. It is now trading at 2370; up 12 times from our entry price of around 200 (Click here for earlier Study). But I think it still has quite a way to cover and there is no reason for us to make an exit from the stock. I am still holding it tight.

Now coming to this quarter’s results-it has given a stunning performance. Its turnover is at 588 cr vs 596 cr last year. However its Profit before Tax is at 43 cr vs 1 cr and net profit is at 27 cr vs 35 lac last year!!! So a great jump in profitability. Market can have its own versions about topline figures for QOQ or YOY comparisons but over long term this growth story will gather even faster momentum. Chicken prices are still high but still demand is growing strong which is an indication that long term price trend may sustain at these levels. Apart from high end product prices it is further getting benefitted from falling raw material costs-mainly Soy and Maize. Maize prices have fallen all the way to Rs. 9700 (per MT) in Oct-17 from Rs. 12000 in June-16 (from Rs. 17000 in Oct-12). Similarly soy prices have fallen to Rs. 23300 (Per MT) in Oct-17 from Rs. 31000 in Jun-16.  Prices are likely to stay low due to better realizations globally amid stagnant demand in USA and other developed countries.

The impact of low raw material prices is visible in this quarter results-Raw material cost as a percentage of total turnover is down at 72% this quarter as compared to 81% last year. This is one of the prime factor in high growth in profitability and I think this trend will continue. And another positive thing which I am expecting since last year is the debt reduction. Its total debt has fallen to Rs. 290 cr from 470 cr in Mar-2017 and its interest cost has fallen to Rs. 11 cr this quarter from 20 cr last year and I am expecting debt levels to fall below 150 cr by next year. And with low debt levels I am also expecting high dividend payouts in the future which will further improve the valuation matrix. 

I think Venky will be able to touch NP figure of around 200 cr this year. Its ROE is great at 33%. So in my view Venky being one of the biggest in Poultry in India, high future growth along with superior profitability/Balance sheet profile should command a PE of 30 minimum. Venky is witnessing high growth in its Ready to Eat frozen chicken product business. These are available at every corner of India and I think this segment will see high growth in future. Last year this business clocked Rs. 153 cr as compared to 116 cr in 2016. Venky has an amazing product profile as all the products are interlinked- From one day chicken to full grown layer and Boiler, in house poultry feed business, Refined oil business whose by products are used in feed business. Its annual report is one of the best detailed one.

So at minimum 30 PE, Venky’s valuation is coming around Rs. 6000 cr while at present it is at 3300 cr. So we can expect another double from hereon. So just hold on and respect the humble chicken…

(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 shares discussed in this Post).

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