Nitta Gelatin India Ltd: Can be the next Wellness story

Nitta Gelatin India Ltd (NGIL): Just sharing a short note on this one. NGIL is a joint venture between Kerala State Industrial Development Corporation (31.5% shareholding) and Nitta Gelatin Group Japan (43%). It deals in Gelatin and Collagen products. Gelatin is an industrial product and is used for making capsules, food and cosmetic industry while collagen is a nutritional product. Animal bones, skin and tissues etc. are the raw materials for extracting Collagen. Gelatin is obtained from Collagen after undergoing industrial processes like heating. Collagen is the most important and abundant structural protein in our bodies comprising some 30% of the total protein mass of our bodies. Collagen is the most important protein found in connective tissues, skin, joints, bones, teeth and it is responsible for providing structure and strength to our bodies and healing wounds. It is the one which keeps our skin healthy and elastic and in its deficiency skin becomes dry and dull losing its elasticity and freshness. It is just like a glue which holds our bodies together.

Stock: Nitta Gelatin India		Financial Performance		(Fig. In  Cr)
	(Amt)	Description	Half Yearly upto Sep-2020	Half Yearly upto Sep-2019	FY-2019-20
CMP	173	Turnover	189	179	342
Market Value	157 cr	Net Profit	9	8.5	12.34
PE Ratio (Annualized)	9	Interest Cost	2.9	3.9	7.77
Net worth (Sep-2020)	168 cr	Total Debt	70		76
Dividend Yield	1.45%

 NGIL is a dominant player in Indian gelatin industry and in the past it has faced pollution related issues for long time causing closure of its plants for long time hurting growth and finances. But that is now gone and it is focusing on growth and has shown great performance in last 2 years after the restart of its business. It exports some 40-50% of its turnover in quality conscious export market but this also means it is subjected to foreign exchange fluctuations but they are doing hedging etc. for the same. Demand for gelatin for industrial uses like pharma, food and cosmetics is going to be strong and grow much faster in India. After extracting gelatin from the animal bones etc. the remaining raw material is used for producing Di-Calcium Phosphate for poultry feed ingredient, NutriGold as agricultural growth promoter so nothing is gone waste and with growth in demand there is vast scope for margin improvement. But I think there is huge growth potential in collagen as nutritional product.

Across the globe, there is a huge demand for collagen as wellness product and is used widely in many health supplements related to skin and joint health. I am using collagen for long time as a supplement for joint health and advised this to many people suffering from joint pain or injuries and it has always worked wonders. Collagen is an excellent skin care product which keeps skin alive and elastic having strong anti-aging effects. As we age our bodies produce less collagen causing dryness and loss of elasticity but supplementing it in the form of collagen supplements has shown to provide anti-aging effects. Collagen/Gelatin are almost 100% proteins so these can also be used as a protein supplements (though i may not advise to use these as source of protein as these may be costlier than other cheaper sources of protein like eggs/Chicken).

These days awareness about nutritional and wellness products is growing across the world and India is not behind. The same has picked up further pace after the onslaught of covid as people are realizing the importance of strong immunity and health. Collagen is being hailed as next nutritional wonder and its use in health and wellness products is growing fast. There are even researches which have shown the benefit of collagen in fighting against covid.

NGIL is already operating in collagen wellness industry and is selling collagen supplements with brand name “Gelixer”. The same is available online (Amazon) and I am using it. One friend who was having joint pain due to old knee injury has used it and his pain has gone away. So I think this is a huge opportunity for Nitta and it has everything in it to benefit and extract a larger market share. It will be great if they can do some marketing for this as Indians are not aware of this. I think with better financial performance they will be having funds to deploy for the marketing etc. Nitta Inc. Japan is already selling Gelixer worldwide so their experience and approach will help in making Gelixer a success in India. Still, Collagen is different from Gelatin and do not have industrial uses so its demand dynamics are related to its acceptance as wellness product in Indian market. These days we can see many National/MNC advertising their nutritional and wellness products like protein supplements and Multi-vitamins on TV so i think Collagen will definitely find a place in Indian market. In any case, NGIL will be supplying collagen to other Indian brands which will provide another strong growth avenue till they make Gelixer brand a success in India.

There is quite a noise in the industry about people wanting to use vegan products and they also want their medicines/cosmetics to be vegan. So hunt is on for making Gelatin from veg sources and Agar agar is being used as vegetarian substitute for gelatin. Agar agar is a red algae (seaweed) that has natural gelling and thickening properties. But still I think veg gelatin may not be a good substitute as a nutritional product. Then cost is another factor as animal gelatin is way cheap. Further it is a good way to use dead animal bodies which otherwise may consume quite a bit of resources to dispose them off or else they will cause huge environmental damage. So I think there will be a case for animal based gelatin and vegan may take time to be a perfect substitute.

So I think at a market cap of 157 cr, PE of 9 and net worth of 168 cr, NGIL is worth taking risk. ROE is around 12% which is not bad keeping in view the plant closure troubles it has faced due to environment issues and this will rise further with future growth. It is getting the PE of a commodity player but if it can create a place for itself in the high growth nutritional and wellness sector then it will be a big re-rating candidate. I am reasonably satisfied with the management quality. Dividend yield is good at 1.5% and this may rise higher with good financial performance in the future. Still, treat this one as a risky stock (Tier 3) as most of the value accretion is dependent upon strategy and product placing in Indian market in the future. 

(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 own Due Diligence before investing. I am not a certified Sebi Analyst and holding the shares discussed in this Post. Reach me at oscillationss@yahoo.in).