Saturday, September 1, 2012

ANSWER FOR THE QUESTION IS .....


It is happy to say that the response for my request to find out a company with the given specifications in last weeks posting was overwhelming.Out of the received responses 26 readers send the correct answer.Answer for the question is SIMRAN FARMS LTD.I believe none of  other companies listed in BSE satisfying all the mentioned conditions .
Congratulations for all who spend time to find out  the answer.


 All those who send correct answer  accepting  that the valuation of SIMRAN FARMS is very cheap and at the same time expressed their  opinion about the reasons for such a low  valuation.So let us look into its details.

For my old posting on this same company click HERE





THE INDUSTRY

The Indian meat consumption statistics as follows -   Buffalo meat about 23.33 percent, cattle 17.34 percent, sheep 4.61 percent, goat 9.36 percent, pig 5.31 percent, poultry 36.68 percent and other species 3.37 percent.The Indian poultry industry is estimated at USD 3.6 billion and it is growing at a CAGR of 10%. Currently India is the third largest egg producer and one among the six largest producers of broilers in the world.chicken meat production grew from 939 thousand tons in 1999-2000 to 3 million tons in 2011-12 and going forward  it is expected to increase sharply  due to shift from consumption of other meats to chicken on account of health concerns.

LISTED COMPANIES FROM THIS SPACE

On a standalone basis three listed companies are operating in this sector viz,Venky’s India , Srinivasa Hatcheries and Simran Farms.On the basis of turnover Simran ranks the second next to Venkey’s India .Due to the sheer size and fully integrated operations no meaning in comparing Venky’s and Simran.So only a comparison between Simran and Srinivasa make some sense.The second largest company Simran is valued at just Rs.10 Cr market cap but the next player trading with a market cap of  Rs.64 Cr !.

 WHY LOW VALUATION ?

IMPACT OF INSUFFICIENT MONSOON


Even the company posted an EPS of Rs.5/- in first quarter alone, its share price didn’t move anywhere.The major reason for this (in my and many of the readers’ opinion ) is the expectation of a sharp rise in feed prices in the coming quarters .The two major components of broiler feed is Maize and Soya and its farming area may shrink due to insufficeient  rain  in this season.On account of this reasons prices of this commodities already shot up and this will surely impact the profitability of Simar in coming few quarters.

LOWER PROMOTER HOLDING ?

Some investors shared their concern over the low promoter holding of 35%

WHAT WE CAN EXPECT AHEAD

The first reason is a reality and there is every chance for a lower profit or even a loss in next few quarters .But on the other side this fact is known to all market participants and to a great extent it is  already discounted in the current market price. I am not sure  how much the recent revival in monsoon will help , if it is significant one can even expect some positive surprise.As I mentioned in last posting ,this company have already seen these type of up and downs and one of the few listed companies  surviving and growing over 22 years in this industry which is not a small thing.Regarding the stake of promoters – 35%  promoter stake in a company is neither bad nor aggressive.Before we thinking about why they are not hiking their stake even it is available at a cheap valuation we must look at the recent change in their attitude too.Even this company is existing for the past 22 years it never paid dividend for 20 years.But in last year it paid a 10 % and surprisingly even on a lower profit it decided to pay 8% in this year too.This clearly indicating their changing attitude and I believe in near future they will merge their privately owned companies one by one into the listed entity.In such a case they can easily hike their stake and need not buy it from open market.Also.a  higher price due to open market purchase will not help them to ensure a favorable merger ratio even if it is not decided only on the basis of stock price.If such a move happens that will be a game changer  for Simran .Company will become an integrated entity with   feed production and production of medicines and vaccines for chicks along with core activities .Value added products from chicken may also a possibility at a later stage which will surely increase profit margins going forward..

At present market is ignoring many positive factors and projecting only the near term hiccups and valuing the  company at a throw away price of less than Rs.10 Cr for the entire company . I am looking this price rise of feed and occurrence of some bird flue cases  in the past as a natural entry barrier and this will help to weed out small players from the business .Such cases will ensure survival of only the fittest.It is a fact that ,only very few companies surviving even in organized sector mainly because of such uncertainties and it is one of them which is here for last 22 years and increasing their business at a rapid pace .If any sharp fall happens from here due to any knee jerk reaction to the next quarterly result ,true value investors  can look into it. It is one of the very few stocks from small cap space giving comfort even at current price level  based on minimum downward risk and decent dividend yield .Remember , contra decisions and sufficient patience is the father and mother of multi baggers.

LINK TO THE RECENTLY LAUNCHED WEBSITE OF THE COMPANY HERE

Notes :



 This same stock   once recommended in June 2010 @ Rs.30 and thereafter hits a high of Rs.86 in November 2010 and now back to the previously recommended level.

 I have vested interest in this stock , hence my views may be biased ,do own due diligence before investing.



58 comments :

  1. Dear Value Pick,

    Really enjoyed working with your clues.:D

    Best Regards,
    Shankar.

    ReplyDelete
  2. dear value
    great ! but there is a sharp rise of more than 50% in share price in last 20 days.
    PATIDAR

    ReplyDelete
    Replies
    1. Yes,try to enter only at your comfortable price level.

      Delete
  3. Dear Valuable & Prominent Sir , My big thanks to you, Already I invested because I expected it by your comments.

    Sir Kindly plz plz Plzzz Guide me should I buy Granules India at this level( If not plz Suggest me the entry level )


    RAJESH

    ReplyDelete
    Replies
    1. Depends on your risk profile .It recommended 3 times from a level of Rs.79 onwards.Level of entry is the most important factor for the success of any investment in stocks.

      Delete
  4. @what price u have invested? as price has already moved from 20 to 30 so handsome gain for some one of 50%

    ReplyDelete
    Replies
    1. Dear Zulfiqar
      I don't know why people so much bothered about the entry price of others ? .Only own investment will pay for every one . I don't think it is a good attitude- only we should gain from market .Let everyone get money.One should enter only at a price where that person is finding value and comfortable entry level , not others entry price will save anyone.If you are questioning my integrity I would like to clarify that If I find a good stock surely I will buy the same before I am posting it in my blog . I believe only fools will do the opposite.But normally I never sell when my readers came for buying it on my recommendation.Moreover I am not deep pocketed to mop up shares in bulk and offload it when there is buyers ,for make a killing.I don't believe the fundamentals of any company will change over night and hence my aim is only long term.

      Delete
    2. Very well said VP. There are some nusense voices whenever you wish to do good things in life. Please ignore such noises

      Delete
  5. Great.Though this was always in my radar as you have recommended twice I never thought this could be the one. Excellent work Sir.

    How about ABM knowledgeware. Its back again in 50s. I see lots of good news including promoter increasing their stake but No signs of improvement in stock price.

    ReplyDelete
    Replies
    1. Thanks,

      About ABM , risk may be limited but not expecting any chance for significant up move now.

      Delete
  6. Hello sir,
    Is it good to buy Heritage foods at current levels ?

    ReplyDelete
    Replies
    1. Already recommended and no change in previous opinion.

      Delete
  7. This may turn ++VE if it really happens

    National Egg Coordination Committee NECC has appealed to the government to ban exports and forward trading in soya meal and maize or place quantitative restrictions on both the activities to bring down the prices of these essential ingredients and provide relief to farmers

    http://www.thehindu.com/todays-paper/tp-national/article3783090.ece

    This appeared on 16 Aug 12 . After that stock has seen sudden spike from 22 levels to 30 levels

    ReplyDelete
  8. Sir

    What is the view on 3iinfotech, under new management....

    Sumeet

    ReplyDelete
    Replies
    1. I am not tracking this company and not aware about any management change.

      Delete
  9. Sir
    Another valuepick Mazda Ltd is available at almost the same price when recommended by you in 2010. Will it be prudent to invest in it. What is your current opinion on it.

    Sanjeev

    ReplyDelete
    Replies
    1. Dear Sanjeev

      Engineering cos may under perform in short to medium term due to lower capex

      Delete
  10. i was already hopeful for simaran farms. Now again time has come back.

    ReplyDelete
  11. Dear VP,

    Looking at the Poultry industry's CAGR of 10% , How do you evaluate

    1)Hester Bio science at current 120 Levels.

    2)Alchemist :- 73 Cr Market Cap , 522 Cr Turnover , PAT 16 Cr.

    Shyam

    ReplyDelete
    Replies
    1. Dear Shyam
      Though Hester is not a bad company , big poultry companies plans to set up own vaccine manufacturing is a point to note.Regarding Alchemist , I am not comfortable with the corporate governance and even some accounting policies , share price may move reasons other than fundamentals.But no confidence to recommend it for others.

      Delete
  12. hi vp ,
    keep up ur great work ... wht do u think of rei agro?
    regards-sumesh

    ReplyDelete
    Replies
    1. REI Agro is a stock over owned by retail investors .Such stocks will be slow movers in these kind of market conditions.

      Delete
  13. JHS Svenguaard - Company having 61 crore cash and market cap of 74 crore..... it is time to buy ?

    ReplyDelete
    Replies
    1. Promoters of JHS collected money through ipo for their another company named Sunehari exports which was in the same line of business. Where is that company now ? .I have no faith in these type promoters.

      Delete
  14. VP sir,
    I have Granules from 139 levels and wanted to know at what levels should we book profit as the run has been fast. I think holding for next 2 years will be good but with run as fast as this should we book at current levels or hold?

    Thanks for the recommendations. Its been excellent..

    ReplyDelete
  15. dear vp sir,

    you are doing a commendable job .. keep it up. what is your opinion on shree ganesh jewellery , 6600 crores annual turnover, 527 crores market cap, 6rs dividend , promoter stake 70 % , available at 85 rs !

    regards

    ReplyDelete
    Replies
    1. Not positive on the business model of Gold Jewellery exporters and retailers

      Delete
  16. Dear VP
    Prices of Eggs already increased in retail market by Rs. 1/per egg. The industry will be able to pass on increase in their cost of production.

    ReplyDelete
  17. Dear sir,

    is sicagen and medicaps are good buys for medium term at the moment?

    regards,

    ReplyDelete
  18. Dear VP,

    Selan Management is considering the buy back in the shares. How do you see this development. I am holding 2500 shares @ 250.

    Regards

    Neil

    ReplyDelete
  19. sir

    what's your take on cochin mineral rutile touching lower

    thanks

    ReplyDelete
    Replies
    1. Already recommended sell around Rs.250/-

      Delete
  20. Hi Value Pick,

    I remember one of your earlier recco CHAMANLAL SETIA EXPORTS. Is it time to look back to this company as well

    Regards

    Naveen

    ReplyDelete
    Replies
    1. Rice exporters may face some problem on lower monsoon

      Delete
  21. Sir
    I was looking for your update on KECL. If you can kindly oblige.
    Thanking You

    Brijesh

    ReplyDelete
  22. Dear Valuepick,

    Is the profit margin not a concern? I am looking at data from a prominent financial website and the profit margin is very less. Is that a reason for this company being given lower valuations?

    thanks
    Siva

    ReplyDelete
    Replies
    1. Yes Siva , currently it is low because of no value added products .But backward and forward integration may change the picture.They recently started own feed mill to reduce the cost of feed .Wait and see..

      Delete
  23. sir,

    Your take on NILE , seeing the huge demand for batteries and power shortages in most states,there is demand for inverters etc even though slowdown in auto industry, and recent expansion of amarraja batteries,as LEAD smelter raw product is in demand how do you forsee NILE.

    Thanks

    ReplyDelete
    Replies
    1. No change in my previous opinion on NILE ,search the blog.

      Delete
  24. Sirji,

    Any update on Vulcan, Jay Tea, KECL, National Building and Dolphin?

    Pratik

    ReplyDelete
    Replies
    1. Is it Kirloskar Electric ? .Hold it and Vulcan only if you have some loong term view .Hold the rest.

      Delete
  25. I understand that CCCL had done a mistake in its project valuation. The promoters and the book looks interesting. The reserves of the company are twice of the market cap and is trading at a low PE. What is your take on CCCL for a turn around story for the long run?

    Vishan

    ReplyDelete
  26. Sir,
    What's your take on 'Camson Biotech' - debt free company in niche business sector - trading @cmp 50. Also posting consistently EPS of nearly 4.
    Pls share your thoughs.

    ReplyDelete
    Replies
    1. Not sure about the quality of management , so neutral on it.

      Delete
  27. dear value

    aries agro and tata chem is still buy for long term?
    patidar

    ReplyDelete
    Replies
    1. Hold Tata Chem

      There is a common saying

      Any stock which is a bargain buy in all market condition is not at all a buy.

      Delete
  28. whats your take on venus remedies ?

    ReplyDelete
    Replies
    1. Not sure about the current status of FCCB which they defaulted and then rescheduled earlier.So no comment on this.

      Delete
  29. Dear sir...
    Charansparsh..!!!!!
    I closely track ur style of analysing....nt d recomendations...its secondary as I think... even amcs also dnt hav dat virtue I think...
    salute to ur work...mind blowing..
    Ur imparting style/approach in many investors like me ..thanks once again
    ..aditya deshpande pune

    ReplyDelete
  30. Dear Valuepick,
    U are a real boon to value investors..I would like to know ur valuable suggestion on Bliss GVS Pharma if you are tracking the same.I think this is a company with good fundamentals operating in a niche segment in the pharma sector..Thanks in advance

    ReplyDelete
  31. More than once I commented about this company ,please search

    ReplyDelete
  32. It keeps hitting upper circuits since the past few days. Orders are not getting executed lol.

    ValuePick, What would be your one-two year target for this scrip now that it's overachieved once and came back to buying levels? (You mentioned that due to feed price increase a few quarters may be affected so a bit confused)

    PS: Had mailed you yesterday, thanks for replying :)

    ReplyDelete

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