Keep your biases away that the name of company is “ChamanLal Setia” hai toh Chaman hoga.
Can be next LT Foods. Can reap benefits of PE Rerating and Margin Expansion and Sales n Profit growth (Trisul)
After studying a company and listening to concalls; sometimes we tend to get a feeling “why havent I studied this company before”.
Got this feeling by studying ChamanLal Sethia today. One should must study. Read investor presentation, Q4FY24, Q1FY25 & Q2FY25 concall.
Very interesting business model, first I thought of not reading the company as their branded revenue from MAHARANi brand is just 10%, but after studying got to know that they are into private labelling (kind to contract manufacturers) not like they are selling (khula hua bori mein bhar ke, commodity thing). Sitting on huge operating leverage. 3 packagaing plants are going live this January, all near to the ports. Also 1 additional unit in Gandhidham, near to the port.
Currently quarterly sale is 400Cr/Q, will increase to 500cr/Q after commisioning of these new units. Management stated demand is v huge, we need plants to cater to the orders. So, capacity utilisation will not be an issue. Plus they procured Rice at cheaper rates in the last season & in last 3 quarters freight rates shooted up from 500$ to 4000$, in Q1 normalised to 2000$. If freight cost normalises further on + Capacity ramp up happens + rice procured at cheaper price. WIll give huge benefits to the company as H2FY24 & H1FY25 had a soft base for future.
Normalised EBITDA margin for the company is between 8% to 14% between both the ends, last Q was at 9%, now at 10%. Can go up. Plus we see that DAYS PAYABLE are v less compared to peers this is because they procure rice in CASH, and get additional 2% discount from farmers. And hence a little edge on WC cycle, Receivable days and Inventory days is same as of the market leader LT Foods. Additionally, their margins are same as that of LT Foods. Plus promoters are very shareholder friedly, dividend policy is there. They did buyback.
Debt cycle is like this: They take debt during November during the procurement cycle and payback all debt by April. Extremely short term at 4% interest rates.
Plus they have asset light model, they dont age rice, simply procure and sell it.
Plus, trading at cheaper valuations. Still at 16 PE, (I missed LT Foods trading in and out). Everything in place.
Now, what to track going forward:
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Company now procure Rice from farmers from cashflows, if the ramp up of capacity happens. May take borrowings to buy rice from farmers. How debt pans out.
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Close track on freight cost.
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Trump won, Customs. ( though thir main market is Middle East, no substantial exposure to USA.
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Ramp up of Capacities going forward.
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Since last 2 FY, revenues were stagnant, no growth was there due to capacity constrain. Now capacity is increasing. Demand is there.
Stock price didn’t perform due to the absence of growth is revenues and that’s going to fade away.
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