AVT Natural Products
AVT Natural Products’ debt-free status, high CAGR revenue growth, high ROE, ambitious expansion plans, niche product and reasonable valuations make it a compelling buy.
AVT Natural Products is a small-cap company with a market capitalization of Rs. 700 crore. It is world leader in the manufacture of “Nutraceutical grade Marigold Oleoresins”. The said product is used in food & beverages as a coloring agent and as a feed additive in cosmetics for perfumes & skin wash products. It is also used in pharmaceuticals for eye care and skin health.
There is an interesting case made out why AVT Natural is investment worthy.
Apart from several other arguments, AVT Natural is debt free as on 31st March 2014 and has a strong balance sheet. AVT’s revenue grew at a CAGR of around 36% in the last 4 years despite the global environment being economically tough. The profit after tax delivered a CAGR of 57%. Cash & bank balance had a CAGR of 48% from FY’10 to FY’14.
AVT Natural is focused to grow its product and market diversification. It has forayed into Value Added Beverages vertical where “Decaffeinated Tea” product is doing well overseas. Other products offered are Green Tea and Instant Black Tea. It has also set up a solvent based extraction plant in Cochin having processing capacity of 7000 MT for Decaffeinated Tea wherein caffeine is removed without compromising tea quality. He adds that the production capacity of “Instant Tea Plant” was enhanced by 1000-1200 MT in the existing extraction plant at Cochin towards the end of 2013-14. The company expects capacity utilization of Decaffeination plant to pick up from around 50% in FY’14 to around 75% -80% by end of FY’17. AVT has also set up a subsidiary in UK to meet growing demand for Decaffeinated Tea.
In terms of valuations, assuming AVT Natural is able to sustain its top line growth momentum picked up in Q1FY15, it is expected to deliver over 25% revenue growth in FY’15. Based on annualized consolidated PAT margin of 14.50% (same as in FY’14), its FY’15 EPS works out to be Rs 3.45. Valuing the company at P/E multiple of 20x for FY’15, the target stock price of Rs 69 is arrived at, which is a 50% gain from the CMP.
AVT Natural has “Asia’s 200 Best Under A Billion (2012)” title awarded by Forbes.
HDFC Securities, in a report issued in March 2013, have identified the risk factors as follows:
“Weather and pests are the biggest concerns as AVT is dependant entirely on agriculture. Dependence on weather also makes the industry seasonal in nature with H2 being the better half.”
DCB Bank Ltd:
Sandeep Sharma of Hem Securities has recommended DCB Bank for investment.
DCB Bank has made a remarkable turnaround in a tough environment by focus on consolidation and steady improvement in most of the parameters. DCB is well-placed in terms of capital adequacy and asset quality, which are major concerns of the banking industry.
Going ahead, DCB Bank is focusing on a branch expansion, which is estimated to rise from 134 in Q1FY15 to 185 in FY16. The management has guided at doubling the bank’s balance sheet in three years time. The bank’s balance growth on a YOY basis is 17%.
DCB Bank is trading at an attractive valuation at 10.83x and 9.80x of FY15EPS of Rs.7.39 and FY16EPS of Rs.8.16. The target price is Rs.120 (appreciation of about 50%) in the medium to long term investment horizon.