K.S.OILS LIMITED BUY SYNOPSIS. V.S.R. Sastry Vice President Equity Research Desk

Transcription

1 K.S.OILS LIMITED BUY CMP: Rs Date: 29 December,2009 Key Ratios: Particulars FY08 A FY09 A FY10E FY11E OPM(%) NPM(%) ROE(%) ROCE(%) P/BV(x) P/E(x) EV/EBDITA(x) Debt Equity(x) Key Data: Sector Edible Oils Face Value wk. High/Low (Rs.) 73.00/39.05 Volume (2 wk. Avg.) BSE Code V.S.R. Sastry Vice President Equity Research Desk vsrsastry@firstcallindiaequity.com Target Price: Rs Market Cap: Rs mn. SYNOPSIS We initiated the coverage of K.S.OILS Ltd and set a target price of Rs for medium to long term gains. K S Oils Limited is a leading Fast Moving Consumer Goods edible oil player from India with two leading brands, Double Sher and Kalash. With a wide range of product offerings across all edible oils, like mustard, soyabean and palm oil, its products are available under the brand name of Kalash and Double Sher. A leader in mustard oil in India, K S Oils today enjoys 11% market share in the overall mustard oil segment with a dominant 25% market leadership in branded mustard oil. KS Oils has acquired an additional 53,000 acres of land for development of palm oil plantations in Indonesia. The revenue of the company for the quarter ended on Sept 30 th increased 29% YoY while profit increased 19% YoY. The topline of the company are expected to grow at a CAGR of 32% over 2008A to 2011E. Share Holding Pattern: Dr. V.V.L.N. Sastry Ph.D. Chief Research Officer drsastry@firstcallindia.com

2 Table of Content Investment Highlights... 3 Peer Group Comparison... 3 Financials... 8 Charts Outlook and Conclusion Industry Overview... 13

3 Investment Highlights Results Updates (Q2 FY10) The bottomline of the company for the quarter increased 19% yoy that is Rs mn from Rs mn of same period of last year. Total revenue for the second quarter stood at Rs mn from Rs which is 29% increase than that of a year ago period. EPS for the quarter stood at Rs.1.27 per equity share of Rs.1.00 each. Expenditure of the company increased 27% YoY to Rs mn from Rs mn of same period of last year. Interest expenses for the quarter stood at Rs.347.8mn. OPM & NPM for the quarter stood at 13% and 5% respectively. Quarterly Results - Standalone (Rs in mn) As at Sep - 09 Sep - 08 %Change Net Sales Net Profit Basic EPS Equity Capital

4 Kalash and Double Sher register increased growth and sales across India.

5 The company added 2 C&F agents, 97 distributors, launched its products in over 100 new towns during the quarter; taking the total number to over 1,133 distributors in 1,200 cities covering 375 districts all over India, reaching out to over 1,70,000 retailers. KS Oils acquires additional palm plantation land in Indonesia KS Oils has acquired an additional 53,000 acres of land for development of palm oil plantations in Indonesia. This land has been purchased through its Singapore-based whollyowned subsidiary, K S Natural Resources. The acquisition will be funded through internal accruals and debt at subsidiary level. Further, the company is expected to spend about Rs 380 crore on this project over the next three years time. KS Oil bags various honours KS Oils has bagged various honours such as 'Highest processor of rapeseed oilcake for oil for year ' and '2nd Highest exporter of rapeseed extraction (De-oilcake) for oil for year at Solvent Extractors Association of India's award Further, it has also received the award 'Kalash" -- as the fastest growing Edible Oil Brand in India for oil for year ' at Globoil India Award. KS Oils raises $12.34mn via GDR issue KS Oils has raised little over $12.34 million worth of fresh funds via global depository receipts (GDR). The board of the company has approved allotment of 1,24,09,520 equity shares of Rs 1 each underlying the GDRs issue and raised fund of $12,347, The funds raised are expected to be utilized to do capacity expansion at Haldia refinery and on palm plantations in Indonesia. Company Profile K S Oils is a leading integrated edible oil company and is the trusted name behind renowned brands like Kalash, Double Sher, K S Gold, among others. The company s consumer brands and products in mustard oil, soybean oil and palm oil are a household name with Indian consumers who use these oils regularly as a healthy cooking medium. A leader in mustard oil in India, K S Oils today enjoys 11% market share in the overall mustard oil segment with a dominant 25% market leadership in branded mustard oil. K S Oils is an Indian company with international footprint and global ambitions; a leader in the edible oil market in India, it has generated a turnover of over Rs crores during the

6 financial year The company has in the recent past successfully undertaken the growth strategy of capacity expansion, green field projects and acquisitions, thus creating an unchallenged competitive advantage. K S Oils is a strong family of near to 3000 employees spread over its 5 manufacturing plants, marketing offices and plantations in India, Malaysia, Indonesia and Singapore. With the company registering explosive growth, opportunity for fresh and experienced talent is immense with Indian and overseas opportunities. As one of India s leading companies in the edible oil sector, K S Oils has deep understanding of agri-commodity and farmer community issues. Today, K S Oils is part of the Indian growth story using the country s inherent strength in agricultural resources and best managerial talent to serve millions of consumers in India and abroad. Creating an Indian MNC with international footprint of knowledge, leadership and value for its stakeholders across the globe! Subsidiaries K S Natural Resources Pte. Ltd. K S Natural Resources Pte. Ltd. (KSNR) Singapore is one of Asia's fastest growing agrifocused conglomerates, with diverse interests in agri-commodity trading, export and import of edible oils, oil palm plantation cultivations. It has interests in value added areas like oil mills, logistics, port facilities and ocean carriers. The Singapore headquartered company, KSNR, is a 100% subsidiary of K S Oils Limited, India's leading edible oil FMCG player. Company Products Over the past two decades, K S Oils has built, nurtured and continually improved upon its various brands of edible oils. As a leading FMCG player in India and a leader in the mustard oil segment, K S brands dominate the market especially in East and North East India. Brands Mustard Oil o Kalash o Double Sher Refined Oil

7 o K S Soya o K S Gold Vanaspati o K S Gold Plus Manufacturing Process K S Oils has all its manufacturing plants located in the rich mustard growing belt of Madhya Pradesh and Rajasthan in India. The mother plant is situated in Morena and is one of the best state-of-the-art integrated manufacturing facilities in the country. This unit situated in the midst of the Mustard growing region of Madhya Pradesh is a state-of-the-art plant that houses all facilities under one roof. Equipped with Kohllus and expellers to crush the oil seeds, refineries to refine the crude oil, solvent extractor, vanaspati plant and storage tanks; what makes it an integrated plant is its packaging department.

8 Peer Group Comparison Name of the company CMP (As on 29 Dec, 2009) Market Cap. (Rs. Mn.) EPS (Rs.) P/E (x) P/BV (x) Dividend(%) K.S.OILS LTD RUCHI SOYA INDUSTRIES LTD SANWARAIA OILS LTD AMRIT BANASPATI COMPANY LTD Key Concerns A macro threat is that of vegetable oil seeds being diverted for non-food production like bio-fuel and other alternate energy. Rising crude oil prices and volatility in international prices are the other sources of concern. Macro economic and global issues like inflation, recession, political and social upheavals, in adequate or excessive rainfall, acts of God and nature will have an effect on the industry as a whole

9 Financials 12 Months Ended Profit & Loss Account (Standalone) Particulars FY 08 A FY 09 A FY 10 E FY11 E (Rs.Mn) 12m 12m 12m 12m Net Sales 20, , Other Income Total Income 20, , Expenditure -18, , Operating Profit 2, , Interest Gross Profit 1, , Depreciation Profit before Tax 1, , Tax Net Profit 1, , Equity Capital Reserves 6, , , , EPS

10 Quarterly Ended Profit & Loss Account (Standalone) Particulars Mar 09 A June 09 A Sep 09 A Dec 09 E (Rs.Mn) 3m 3m 3m 3m Net Sales 8, , , Other Income Total Income 9, , , Expenditure -7, , , Operating Profit 1, , , Interest Gross Profit Depreciation Profit before Tax Tax Net Profit Equity Capital EPS *A=Actual, E=Estimated

11 Charts

12 Comparative Graph K.S.OILS LTD BSE SENSEX Outlook and Conclusion At the current market price of Rs.63.75, the stock trades at a P/E of 11.50x and 9.61x for FY10E and FY11E respectively. On the basis of EV/EBDITA, the stock trades at 5.24x and 4.57x for FY10E and FY11E respectively. Price to Book Value of the stock is expected to be at 2.12 and 1.74 respectively for FY10E and FY11E.

13 EPS of the company for the earnings of FY10E and FY11E are expected to be at Rs.5.54 and Rs.6.63 respectively. The Net sales of the company are expected to grow at a CAGR of 32% over 2008 to 2011E. Kalash and Double Sher register increased growth and sales across India. The company added 2 C&F agents, 97 distributors, launched its products in over 100 new towns during the quarter; taking the total number to over 1,133 distributors in 1,200 cities covering 375 districts all over India, reaching out to over 1,70,000 retailers. KS Oils has acquired an additional 53,000 acres of land for development of palm oil plantations in Indonesia. This land has been purchased through its Singapore-based whollyowned subsidiary, K S Natural Resources. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long Term Gains. Industry Overview India is one of the largest producers of oilseeds in the world. The oilseeds area and output is concentrated in Central and southern parts of India, mainly in Madhya Pradesh, Gujarat, Rajasthan, Andhra Pradesh and Karnataka. The nine major oilseeds cultivated in India are groundnut, mustard/rapeseed, sesame, safflower, linseed, niger seed, castorseed, soyabean and sunflower. Coconut is the most important source of edible oil amongst plantation crops, while in non-conventional oils, rice bran oil and cottonseed oil are the most important. Groundnut, soyabean and mustard together contribute about 85 percent of the country s soil seeds production. Oilseeds and edible oils are two of the most sensitive essential commodities. India is one of the largest producers of oilseeds in the world and this sector occupies an important position in the agricultural economy and accounting for the estimated production of million tonnes of nine cultivated oilseeds during the year India contributes about 6-7% of the world oilseeds production. Export of oilmeals, oilseeds and minor oils has increased from 5.06 million Tones in the financial year to 7.3 million tons in the financial year In terms of value, realization has gone up from Rs crores to Rs.7997 crores. India accounted for about 6.4% of world oilmeal export. Types of Oils commonly in use in India

14 India is fortunate in having a wide range of oilseeds crops grown in its different agro climatic zones. Groundnut, mustard/rapeseed, sesame, safflower, linseed, nigerseed/castor are the major traditionally cultivated oilseeds. Soyabean and sunflower have also assumed importance in recent years. Coconut is most important amongst the plantation crops. Efforts are being made to grow oil palm in Andhra Pradesh, Karnataka, Tamil Nadu in addition to Kerala and Andaman & Nicobar Islands. Among the non-conventional oils, ricebran oil and cottonseed oil are the most important. In addition, oilseeds of tree and forest origin, which grow mostly in tribal inhabited areas, are also a significant source of oils. Figures pertaining to estimated production of major cultivated oilseeds, availability of edible oils from all domestic sources and consumption of edible oils (from Domestic and Import Sources) during the last few years are as under: - ( In lakh Tonne) Oil Year Production of Net availability of edible oils Consumption of Edible Oils (Nov.- Oct.) Oilseeds from all domestic sources (from domestic and import sources) Source : (i) Production of oilseeds : Ministry of Agriculture (ii) Net availability and consumption of edible oils: Directorate of Vanaspati, Vegetable Oils & Fat India's annual edible oil demand, currently 14 million to 15 million tonnes, is projected to rise to 16.5 million in 2011 and 20.8 million in 2015, according to trade estimates.india, a net edible oil importer, buys mainly palm oil from Indonesia and Malaysia, and a small quantity of soyoil from Brazil and Argentina.India produces nine oilseed crops in a year. The major edible oilseeds are soybean, groundnut, rapeseed and sunflower.

15 India grows the oilseed crops over two seasons.soybean is the main summer sown crop, while rapeseed, with the highest oil yield content, is the main winter season crop.in the 2008/09 crop year, India produced 7.4 million tonnes of rapeseed and 9.9 million tonnes of soybean. In the crop year to June 2009, total oilseed output has fallen 5.4 percent to 28.2 million tonnes.india's vegetable oil imports, comprising edible oils, hydrogenated fats and non-edible oils, hit an all-time high of 8.7 million tonnes in 2008/09, up 38 percent from the record imports of 6.3 million tonnes in Consumption Pattern of Edible Oils in India India is a vast country and inhabitants of several of its regions have developed specific preference for certain oils largely depending upon the oils available in the region. For example, people in the South and West prefer groundnut oil while those in the East and North use mustard/rapeseed oil. Likewise several pockets in the South have a preference for coconut and sesame oil. Inhabitants of northern plain are basically hard fat consumers and therefore, prefer Vanaspati, a term used to denote a partially hydrogenated edible oil mixture. Vanaspati has an important role in our edible oil economy. Its production is about 1.2 million tonnes annually. It has around 10% share of the edible oil market. It has the ability to absorb a heterogeneous variety of oils, which do not generally find direct marketing opportunities because of consumers preference for traditional oils such as groundnut oil, mustard oil, sesame oil etc. For example, newer oils like soyabean, sunflower, ricebran and cottonseed and oils from oilseeds of tree and forest origin had found their way to the edible pool largely through vanaspati route. Of late, things have changed. Through technological means such as refining, bleaching and de-odouraisation, all oils have been rendered practically colourless, odourless and tasteless and, therefore, have become easily interchangeable in the kitchen. Newer oils which were not known before have entered the kitchen, like those of cottonseed, sunflower, palm oil or its liquid fraction (palmolein), soyabean and ricebran. These tend to have a strong and distinctive taste preferred by most traditional customers. The share of raw oil, refined oil and vanaspati in the total edible oil market is estimated at 35%, 55% and 10% respectively. Major Features of Edible Oil Economy There are two major features, which have very significantly contributed to the development of this sector. One was the setting up of the Technology Mission on Oilseeds in This gave a thrust to Government's efforts for augmenting the production of oilseeds. This is evident by the very impressive increase in the production of oilseeds from about 11.3 million tonnes in to 24.8 million tonnes in There was some setback in because of the un-

16 seasonal rain followed by inclement weather. The production of oilseeds declined to 20.7 million tonnes in However, the oilseeds production went up to million tones in and was million tonnes during oil year. As per the 3rd advance estimate by Ministry of Agriculture dated the production of nine major oilseeds is estimated to be about million tonnes during The other dominant feature which has had significant impact on the present status of edible oilseeds/oil industry has been the programme of liberalisation under which the Government's economic policy allowing greater freedom to the open market and encourages healthy competition and self regulation rather than protection and control. Controls and regulations have been relaxed resulting in a highly competitive market dominated by both domestic and multinational players. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but we do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

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