Aries Agro
Micro product, mage prospects
The company is a major player in micronutrients, which have tremendous growth prospects and the company is expanding capacities 5-fold to capitalise on this opportunity
| Buy | Aries Agro |
| BSE Code | 532935 |
| NSE Code | ARIES |
| Bloomberg | ARIE@IN |
| Reuter | ARAI.BO |
| 52-week High/Low | Rs 265 / Rs 108 |
| Current Price | Rs 143 (as on 23rd May 2008) |
Aries Agro is a major manufacturer of micronutrient and other nutritional products for plants and animals. Its range of products comprise five categories: multi-micro nutrient fertilisers, chelated micro nutrient fertilisers, specialty soluble fertilisers, anti-bacterial products for agricultural use, and nutritional products for animals.
Micronutrients contribute 60-65% of the total revenue of the company. Around 1-2% of the revenue is contributed by the feed additive business and the rest is contributed by the secondary nutrients and Nitrogen-Phosphorou
The company is a pioneer in introducing chelated micronutrients and chelated zinc in the country, under the brands Agromin and Chelamin, respectively.
With four manufacturing facilities in Bangalore, Mumbai, Hyderabad and Kolkata, AAL’s total production capacity is 21,600 tonnes per annum. It has 41 products under its umbrella. Strong trademarks protect these brands. These products are sold across 375 fertilizer-consumin
To distribute its products to the far-flung corners of the country, where it does not have a distribution network, AAL is planning to buy around 100 mobile vans at a cost of Rs 5.79 crore.
Strong player
Aries Agro has been in the business of manufacturing and marketing plant nutrients since over three decades. During this period, it has acquired strong domain expertise, which is difficult for a new entrant to replicate.
Is a dominant player in the plant-nutrient space with minimal competition from the organised players.
The company has an in-house R&D facility, equipped with infrastructure required to develop new products targeted at specific crop requirement.
The company has an established distribution network spanning 375 fertilizer-consumin
To increase capacity 5 fold to meet growing damands
A of FY 2008 the company had a capacity of 21,600 metric tonnes at around 89% capacity utilization. Now 89% capacity utilization is for a seasonal business, which means during the peak season the capacity utilization were going above 125%, that is why the company needs to rapidly scale up its capacities.
This 21,600 tonnes was split among 4 manufacturing units. This year the company is putting up 4 more. The total capacity at the end of the expansion would be 1,00,800 metric tonnes per annum.
The 4 existing plants are at Bombay, Hyderabad, Bangalore and Calcutta. The new units would be in Hyderabad (which incidentally would be its largest unit in the country), Lucknow, Ahmedabad and one in Maharashtra, near Panvel.
All these units would be operational by September 2008. So effectively in FY 2009 the company would get half of the expanded capacity.
Eying international markets
With an aim to expand its global footprint, specially the Middle East, AAL is investing Rs 7.37 crore in one of its group companies Golden Harvest Middle East (FZC), incorporated in the UAE, to convert it into a subsidiary. Golden Harvest is setting up a facility in Sharjah to manufacture chelated micronutrients with a capacity of 10,800 tonnes per annum. It is also investing Rs 2.46 crore (or 25% stake) in another company, MAPCO Fertilizer Industries Free Trade Zone Company (MAPCO). MAPCO’s distribution reach in the Middle East will be used to sell the company’s micronutrients in those markets.
This arrangement will also see Aries Agro get assured source of NPK’s from MAPCO to source it to India. As NPK’s price every where in the world is very volatile, by getting an assured source for India makes sense for it to have tied down source from the UAE which is also close to India Geographically.
By virtue of this investment in MAPCO Aries Agro will get access to their distribution network in the Middle East and the North African region, which becomes its springboard to conquer those markets. The reason why the Middle East and Africa is very attractive is that for agriculture there is no (much) soil, so which means 100% of agriculture in those areas is specialized. This has to be done with specialized agricultural technics. So because of that the products which are in Aries Agro’s portfolio, is ideally suited for those markets simply because those markets have specialized agriculture which needs specialized plant nutrients.
Moreover, the company already trades in complex fertilizers produced by MAPCO fertilizer. These fertilizers are sourced to India and Aries trades in these fertilizers in India. It already have NPK fertilizers in its range sine the year 2002 when it launched them. It has water soluble NPK’s, which it gets from a company, which had invested, in MAPCO, which is also the current supplier.
Government’s plan to set up soil testing laboratories will be a big positive
A major positive for Aries Agro, is that the government is setting up soil testing laboratories in every district of the country. That will add to the wealth of knowledge, which is available in the sector. Because today until a company like Aries Agro goes and does the testing, the farmer really does not know what is really deficient in their soil. So since the government is going and setting up such kind of labs in every district, it will reduce the company’s load to educate farmers. Moreover, those soil-testing labs will give farmers accurate information. So government in a way will do an indirect marketing for Aries Agro, because government will go and tell the farmers that there is certain deficiency in their soil, so the farmer will use the company’s products which will supplement that deficiency. Thus it will definitely has a positive impact on the company’s business.
Bouyant outlook
Indian farmlands have one of the lowest yield rates in the world. Hence, there is good scope for improvement in yields by using micronutrients. Spread of organised retail and development of farm-to-consumer supply chain will encourage better yields through use of micronutrients.
With recent scarcity and high prices in many agricultural products, focus in future is going to be on increasing productivity as the availability of land is going to remain scarce. One of the major cost effective and environment-
Moreover its products are not subject to price control as other fertilisers.
Growth in the use of micronutrients is directly linked to increase in awareness. Company’s efforts and government’s plans to set up soil testing laboratories is increasing the awareness and as the awareness grows, demand grows at a fast pace.
Nine months (ended December 2007) sales and net profit are already more than the FY 2007 figures
For the nine months ended December 2007, its sales and net profit stood at Rs 74.11 crore and Rs 11.05 crore respectively. In fact during the nine month ended December 2007, the company’s sales have already exceeded total sales for the entire FY 2007. Moreover, its net profit for the nine month ended December 2007 is already 27% higher than the net profit for the entire FY 2007.
High growth and attractive valuations
In FY 2008, we expect the company to register consolidated EPS of Rs 12.2. This is likely to jump to Rs 18.1 in FY 2009. The share price trades at Rs 143. P/E on FY 2009 EPS works out to just 7.9. For a fast growing company with a niche product line with high growth potential, the current P/E is low.
| | 0603 (12) | 0703 (12) | 0803 (12P) | 0903 (12P) |
| Sales | 58.39 | 74.05 | 103.01 | 148.21 |
| OPM (%) | 20.9 | 22.7 | 27.6 | 28.0 |
| OP | 12.18 | 16.81 | 28.46 | 41.56 |
| Other inc. | 0.04 | 0.12 | 0.18 | 0.22 |
| PBIDT | 12.22 | 16.93 | 28.64 | 41.78 |
| Interest | 1.7 | 2.48 | 3.84 | 4.48 |
| PBDT | 10.52 | 14.45 | 24.80 | 37.30 |
| Dep. | 0.28 | 0.48 | 0.63 | 1.14 |
| PBT | 10.24 | 13.97 | 24.17 | 36.16 |
| Tax | 3.57 | 5.28 | 8.26 | 12.65 |
| PAT | 6.67 | 8.69 | 15.91 | 23.50 |
| EPS* (Rs) | 5.1 | 6.7 | 12.2 | 18.1 |
| * on current equity of Rs 13 crore; | ||||
| Aries Agro: Consolidated Results |
| | 0712 (3) | 0612 (9) | Var. (%) | 0712 (9) | 0612 (9) | Var. (%) | 0703 (12) | 0803 (12P) |
| Sales | 28.90 | 23.54 | 23 | 74.11 | -- | -- | 74.05 | 103.01 |
| OPM (%) | 30.1 | 27.5 | | 26.7 | -- | -- | 22.7 | 27.6 |
| OP | 8.70 | 6.47 | 34 | 19.77 | -- | -- | 16.81 | 28.46 |
| Other inc. | 0.06 | 0.04 | 45 | 0.12 | -- | -- | 0.12 | 0.18 |
| PBIDT | 8.75 | 6.51 | 35 | 19.89 | -- | -- | 16.93 | 28.64 |
| Interest | 1.12 | 0.76 | 47 | 2.72 | -- | -- | 2.48 | 3.84 |
| PBDT | 7.63 | 5.75 | 33 | 17.17 | -- | -- | 14.45 | 24.80 |
| Dep. | 0.16 | 0.13 | 31 | 0.47 | -- | -- | 0.48 | 0.63 |
| PBT | 7.47 | 5.62 | 33 | 16.70 | -- | -- | 13.97 | 24.17 |
| Tax | 2.61 | 2.07 | 26 | 5.65 | -- | -- | 5.28 | 8.26 |
| PAT | 4.86 | 3.55 | 37 | 11.05 | -- | -- | 8.69 | 15.91 |
| EPS* (Rs) | 22.9 | 2.7 | | 8.5 | -- | | 6.7 | 12.2 |
| * on current equity of Rs 13 crore; | ||||||||
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