KSE Ltd- Fodder for thought

KSE Ltd (previously known as Kerala Solvent Extractions Ltd) was established in 1963. 

It operates  3 business divisions: Animal feed, Oil-cake processing and Dairy which produce  cattle feed, solvent extracted coconut oil, rice bran oil, de-oiled and oiled coconut cakes and other oil cakes

It is the very first solvent extraction plant in India

KSE Ltd ( KSEL) was promoted by K L Francis, M C Paul, T O Paul and A P George.

The company came out with a public issue at a premium of Rs. 20 aggregating Rs. 2.43 cr in May '94, to meet part of the long-term working capital needs. 

Multi Locational Multi product organization- has 5 production units in Kerala and 2 in Tamil Nadu. Apart from these, it also has 2 outsourced units

Promoter Shareholding : 32.44%

Current Segment revenue mix:

Cattle Feed ( KS brand) to dairy farmers: 75-76%

Oil Cake processing: 21-22%

Dairy products ( Vesta brand sold on a retail basis): 3-4%

All the above products are largely sold in Kerala & also in TN.

Cattle feed division has a network of about 600 distributors.

The above products could be broken down into the following brands:

• KS Milk (milk)
• KS Vesta (ice cream)
• KS Supreme Pellets, KS Delux Plus and KS Forte (cattle feed)
• KS Supreme (sunflower refined oil)

Key positives:

Cattle feed segment has strong prospects as:

Fodder (Feed for livestock, especially coarsely chopped hay or straw) is becoming scarce.

Grazing grounds are getting limited offering exciting opportunity in this space for cattle feed manufacturers.

The company is the market leader in the cattle feed segment. Moreover its has been increasing market share.profitably . 

Main competitor Kerala Feeds is a state govt enterprise and hence has more of a social rather than profit focus.

Current year results have been helped by high price of coconut oil to some extent.

Excellent demand for products as can be seen from low debtors of 1.24 cr  ( which is less than one day’s revenue) as against revenue of 259 cr for six months ended sept 11.

Uninterrupted dividend record since 1976

Challenges:

Employees: 926 . Problems at Vegadir unit. History of periodic labour unrest

Copra cake needs to be imported due to domestic shortages.

Increasing raw material costs

Indirect control by Kerala Govt over price of milk which is a bottleneck in increasing price of feed to offset increase in raw material price.

Financials:

Equity : Rs.3.20 cr

Debt: Rs.17.40 cr

Current Market price: Rs.234

Market Cap: Rs.75 cr

2010-11:

Revenue: Rs.455 cr

PBT: Rs.6.67 cr

PAT: Rs.4.50 cr

EPS: Rs.14.06

Dividend: Rs.10 per share

6-months ended September 2011:

Revenue : 259 cr ( 20% growth yoy)

PBT: Rs.8.69 cr

PAT: Rs.5.88 cr

Promoter Shareholding : 32.44%

Reasons for fodder becoming scarce:

Decreasing area under grasslands, combined with an increasing diversion of crop resdiues for fuel and industrial uses, is creating an acute scarcity of fodder supply for India’s livestock.

Of late, villagers are choosing to use crop residues, such as wheat and rice straw, as fuel wood, instead of diverting it to fodder,

Due to low per acre yield and minimum area under fodder production, the available fodder supply is much less than actually needed.

Valuation:

Dividend payout ratio has been a minimum of 40% of PAT. Current year EPS is conservatively expected to be between Rs.30 & 35.Fodder scarcity offers a large & exciting growth scope for the company . The management is conservative and investor friendly. They have been reducing debt . Also promoter stake has slowly increased over the last one year. Additionally the company has about 4 acres plus land in Mysore which may be monetized in the future. A resolution to this effect has been passed by the company 4 years back.

At the current market price of Rs.234, the company is available at an  EV of about 92 cr. I leave the rest of the valuation math to readers.

At the time of writing this report, the author /his family have an investment interest in the stock mentioned above. Under no circumstance does the information in this report represent a recommendation to buy or sell the above-mentioned stock.  This report has been prepared and issued on the basis of publicly available information, internally developed data & other sources believed to be reliable. This is just a suggestion solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments. 

Forbes & Company-Thirsty for growth

Forbes & Company  is one of the oldest companies (since 1767) in the world still in business.Over the centuries, the management has moved from John Forbes’s family to the Campbell’s to the Tata group and now finally rests with the Shapoorji Pallonji group.

Time and again the company has flattered,only to deceive. The 20 year high low of the stock is Rs.1039.70 ( 2008) and Rs.38.05 (2001). Since the present management (Shapoorji Pallonji) have taken over about 9 years back ( from Tata’s and minority shareholders between Rs.80 and 90 per share), the stock price has risen from about a Rs.50 / 60 level ,and, of late, settled in the range of Rs.300 and 500 during the last 3 years except a brief spurt to Rs.618 in June 2009.

The company has been liberal in production of off springs ( more than 30 subsidiaries / associate companies) . Most of these have miserably failed to do anything noteworthy- the one excpetion being Eureka Forbes ltd. A great deal  about Eureka Forbes is widely known and henc e we’ll not dwelve too much into it.

The company today alongwith its subsidiaries/associates has the following businesses:

1)      Engineering: Precision Tools & Energy solution ( Steam Turbines & Centrifugal Blowers

2)      Shipping & logistics: CFS ( JNPT & Mundra), Freight forwarding

3)      Consumer business: Water Purifier & related, Vaccum Cleaners, Eurovigil ( Home / office security automation solutions), Air Purifiers

4)      Transaction Management Solutions ( Forbes Technosys) : ATM’s, Note counting machines,Fake note detectors, Bill payment kiosks, Cheque processing, Micro ATM’s, retail automation, UID kits and many others, a large part of which offer solutions for rural retail banking expansion.

Possible catalysts in the near/ medium term:

1)      Swadeshi Mills: Application has been made to the Mumbai High Court to get Swadeshi Mills out of liquidation. Shapoorji Pallonji group has deposited Rs.85 cr with the court towards settlement of workers dues. Swadeshi Mills owns 3 plots totalling 54 acres in Sion/Kurla of which one plot of 17 acres is encroached upon, so about 37 acres is available for development. If liquidation release approval is granted by High Court, Shapoorji Pallonji group & Forbes will jointly develop the property. Forbes owns about 23 % in Swadeshi Mills. It has also 58 cr old loan dues from Swadeshi. If all goes well, minimum conservative estimate ( after considering portion to be surrendered to BMC/ MHADA etc) cash flow benefit to Forbes will be about Rs.200 cr over a 4 year period. This is over and above the 58 cr loan dues.

2)      Chandivali ( near Powai) land dispute resolution:  A dispute over ownbership of 13 acres of land belonging to Forbes ( and supposedly sold by the erstwhile Tata mgmt in the mid 90’s to Videocon properties ) is close to being resolved and the property may be developed jointly. If all goes well, minimum conservative estimate ( after considering  Videocon property’s share etc) cash flow benefit to Forbes will be about Rs.300 cr over a 4 to 5 year period.

3)      Breach Candy property  re- development: Redevelopment of Volkart House located off Peddar Road, near Sophia College is expected to commence within the next 12-18 months. This property is jointly owned by Forbes & Tatas. Forbes owns about 14 residential apartments here of about 1000 square feet each. This is a prime location. Presently there is not much clarity on the developable area etc and hence we will not consider the cash flows from this  while bearing in mind that surprises, if any will be hugely positive.

4)      The standby charter covenant of SCI Forbes has been negotiated with the banks who have agreed to keep the same suspended from July 1, 2011. Consequently cash losses to the extent of about Rs.22 cr per year will stop from that date.

5)      Forbes Technosys is seeing huge growth and expected to break even by 2013

6)    Eureka Forbes holds about 55% market share in terms of value in the Indian water purifies market and continues to be the market leader in the Rs.2000 cr Indian water purifier market which is growing by about 18%.  Though the company has no plans to list on the exchanges, any plans by rival Kent RO systems  to list ( no plan currently) , will enable set benchmark valuations for the sector.

Consolidated Financials:

Paid up equity: Rs.12.73 cr

Debt: Rs.383 cr

Current Market price: Rs.400

Market Cap: Rs.509.20 cr

To sum up the case, Forbes & Company seems strategically poised to take off in the near future. Sweating of its real estate assets will play a crucial role in this.

At the time of writing this report, the author /his family have an investment interest in the stock mentioned above. Under no circumstance does the information in this report represent a recommendation to buy or sell the above-mentioned stock.  This report has been prepared and issued on the basis of publicly available information, internally developed data & other sources believed to be reliable. This is just a suggestion solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments. 

Procter & Gamble Hygiene & Healthcare: A ‘Period’ of huge growth ahead

Procter & Gamble Hygiene & Healthcare (PGHH) is a 2 brand company: Vicks & Whisper. These in turn have brand extensions.

We will concentrate on Whisper.( Feminine Hygiene i.e.Sanitary Pads)

Feminine hygiene is hygiene absorbent products engineered to absorb and retain body fluid without causing any leakage. The user should always feel dry and comfortable. It consists of an absorbent pad sandwiched between two sheets of nonwoven fabric. 

The menstrual cycle starts for young women between the ages 11 - 17, frequently around 12-1 3 years. On average a woman experiences a period every 28^th day, 12 - 13 times in a year. A menstrual period normally lasts 3 - 7 days. The loss of fluid in a period is on average half a cup or 65 - 80 ml. The menstrual pattern is influenced by giving birth and contraceptive methods. Menstruation lasts until menopause at the age 45 - 55. The feminine hygiene products market has evolved over more than 100 years to a more than US$ 20 bn.

PGHH has 2 plants and Baddi ( HP ) and 1 in Goa.

Promoters ( P&G, USA through its assocaites and subsidiaries) holds 70.64% of the paid up equity capital

PGHH Feminine Hygiene sales for the last 7 years:

2003-04: Rs.142 cr

2004-05: Rs.163.58 cr

2005-06: Rs.226.8 cr

2006-07 : Rs.282 cr

2007-08: Rs.339.79 cr

2008-09: Rs.428.28 cr

2009-10: Rs.532 cr

2010-11 : Rs.640 cr ( expected)

As can be seen from the above, sales have grown by about 4.5 times over a 8 year period. 

Market size for Feminine Hygiene products:

As per Census 2010,

Total women in India: approx 58.5 cr

Of these, women in urban India : approx 16.25 cr

Women in menstruating age in India : approx 30 cr

Of these, women in urban India : approx 8 cr

At present, the sanitary napkins market in India is estimated to be worth around Rs 1,300 crore. PGHH market share is approx 50%.

Equity : Rs.32.46 cr

Debt: Nil

Current Market price: Rs.1950

Market Cap: Rs.6330 cr

Cash in hand (including loans to group companies) : Rs.432 cr ( as of June 30, 2010) i.e. Rs.132 per share

Some of the key negatives:

1)      Excise duty on sanitary pads was increased last year

2)   Sanitary pads as a category has seen increasing competitive pressure with entry of new players like Japanese Unicham ( brand ‘Sofy’), Mankind Pharma ( Don’t Worry) besides existing players like J&J ( Stayfree), Kimberly Clarke( Kotex), Kaul High ( She) Gufic (Shapers- this is a marginal player) leading to price corrections.

Programs to reach to consumers:

1)      Point of market entry :  about 24 lakh menstruating girls across private and public schools all over India. Over the last 5 years, through this program, PGHH has touched more than 70 lakh girls. In the urban schools, the top tier brand ‘Whisper’ was sampled while in the upcountry schools, the economical mid tier ‘Choice’ was sampled.

2)      Direct to Home program: This house to house program especially in the lower class towns is aimed at educating women about the benefits of using sanitary napkins (Choice) and breaking the affordability barrier. Over the last 5 years, through this program, PGHH has touched close to 20 lakh women

3)      Partnership with National Rural Health Mission: Done initially in Rajasthan to provide education and sanitary protection to rural women (cloth users) to help them lead a healthier , hygienic and more productive life.

The various initiatives being done by PGHH to open the future opportunities ‘pipeline’ have led to disproportionately high promotion expenses over the last 5 years. Though the benefits from these have been visible in terms of increased category sales, these are but a small precursor to the unfolding of the real explosion of demand which shall happen over the next 4 years.I hold the belief that PGHH , unless there are any major unexpected obstacles, has the potential to be valued at  a market cap of  Rs.20,000 cr over the next 4 to 5 years and presents an opportunity which may appear expensive at current price to earnings but offers an investment in what shall pan out to be one of the most lucrative product opportunities in the foreseeable future.

At the time of writing this report, the author /his family have an investment interest in the stock mentioned above. Under no circumstance does the information in this report represent a recommendation to buy or sell the above-mentioned stock.  This report has been prepared and issued on the basis of publicly available information, internally developed data & other sources believed to be reliable. This is just a suggestion solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments.