Structural RM advantage
A look at egg prices in India. Namakkal Average for this year is about 506 per 100 eggs or Rs 5 per egg. Lets assume the average egg size in India is 50gms. Approx 90 eggs will be required to make a kg of egg powder. Thus One Kg of Egg Powder raw material will cost approx Rs 450.
SKM Eggs has its owned, leased and contract farms in addition to Environmentally Controlled sheds that have got recently installed which can help with lowering the quantity of feed required for making eggs as well as help with better yield from the layers. It will be safe to assume that the cost of the eggs that they produce will be meaningfully lower than open market prices. Assuming a 50 paisa lower cost (could be more) it would mean that one kg of egg powder RM would cost them Rs 405 per kg.
In the USA, a key large producer of eggs, last 3 year average price of a dozen eggs is around 150 cents or 12.5 cents per egg. Assuming that weight of an egg is 60 gms a kg of egg powder will require around 75 eggs. Thus One Kg of Egg Powder RM will cost $9.37 or Rs 780.
Thus the theoretical spread on RM Per KG for SKM will be ~Rs 380 (based on historical US average price) or Rs 3.8 lakhs per tonne. (Last year production 5000 MT and capacity 7500 MT giving a theoretical gross profit of Rs 190 crore from egg powder alone)
Currently USA egg price has moved upto 250 cents as we run into the winter months aka the annual bird flu season. Thus One Kg of Egg powder RM will cost $15 or Rs 1250.
Thus the theoretical RM spread per KG for SKM will be Rs 800 – 850 per kg. (based on current US prices) or Rs 8 lakhs per tonne.
Off course dried egg prices have different demand and supply dynamics than plain egg but the above points just highlight the structural advantages that the company enjoys on account of the lower cost of production. Also EBIDTA will have an impact of international freight which has now seen a sharp decline.
The company has an installed capacity to break 1.8 million eggs per day to produce 7,500 MT of egg powder annually according to the latest CARE report. According to the last annual report the company the quantity sold during the year 2023-24, of both egg powder and egg liquid stood at 10455 Tons in aggregate out of this around 5000 MT was egg powder. Additionally the company has also seen export sale of eggs move up to Rs 114 crores in FY24 vs Rs 24 crores in FY23 indicative of greater procurement.
Volumes though cyclical will eventually pickup especially if the international egg prices remain at lofty levels. Quarterly numbers will also start improving once contract prices get reset in line with international price increases.
While one can argue that SKM Eggs is a specialized commodity (numerous international buyer approvals required) the key advantage is lower resource cost that is structural.
Key risk like every year will be bird flu outbreak in and near their sources of procurement.
Thoughts welcome. Happy to be corrected.
Disclaimer: I am a holder with PF holding of more than 3%. Views biased.
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