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| 2. Maheshi 6/22/2010 7:19:22 PM IST |
Price @BSE - Rs 39.8 when posted |
Buy@ Rs 39.8 For target of Rs 91 In 3 Months.
Simran Farms Ltd. - A Multibagger in the Making
Industry – Poultry
BSE Code – 519566
Current Price – Rs. 40/-
Target Price – Rs. 91 /-
Target Price Period – Short to Medium Term
Equity Capital – 3.79 cr.
Promoter Holding – 36.22 %
Market Cap – Rs. 15.16 cr.
FY10 Sales – Rs. 136.68 cr.
FY10 Operating Profit – Rs. 5.89 cr.
FY10 Net Profit – Rs. 3.48 cr.
FY10 EPS – Rs. 9.19
Current P/E – 4.35
A Brief Overview of the Company :
Simran Farms Limited is a 21 year old company operating in poultry industry. Under the broad spectrum of poultry industry, Simran Farms is mainly engaged in Parent Poultry Breeding activities and Commercial Broilers. The Company has most modernised parent poultry breeding farms near Indore in Madhya Pradesh and commercial broiler farms in Madhya Pradesh, Chattishgarh, Gujarat & Maharashtra.
Management & its Competitive Strength :
Simran Farms is managed by Mr. Harender Singh Bhatia who is a veteran in poultry industry with 32 years of rich experience in all the facets of poultry industry right from poultry keeping, feed management, farm management, hatching of eggs, management of hatcheries to marketing of chicks, eggs & birds. His contribution in the development and growth of poultry industry in Madhya Pradesh is very well recognised.
Since inception, i.e., since 1989, Simran Farms has seen many ups and downs of poultry industry and it is worthwhile to note here that the management of the company has depicted its competitive strength by sticking to the same line of business despite severe recessionary trends that poultry industry went through since last many years. The management of the company not only enabled the company to sail through the recessionary phase but proactively built pilars for exponential growth of the company during good phase of poultry industry.
Investment Rationale :
Embeded above is the investment rationale for the company. The pain that management took of sustaining the company in recessionary phase of the industry and the proactive steps taken by the management to ensure exponential growth of the company in good phase of poultry industry make Simran Farms an excellent pick in current scenario. Let us first understand the macro perspective then the micro perspective and then the valuation perspective for investment into Simran Farms Limited.
Macro Perspective :
Poultry Industry is currently Rs. 40,000 cr. Plus industry in India. The industry has transformed itself from a mere backyard agricultural activity to a profitable, dynamic commercial industry. One of the fastest growing segments of Indian agricultural sector, its growth is driven by an increasing urban population, a growing middle-class with increasing per capita and disposable income apart from rising foodgrain and cereal prices and stable poultry prices.
India, with a poultry population of 489 million and estimated more than 532 billion eggs production, ranks among the top three countries in egg production in the world. While the production of agricultural crops has been rising at 1.5-2 per cent a year, the broiler production is growing at the rate of nearly 8-10 per cent every year and growth in production of poultry/chicken meat increased from mere 0.12 million tonnes in 1981 to 2.2 million tonnes presently.
Consumption of chicken in the country is expected to double in the next five years. The eating out phenomenon coupled with more quick service restaurant chains is changing the consumption profile of Indians. The changing eating habits, cropping fast food outlets and quick service restaurants speak highly in favour of improvement in levels of poultry production over the next many years. Domestic poultry industry currently produces 240 crore birds commercially every year. To cope with the doubling of demand by 2014-15, the industry will need to grow at a rate of 12-15% annually.
Micro Perspective :
After looking at the macro perspective, let us look at the micro perspective i.e. a perspective specific to the company Simran Farms Ltd.. For this we need to look at four aspects viz.,
(1) Management Initiatives in the past and whether such initiatives met success or
not
(2) Management Goals for the future
(3) Current Industry Developments which can immensely benefit the company
(4) Possible and Most probable future scenario for the company
Now, lets explain in detail each aspect one by one:
(1) Management Initiatives in the past and whether such initiatives met success or not :
We will start with this aspect only, because, for any company which is into a transformation phase of becoming a mid-cap from a small-cap company, management initiatives and success of such initiatives in the initial transformation-phase is extremely important. As stated before, Simran Farms` management stuck to the same line of business i.e. confined their operations to only the industry of their expertise viz. Poultry industry despite severe recessionary and adverse pressures that poultry industry went through since last many years because of rising prices of maize and soyabean which constitute 70% of the cost for any poultry-based company, spread of diseases like bird flu, stagnant demand and prices of poultry products, etc. This fact depicts the credibility of management of the company as otherwise in these many years any uncredible management would have easily ventured out into some other line of business.
Now, the second thing which demands an investment in Simran Farms is the initiatives or pilars that the management started to build to ensure the exponential growth of the company in the good phase of poultry industry. Such pilars came in the form of the company venturing into commercial broiler farming in FY07 apart from parent poultry breeding farms which was its main activity since last many years. Immediately after that i.e. in FY08 it ventured into contract farming for quick ramp-up of scale and based on this plan it started 80 farms in FY08. Immediately after that i.e. in FY09 company ventured into other states like Gujarat and Maharashtra apart from Indore which is its main hub. In FY09 company started its operations on 200 farms and built a vision to consolidate entire simran group operations under one roof i.e. Simran Farms Ltd. For this, initially it started to consolidate activities of the listed company itself. In addition, company also started in-house feed production on large scale in FY09 to imrove the profitability of the company as feed cost constitute 70% of the total cost of any poultry-based company.
Now, the third thing which we can`t ignore is that whether the initiatives taken by the management of Simran Farms since FY07 met any success or not. The best answer for this is to look at the financials of the company for last six years which are given below :
FY05 FY06 FY07 FY08 FY09 FY10
Sales 11.99 12.33 17.14 30.78 72.30 136.68
OP 0.09 0.59 0.60 0.82 2.50 5.89
NP -0.89 -0.12 -0.17 0.25 2.90 3.48
As can be seen from the above, from FY07 onwards company`s sales more than doubled every year while on bottomline front it staged a great turnaround with FY08 seeing the company coming out of red and FY09 and FY10 seeing the company more than doubling its profit every year. FY09 included exceptional gain of Rs. 1.50 cr. pertaining to one-time settlement with bank and so its real net profit for FY09 comes to 1.40 cr. All these numbers clearly show that the initiatives which management of Simran Farms took in the past have met with immense success.
(2) Management Goals for the future :
Management of Simran Famrs Ltd is working with a vision to consolidate all the activities of Sim |
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| 1. sajid 6/15/2010 3:13:11 AM IST |
Price @BSE - Rs 40.8 when posted |
| simran seems a better bet with excellent 4q result and at at40 still lots of steam left |
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