20 DALAL STREET INVESTMENT JOURNAL I JULY 10 - 23 , 2017 DSIJ.in^
Analysis Equity
DS275.15415.28 50.5510.89116.45109.9725.5591.95242.65706.451.774.22
7.5522.1430.4512.8477.2032Product Mix as of FY16
Day old commercial chicks S.P.F. eggs Grownup commercial broilerGrownup commercial layer Processed chicken Animal health productsPowder Liquid Poultry feedRefined oil De-oiled cake for poultry feed Packaging productsOther Operating Revenue Grown up parents Hatching eggsCulls By-products MiscellaneousAnother second largest raw material for
company such as poultry feed has
attracted nil GST rate.
We at DSIJ infer that the double
benefits of lower raw materials costs
as well as end-products’ lower tax rate
will boost company’s profitability
margins. The company may pass on
the benefits to end-customers. Hence,
lower prices will lure more consumers
which may lead to rise in company’s
topline.
ULTIMATE FINANCIALS
On the financial front, Venky’s (India)
has reported revenue of `2476 core with
a growth of 16.39 per cent in FY17 as
compared to the previous fiscal. The
company’s EBITDA soared more than
double to `277 crore in FY17 on a yearly
basis. Its EBITDA margin expanded by
477 basis points to 11.2 per cent in FY17
on a year-on-year basis. Its net profit
increased more than three-fold to ` 125
crore in FY17 as compared to the
previous financial year.
On the segmental revenue front,
Venky’s (India) has earned 49.21 per cent
from poultry and poultry products,
43.69 per cent from oil seeds and 7.1 per
cent from animal health products
in FY17.Considering last five years data, Venky’s
(India) has witnessed heightened growth.
The company’s topline increased at a
pace of 11.66 per cent during FY13-
FY17. Its EBITDA also rose 35.65 per
cent in the last five financial years ended
with FY17. The bottomline of Venky’s
(India) increased 38.16 per cent during
FY13-FY17.Venky’s (India) debt-to-equity ratio has
reduced from 1.91x in FY16 to 0.89x in
FY17. The company’s reduction in total
debt has helped build stronger balance
sheet.EXPANSION IN PROFITABILITY
MARGINSThere are pressures on consumption of
beef in the country, which is a positivefor other meats. This will further aid
poultry industry. In May-June 2017, due
to hot weather, the chicken factory gate
prices have increased about 25 per cent
to 35 per cent. Meanwhile, weather-
related spike is temporary an depend
upon the tuning of supply at lower
growth, coupled with upward pressure
on the demand side.Chicken acts as a substitute for beef,
which is about 20-25 per cent of poultry
consumption. There has been a rise in
demand for chicken after restrictions on
cattle slaughtering were enforced in the
country. We expect that chicken prices
are likely to remain at higher levels in the
near term.AID OF RAW MATERIALS
Chicken feed majorly comprises of around
70 per cent of corn and 30 per cent of soya,
which are primary raw materials for the
company. The decline in soya and corn
prices have aided gross margins in
H2FY17. India’s poultry producers are
posting record profits as feed costs have
dropped to a five-year low. Going forward,
we expect lower raw material costs will aid
further expansion in the gross margins of
Venky’s India in FY18.VA LUATIO N
On the valuation front, Venky’s (India) is
trading at trailing 12-month (TTM) PE
of 19.11x as compared to industry PE of
44.27x, which is quite at a discounted
level. The company’s ROE and ROCE
stood at 23.49 per cent and 40.41 per cent
in FY17, respectively. Venky’s (India) has
given 0.41 per cent dividend yield to its
shareholders in FY17.The company has book value of `376.96.
It is trading at PB of 4.49x, as against
industry peers such as Simran Farms
(1.18x). The share price of Venky’s India
is trading PE of 19.11x, which is at a
discount as compared to Simran Farms
which is trading at PE of 21.4x.On the back of GST boost, lower raw
material prices, positive environment in
the industry, we recommend HOLD on
the stock for our reader-investors.( Figures in ` Crore )