Prakash Diwan recommended a buy of Kwality on 7th April 2015. His logic was that it is one of the “hidden stories” which deserve some attention. He pointed out that Kwality is one of the finest dairies in the northern belt and that it has a presence through five chilling centres in the north which is Uttar Pradesh, Haryana and Rajasthan. He also pointed out that it is a very institutional B2B kind of a play because it supplies to Britannia Industries , ITC and to a lot of institutions and spiritual organisations like the Amritsar Shiromani Gurdwara Prabandhak Committee, Golden temple, Tirumala Tirupati Devasthanams (TTD) etc. He also explained that one of the reasons they have been in that space very successfully is the quality that they have maintained. In the last two years, they have started expanding to retail outlets creating a brand for themselves. He also called the financials “very impressive” on the basis of the earnings already clocked last year, which is about more than 7, full year EPS. He pointed out that this year it could probably be in the range of around 8 and FY16 could be around 10, so from that perspective, the stock is under 4 P/E whereas Prabhat Dairy is expecting much more of a premium. “So this industry deserves much better premiums and I think Kwality is available at a mouth-wateringly lower P/E multiple” Prakash Diwan said.
Kwality reported so-so Q4FY15 results. The Sales rose 3.43% to Rs 1358.62 crore in the quarter ended March 2015 as against Rs 1313.51 crore during the previous quarter ended March 2014. However, the net profit declined 5.98% to Rs 34.14 crore in the quarter ended March 2015 as against Rs 36.31 crore during the previous quarter ended March 2014. For the full year, net profit rose 11.29% to Rs 140.93 crore in the year ended March 2015 as against Rs 126.63 crore during the previous year ended March 2014. Sales rose 15.27% to Rs 5267.82 crore in the year ended March 2015 as against Rs 4569.89 crore during the previous year ended March 2014.
Kwality has been in the news lately. A few days ago, the company disclosed that it is planning capex of Rs. 300 crore in the next two years. It was explained that products like flavoured milk have a huge market and that while the present market size is around Rs 1,000 crore, it is growing at the rate of almost 30 percent. Today, Sunit Shangle, CFO, pointed out that Kwality will be launching new products in the next two-three months. Shangle said that the aim is to increase sales of new as well as old value added products. He added that he expected the company’s margins to improve 50-60 basis points this year, while growth in topline was expected to be around the same level last year.
This sent the stock price surging nearly 15%. The stock rested 12.45% up.
Some other stock picks of Prakash Diwan that require to kept in mind are Dewan Housing, MCX, Everready, Marico Kaya, Forbes & Co, Hitachi Home. He also has a contrarian call on Cairn India and JSPL.