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Sunday, May 6, 2012

Venky's India: Profiting from changing Indian Food Habits

Traditional Vegetarian fare lover Indians are transforming their Foods habits, and at what pace! India has had a strong culture of vegetarianism, but is seeing a sharp rise in consumption of meat. Per capita consumption of meat is now at 5.5 kilograms a year, and is growing year on year. There are several reasons for this growth in meat consumption: strong domestic economic growth, increasingly affluent consumers, affinity for protein rich diets and variety in offerings.  Eating non-vegetarian food is no longer a luxury for affluent middle class Indians. 

India's per capita consumption of broiler chicken has doubled to 2.26 kilograms per year in 2010 from 1.08 kilograms a decade ago. This growth is astonishing and continues to grow, with food almost being the only recession proof industry. So which are the companies which are destined to profit from this trend? Let’s find out.

Venky’s or Venkateshwara Hatcheries as it was called earlier is a premium Indian player in poultry space. Venky’s was established in 1971 by Dr. B.V.Rao, also referred to as the Father of the Indian Poultry Industry. The company has diversified its activities to include SPF eggs, chicken and eggs processing, broiler and layer breeding, and also in specialized fields such as Poultry diseases diagnostic, Poultry vaccines and feed supplements, and vaccine production. Today the group is the largest fully integrated poultry group in Asia, and is a $1 Billion group.

Venky’s India, which is their listed entity for India business, has grown their annual revenues from Rs. 410 crores in 2007 to Rs. 852 crores in 2011. In Dec, 11 quarter, their run-rate for a quarter was Rs 250 crores, which translates to approx Rs 1000 crores entity in annual revenues. 

Earning per share (EPS) has grown from Rs 12.27 per share in 2007 to Rs. 77.77 in 2011. In recent quarters, firm is delivering a run-rate of approx Rs 40 EPS on an annual basis. Venky’s current market price is at Rs 366 and is at lower end of 52 week range of high of Rs 730 to low of Rs 363.

At current market price and assuming a Earning per Share (EPS) of Rs 40, P/E ratio is a moderate 9.15. Firm has paid dividend of 35%, 40% and 50% in last three years and is a regular dividend payer since 1999. Firm is available at Book Value of Rs 291 per share, hence at current market price, investors are getting the firm at close to its Book Value. Venky’s has low debt on its books, just about Rs 110 crores, which is negligible for a firm with approx 1000 Crores of yearly revenues.

Venky’s has a clean balance sheet, with growing business due to changing food habits of Indians and is clearly a market leader in its space. The firm is well poised to benefit from India’s growth and demographic dividend and is a long term investment at current prices with 2X to 3X possibilities in next 1 year.

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