VADILAL INDUSTRIES LTD - BUY

 

Vadilal group originally started its operations in Gujarat way back in 1907.Now its flagship company Vadilal Industries ( BSE CODE - 519156) is the second largest Ice Cream maker in India.Company is also a dominant player in frozen vegetables , ready to eat snacks, curries and breads. Company is producing Ice Creams  in  150 plus flavors and they are sold in a variety of more than 250 packs and forms. The range includes cones, candies, bars, ice-lollies, small cups, big cups, family packs, and economy packs.Vadilal operating two Ice Cream  manufacturing plants ,One  in Ahmedabad and the other in Bareilly.After the recent capacity expansion at a cost of more than Rs.100 Cr ,it manufacturing capacity reached at  375,000 lpd from 225,000 liters per day .After this capacity expansion Vadilal is now eying new markets beyond their traditional markets of Gujarat and Rajastan (excluding southern states and Mumbai and Goa). Its marketing arm is establishing  ‘ HAPPINEZZ ‘ Ice cream parlors through own and franchise route. 200 such retail outlets already in place and is planning to double it in next two years.Vadilal also planning to  add 3,000 retail points-of-sale in Uttar Pradesh alone, in addition to the 10,000 such points across North India. Last year company introduced four varieties Badabite, Flingo, Gourmet  and Ice Trooper in premium segment .Indian Ice cream market is worth Rs. 2,500 crore with an annual growth rate of  18 per cent. Considering the fact that the average consumption of Ice Creams in India is just 300 grms a person per year where it is 24 litres a person in several developed countries , the potential is very big for this business.Vadilal is a well known brand with sufficient infrastructure  in a business where establishing and maintaining a large cold chain is not an easy task for any new entrant. Moreover Vadilal is the company with lowest supply cost even compared with Multinationals.

                                                                                    As part of utilizing the  full potential of its cold chain ,company successfully extended its brand to Frozen vegetables,Fruit Pulps,Parathas,Fruits,Ready to Serve Foods ..etc under the brand name ‘VADILAL  QUICK TREAT’ .Even the current market size of these non ice cream products are limited ,company received very good response for these items from where it launched and planning to extend its market reach for these products too.Growing non ice cream sales will also minimize the impact of seasonality of operation in its business where more than 75 % of sales is currently from a single quarter ( March- June) due to the effect of summer.This  change in trend is visible in latest March quarter where company posted profit after many years.Only negative about this company is its high leverage due to the debt raised for recent capacity expansion.But even after providing the cost for this , company is generating decent profits. Promoters are now planning to reduce debt  with some dilution in equity.Since the company having low equity considering its size of operations and large promoter stake some dilution will not create any problem but ease its leverage to a large extent. Currently Vadilal is one of the lowest valued FMCG player .

                                                         For the last financial year ,Company posted  a sales of Rs.285 Cr , net profit of Rs.6 Cr and an EPS of Rs.8/-Considering its brand value,potential of the business and chances of benefits from recent capacity expansion Vadilal Industries is a company to perform well in future .An earlier de leveraging is a catalyst to re write its current valuation and any delay/shortfall  in Monsoon may act as  an Icing on the cake for the short to medium term.Trading both in BSE and NSE @ CMP is Rs.105/-