Hi,
I also pondered on this stock considering its valuation and market share. There is a huge margin of safety as far as valuations are concerned.
Sales have been consistently growing, crossing 5800 Cr in FY 15. This I guess is top most by a private player in dairy sector after cooperatives such as Amul (20K Cr), Mother Dairy etc.
EBIDTA – close to 10% – better than peers ranging in 5 to 6 %.
Historically company has been in B2B sector processing milk for Amul and later foraying into supplying milk products to organized retailers.
The present business mix is 70% B2B and 30% B2C along with 61% non-branded sales and 39% branded sales (Dairy Best).
The focus of the company according to recent presentation seems to be on
– Direct Procurement (presently only 15% is direct and target 50%).
– Focus on retail business – transforming from commoditised player to branded one – drivers are value added products, brand development, retail network strengthening
Debt levels are high but as voiced, considering growth these are justified.
The important aspect is that company tried raising funds by diluting stake twice
– Jan 2014 – Rabo Equity Advisors – Funds 500Cr @ Valuations 3500 Cr approx
– Sep 2011 – Funds 500Cr to 1000Cr – Either debt or equity
It would be worthy to find reasons for inability to do so since many other dairy companies raise funds at much better valuations except those were already in retail market chase.
http://www.vccircle.com/news/others/2014/01/21/news-roundup-kumar-birla-plans-sell-minacs-rs-1600cr
Also, there have been issues like operator scam etc in script where 50+ entities were barred from operating. The chart shows this with majestic fall of Nov ‘2011. Though the promoters seems to have come out clean, market still has given them clean-chit i guess considering valuations.
Heritage Dairy – trading at 29X
Prabhat Dairy listing tomorrow – 40X
Many other including Tirumala, Parag raised PE money at very good valuations in the past. It’s been golden period as far as fund raising is considered for dairy companies. Though Kwality raised debt, it failed to raise equity.
http://www.moneycontrol.com/stocks/reports/kwality-presentation-upto-march-31-2015-1729161.html
Looking forward to inputs.
Disclosure – Invested.
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