Hi Abhay,
Thanks a lot for the comment. I agree with you in your analyses of the commodity play. I had covered the cyclical aspect in an earlier post here:
Over there, I spoke about three major cyclical factors to consider for SKM:
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Mortality Rate: Higher temperatures result in a higher flock mortality rate. And El-Nino this year has not helped that fact. February of last year was the hottest February India has ever faced in over a 100 years.
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Production costs: As mentioned in an earlier post, maize prices have already caused a 20% spike in poultry feed price cost. And the added expenses are hurting SKM’s margins over the past year. SKM is currently sitting at its highest material cost (normalized) in the past 6 quarters.
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Extreme conditions: The Tamil Nadu floods that occurred towards the end of 2023 was an unforeseen event that could have affected SKM’s business for the quarter.
This is definitely a down cycle that SKM is observing and I feel SKM have been unlucky with the floods too. But coming back to cyclicality, all of this has been priced into the stock and it is trading at valuations that existed back in 2010. We are definitely closer to the bottom of the cycle than the top.
A small correction in your point about forward PE. If the company was to repeat last quarter’s performance for the next quarter, the PE becomes 6.8 with an EPS of around 33Rs.
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