There are various risk involved in the business, which are restricting the MF/FPI’s to invest in the company.
- RM price volatility
Even though they had plans to close the edible oil business due to Raw material price volatility, risk is still existing in the distilary business due to volatility in the maize prices.
Maize prices on raise since last 3 quarters–> 23/- per Kg in Q3, 24/- per Kg in Q4 and now its 25/- per Kg in Q1FY25. Margins also shrinking QoQ due to this.
I am expecting Q1 margins to shrink further due to this. - Product price is in the Govt control
Neither ethanol nor ENA prices can be controlled by the company due to RM price inflation. This is also a setback for company. if Govt see some surplus ethanol in the coming years then they can decrease the price of ethanol irrespective of the RM prices.
Being a commodity based company re rating in the valuations difficult, price movement would be based on EPS growth only.
As there is no further addition in the capacities in this FY, margin compression can downgrade the price further.
Only 1 trigger to boost the margins/profits is release of FCI rice for ethanol production, industry is expecting the decision soon as all FCI’s are full of surplus rice but the price of ethanol would be low for rice route as compared to maize.
| Subscribe To Our Free Newsletter |
