Kwality Ltd - Multibagger in making?

India's per capita dairy consumption levels are significantly lower than developed markets and with a large consumer base of 1.3 billion people, demand will never be a challenge which gives sufficient opportunity to manufacturers and retailers. India with 134 Mn metric tons of production is world's largest liquid milk producer, which accounts for 18 per cent of total global milk production. Most of the milk produced is consumed domestically. 

A key feature of the Indian dairy industry is that it is still predominantly unorganized. Of the total milk produced in India, only 18-20 per cent is channelized through the organized segment. A positive development is that there is a clear shift towards the share of organized segment, increasing from 13 per cent in 2005 to 20 per cent currently. This is driven by an increasing demand for packaged milk and value added products and is now attracting multinational players to India. Even on the supply side, farmers prefer organized channels due to higher price realization.

Kwality Ltd - All Dairy Products

Kwality Ltd is one of the early entrant and is major player in northern states of India. Kwality limited produces a range of quality milk and milk products. Their Product portfolio includes:

1. Fat based Products (Fat/Butter/Cream/Ghee)
2. Milk Powders
3. Curd
4. Milk (74% of the revenue)

Their key brands are 

• Dairy Best
• Good-Health
• Kream-Kountry
• LivLite

The major demand drivers for the milk products in India are:

• Economic growth and poverty alleviation leading to increased share of dairy products spend in household income.
• Urban population fast shifting to packaged food products
• Increasing literacy levels raising awareness about health benefits
• Increase in organized retail penetration

With the removal of ban on the export of skimmed milk powder in June, 2012 and whole milk powder & dairy whitener in November, 2012. Kwality Ltd started export of Dairy products and achieved the export turnover of Rs. 183.45 crores as compared to Rs. 71.74 crores in the FY 2012-13. In the next fiscal year the Company has estimated an increase in export sales based upon the rising demand of dairy products in the international market and the acceptance of their products from existing and prospective buyers.

To increase its international presence and cater to the new markets, Kwality Limited has established its wholly-owned subsidiary, Kwality Dairy Products FZE in free trade zone of UAE. The subsidiary is mainly involved in the trading of various milk products and imports skimmed and whole milk powder and various derivatives of milk, ghee, butter & other dairy products. The products are sold both domestically and export to other countries.

The key achievements of the company is the past few years is consistently giving a Consolidated profit growth of 68.73% in last five years, Compounded return on Equity (ROE) from last 3 yrs is 45.49%, Compounded sales growth of 51.02% in last years. Promoters hold 75% stake in the company, which clearly shows the confidence of the promoters in the business. 

At the CMP of 46, and EPS of 6.23 it is trading at the P/E ratio 7.08. At this price, investors with medium to low risk appetite can invest with long term horizon in this share for good returns. 

Strong Buy for Tata Motors

Strong performance by Tata Motors is indicated by the fact that Tata Motors has paid the advance tax of 220 Cr for the quarter ending Dec'10 against 100 Cr for the corresponding quarter last year.

The consolidated net profit for the Half Year ended Sep'10 for the Tata Motors was Rs.4,212 crores as compared to loss of Rs. 307 crores in the first half last year. Consolidated EPS for first half of FY11 stood at 73.76 Rs against 5.97 Rs last year. This makes Tata Motor looks extremely cheap with the forward PE of approximately 10.

The global sales of Tata Motors is going up. Jaguar and Land Rover sales rose 22% to 22,957 units in November 2010 over November 2009. Jaguar sales for the month were 5,621 units, up by 30%, while Land Rover sales were 17,336 units, higher by 20%. As both of them add great value to the profitability of the Tata Motors, it is a huge plus point.

Another good news on the counter is that Tata Motors is going to increase the prices of the vehicles in January'11.

Excellent Listing for MOIL but not enough returns for retail investors

As anticipated by millions of Indians and almost all the analyst, MOIL has given a very good listing gain. It has listed at 551 and traded above 500 most part of the day, but closed at 466.5 in NSE. It has reached the intraday high of 591.

The only problem with the MOIL was, even though the retail investors have subscribed for one full application (2 Lakh i.e., 31 lots) most of them are allotted with only 1 lot (17 shares). So even if retail investors have booked profit at 530 Rs, they have gained only around 175 Rs. With only 17 shares allotted, the overall profit is 17*175 is approximately 3000 Rs. With the investment of 2,00,000, profit of 3,000 doesn't sounds impressive.

Hence my conclusion about the allotment and listing gains of MOIL is not impressive.

Current Status of the Invesment opportunity mentioned below

 

Current Status of the above mentioned investment.

The overall gain of the investment would have been 1.54% (assuming equal amount would have been invested in each of the above mentioned shares) versus the nifty gain of 3.65% (Not great haa... Lets see what happens in future)

Must invest in MOIL IPO

After successful listing of CIL (Coal India Ltd) and successful profits in PGCIL (Power Grid Corporation of India Ltd) FPO, it is time to invest in MOIL IPO. The issue is open from 26th of Nov to 1st of Dec for subscription.

With the price band of 340-375, the pricing looks very attractive. It may the listing gains of 30-50%. With the small equity(3.36 Crore on stake in IPO) and retail investment cap increased to 2 Lakh Rs, it looks like it will over subscribed many a times and thus many investors may want to buy the share on the listing day which should give the high listing gains for the investors.

The fundamentals of the company are very strong. They have cash reserves of 105 Rs per share. It has witnessed revenue and PAT CAGR of 31% and 42% over the last four years. Current Operating Profit Margin is 70.% and PAT margin is 52.1% which is very high. The offer price of the stock (340 to 375) is 9.6 to 10.6 times TTM (Trailing Twelve Month) EPS of Rs 35.5 as on Qtr ended Sep 10. The company has a status os Mini-Ratna given by Government of India in FY08.