CMP: 78 | TP: 140| Duration: 12-24 months October 10, 2010
Company
Lakshmi Energy And Foods (LEAF) is the new name of the company previously used to be called as Lakshmi Overseas Industries. LEAF is the leading firms in India that is into the manufacturing and processing of food grains. Its product portfolio includes cattle feeds, refined oils, whole wheat chakki atta, long grain white rice, long grain rice and more recently into varieties of basmati rice. It is recently expanding into electricity generation through husk and into wheat products.
Company Data
Share Data
| Market Cap (Rs) | 493 cr |
| Issued Shares (mn) | 63,190,000 |
| 52 wk High/Low | 175/76 |
Valuation Ratios
| To 31 Mar | FY09 | FY10E | FY11E |
| Revenues | 6922 | 10500 | 14700E |
| EPS (Rs) | 14.8 | 16.2 | 20 |
| P/E (x) | 6.6 | 4.8 | 3.9 |
Shareholding Pattern (%) (Quarter ending June,2010)
| Promoters | 44.97 |
| FIIs | 25.08 |
| MFs | 5.43 |
| Public | 11.55 |
| Others | 12.97 |
Positives
- · Strong presence in the non-basmati market domestically.
- · Foray into branded retail rice sales in the name of Lakshmi foods.
- · Retail foray will also reduce dependency on FCI purchases and hence volatile payments.
- · Foray into basmati market has proven beneficial and would have a super effect on the revenue stream going forward
- · Energy division which already generates 30MW power using the environment friendly bio-mass approach contributes to better operating margins and capacity expansions to almost 105MW in the next 2 years will be significant
- · Usually the quarter ending September is the best quarter because of lower raw material cost dependent on monsoons.
- · Favorable technical parameters. The price of 78 significantly discounts the 200DMA of 117 and the 50DMA of 91.
- · Fundamentally strong company available at super attractive valuations due to a one time quarterly pricing issue.
Concerns
- · Last quarter the shocking decision of the company to reprocess unsold finished goods and sell and the subsequent raw material price reductions contributed to a significant hit in the margins. But this we may expect as a onetime blunder by the company.
- · Floods in the northern part of India this monsoon could have caused significant damage to the standing crop. LEAF has significant rice fields in Punjab that was devastated by the floods. Waiting for some clarifications from the company on this front
- · Government’s decision to wait and watch to allow non-basmati rice for export is a dampener for the short term
- · Decision by Credit-Suisse to exit from LEAF was a dampener but IDFC fund house has bought LEAF from the market should balance it out.
Valuations
LEAF is a company with very strong fundamentals and currently available at super attractive valuations just because of a blunder (hopefully one time) by the firm and also because of nature’s fury as floods. It is trading at valuations of 4.8PE FY10 and 3.9PE FY11E. According to moneycontrol the industry PE is around 8. Considering PEs of 6, 7 and 8 we get target prices of 97.2, 113.4 and 129.6 respectively and for the long term we get a conservative target of 140 respectively. These are attractive returns and sure shot returns. Invest in LEAF for a period of 1-2 years and walk away to your banks with a lot of smile in your face. Recommend a strong BUY in this counter.
Disclaimer
I am a newbie into equity research. This blog is to start posting my research reports on various stocks. The information and views presented in this report are prepared by me. The information is based on my analysis and on sources available on the public domain. Investors are requested to use this report as guidance and the final decision to be made by the investors themselves. I will not be responsible for any loss incurred by the investor based on this report.
7 comments:
Hi Karthick,
I have seen your blog yesterday when i was looking for some negative information about Lakshmi Energy. I am holding this stock for around 3 years. Last year i booked some good amount of profit when rice prices are skyrocketing. Currently i hold this stock for around 40% of my portfolio. Do you see any other negative points about this stock? I see that it is going down like anything and i am also buying like there is no tomorrow. Please suggest.
Thanks,
Sankara Narayanan
I hold a significant position in this stock and will continue to. The reasons include, the rice prices will shoot up again this year due to massive floods in North India and in KG basin the 2 rice producing fields in India (same happened for basmati rice when floods happened in Pakistan), operational efficiencies through captive power production and the other one was export of non-basmati rice, which I think is not going to happen due to the floods. So hold on for a few more weeks and we can see some good results.
I hold position in this stock and would agree with you. This company is planning to foray into basmati rice exports. The news of demerger of its energy arm is also a positive news.
http://www.lexvidhi.com/article-details/value-creation-through-demerger-48.html
Any idea. Where will it stop going down? Now almost half of its book value. I agree that still major issue in their paddy processing business and power business. But market punished too much.
If you have some money this is a good time to average. LEAF has gone down along with the market (proportionally). The issue is that FIIs have begun to exit. This year the FIIs may be few, because of the strong dollar and hint of US revival, a lot of investment may flow into US to make some good money. But DIIs are expected to pitch in, but again on large caps where the valuations are good as of now. Inflation is also a problem as of now. We have to wait till June to get some clear picture since H2 is expected to be good for the markets.. But good time to average now. BTW, am still holding this stock. Still to average.
Hi Karthick, Are you still buying this stock? What do you think about their retail foray. Debt to equity ratio is slowly going up. Only hope is that soon Government may allow export of normal rice due to huge pile. Please let me know your view. I am still buying a lot.
With pressure on the government to provide proper storage godowns and not to waste the produce, rice export is inevitable. Lets hope for the best.
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