Thursday, November 3, 2011

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

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.
Equity : Rs.3.20 cr
Debt: Rs.17.40 cr
Current Market price: Rs.234
Market Cap: Rs.75 cr
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.
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. 


  1. Courtesy : The Unknown Author

    This story is about a farmer who received a calf from a rich man. Hopeful that the calf will be able to help him have a better life, the farmer did his best to take care of it. But as the calf grew, so did the farmer’s expenses.One day, he said to himself, “I don’t want to wait anymore for this calf to become an ox. I’ll just sell it and buy several sheep which are easier and much cheaper to take care of.”And so he did just that.After several months, he realized that breeding sheep were not as easy as he thought. And so he said to himself, “It takes too long for these sheep to give birth. I better just sell them and buy myself several hens which can lay eggs for me everyday.”And so he did just that.The plan worked very well, he was earning good from selling all the eggs. Life improved for the farmer. But after several months, the hens started to lay less and less eggs until one day, the hens couldn’t produce anymore.The farmer was devastated. In his anger, he cooked all the hens and had himself a feast.Later that week, he remembered the single calf that started it all and realized that after all his hard work, nothing had changed in his life.

  2. nice blog !! i was looking for blogs related of animal feed manufacturers . then i found this blog, this is really nice and interested to read. thanks to author for sharing this type of information.

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