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05 Mar 2011

Venkys Buy @ 515

Venkys Limited was established in 1976 by Late Mr. B V Rao who is widely known as 'The Father Of Indian Poultry Industry'. His contribution to the poultry industry was recognized by Government of India by awarding him the Padmashree.

 Venkys is a dominant  player in the Indian Poultry industry.  Products of the company include- Day Old Chicks, Processed Chicken, Animal Health Products, Pathogen free eggs and Pet foods. Turnover for the first 9 Months ending 31st Dec 2010 grew by 23 % yoy at Rs 627 Cr. Profit before tax at Rs 87 Cr was up 60% and Net profit at Rs 58 Cr was higher by 70%. The company has small equity base of Rs 9.39 Cr (93 Lakh shares of Rs 10 each). Based on first 9 months turnover the company should end the year with an eps of Rs 77 . At cmp of Rs 515 the earnings are being discounted just 6.7 times. For the year ended 31st March 2010 the company had reported an EPS of Rs 58. The book value per share as on 31st March 2010 stood at Rs 229, and debt stood at a comfortable  Rs 89.91 Cr. Interest coverage ratio was over 17 times . Debtors as on 31st march 2010 were less than a months turnover and inventory carried  forward as on that date  represented 45 days  turnover, signifying efficient working capital management. The global economy has been witnessing a rapid rise in food prices for the past 3-4 years as millions of Indians and Chinese improve their food intake with a rapid rise in their income levels. With a rapid growth in turn over, strong balance sheet and a strong presence in the much sought after food industry, makes Venkys a very attractive buy.

 Risks:  Maize and Soya are the key ingredients of the poultry feed. A sudden spurt in the prices of these two ingredients can put a pressure on the companies’ profit margin. Spreading of bird flu can turn sentiment negative for the stock. The group was recently in news for having taking over English premier  league club - Blackburn for a consideration of  about Rs 150 crore . There was a concern among the investors that there could be diversion of funds to fund the takeover. The fears seems to be misplaced as the interest costs remain unchanged on quarterly basis.