This stock earlier recommended in 2010 and appreciated
reasonably over this period.You may ask why this small and relatively unknown
company again near at its all time high price especially even it belongs to a boring industry like –Edible
Oil Manufacturing.This time it is due of some interesting developments in this company .When I recommend it in 2010
, even if its name indicates some
activities directly related with food
,it was mainly an Edible oil maker .As you are aware Edible oil is an volume
driven industry where profit margins are very thin.After hiking their stake
through a preferential issue and an open offer , now the promoters are moving
in the right direction.Slowly they are now transforming this company from
mere an edible oil producer to a food
company in true sense .Leveraging on
its good brand image and large marketing
network across India ( except south)
which consists of 50 depots, 1500
distributors and over 5 lakhs retail outlets
company now moving into value added products.
As I mentioned earlier , this company is a Gujarat based Edible oil maker producing
Groundnut ,Mustrad,Sunflower,Cotton Seed, Soya bean ,Rice bran and Corn oil
under ‘Vimal’ Brand.Since my readers are already aware about its edible oil
business through my earlier posting ,I
am not repeating it here.Let us go through the recent developments .
First of all ,In last week company decided to subscribe
31,20,000 equity shares of
Vimal Dairy ltd – a company owned by the same
promoters. By this purchase Vimal Oil will hold 52 % stake in Vimal Dairy and it
will be a Subsidiary of the listed entity.Vimal Dairy is one of the
largest
private sector dairy in
Gujarat
with a milk processing capacity
of two lakh litre milk per day.Company is now planning to hike its capacity
from 2 lakh LPD to 5 lakh LPD in near future.Considering the valuations of
certain deals materialized in dairy industry in recent past this valuation is
reasonable .Along with milk ,company selling many value added products like
Cheese,Paneer,Butter ,Flavoured milk and Ice Cream under ‘Vimal’ brand.( Link
to Company’s Ice Cream division
HERE)
In another development ,Vimal is now planning to introduce
dairy alternatives to target people who are not in a position to use dairy
items due to health issues related with life style diseases. Company will launch tofu to substitute paneer, soya
cheese and rice cheese to replace cheese, margarine to replace butter, soya
cheese spreads against cheese spread and soya mozzarella against mozzarella.Out
of this margarine is already introduced under the brand ‘Vimal lite’. Market
for these type products are now limited in India but growing at good pace. Health conscious life style will increase the penetration of these products going
forward and the sales trend we are experiencing in developed countries are
extremely positive for these items.
In another forward step ,recently Vimal
decided
to enter in the snacks and frozen food
category .Company will launch more than 20 snacks products under ‘Vimal Fresh’
brand in another three months.An investment of with a cost of Rs. 100 Cr is implementing
for this division.Frozen food brands
will be launched by 2015.( Read latest update
HERE) .There is lot of opportunities as well as challenges in both these
categories.Company already established good network even in remote villages for
its milk collection and edible oil selling .This will be an added advantage for
its new ventures.
Share holding and Financials.
Company having an equity base of Rs.11.5 Cr .Out of these
almost 75% stake is held by promoters and related parties (including 5%
shown in public category) .Not a single share pledged so far .It is interesting
to see that even this company having an equity of Rs.11.5 Cr its entire shares
are held by just 2000+ share holders .About the financials ,Vimal posted a
turnover of Rs.1248 Cr , a net profit of Rs.6 Cr and an EPS of Rs.5.5in last FY.Even its cash
flow is not very robust ,company never skipped dividend for the last 13 years.
I believe, company is now planning to reduce the quantum
of edible oil business mainly due to its low margin nature and mounting sundry debtors position and decidedt to concentrate in high margin ( compared with edible oil) value
added food products.For this expansion we can
expect some fund raising in near
future . Its recent decision to take
stake in dairy business is a step to increase the quality of its balance sheet
for this purpose . Purely on financial parameters, this stock is not suitable
for low risk investors.But I think the promoters realised the bad shape of
their present business and balance sheet and started treatment at the right time.These
type business acumen and flexibility is very important for the success of any
business.I believe ,leveraging on their vast experience and already established
infrastructure and marketing network Vimal will become a food company in true sense
in another few years .Since my above opinion is based only on some assumptions and readings from the body language of the
promoters ,some of their recent decisions and not on any numbers,I am not recommending this stock for those who
are die-hard fans of investment theories ,equations and ratios but only for very high risk kind investors.CMP is Rs.109 /-
Link to Company Website
HERE
Link to latest Annual Report
HERE
