From: HEMANT K GUPTA
Sent: 03 October 2008 17:35
To: Mr. Hardik
Cc: DEAR PANKAJ; MR NITIN SHAH
Subject: Cheapest Scrip in FMCG Sector.
JHUNJHUNWALA VANASPATI LTD. (RS. 107)
Rationale for Recomendation:
1) Resolution already passed and oil company will be known as 'JVL Agro Industries Ltd.'
2) Broadened its product basket to include oils like mustard, refined & palmolein.
3) Doubling its capacity at existing factory almost complete.
4) Construction of a new factory in Bihar already started.
5) Acquired land in Haldia to set up 1 more factory.
6) Recently, acquired a Fertilizer Unit with captive mines.
7) Confident of growing 50% CAGR for 3 years.
8) Available at 0.98 x book value.
9) Received approvals to set up SEZ on 333 acres land.
10) Stock is available at 1.98 x FY09E EPS, 1.95 x FY10E EPS and 1.72 x FY11E EPS.
Background:
FMCG Companies enjoy higher P.E. Ratios. However, JVL is available at valuations which is less than even commodity stocks. Main reason for such under-valuation lis almost invisible profile of the promoters and self assumed wrong perceptions about the industry in which company is operating. Started in 1990, its factory is in Varanasi. JVL is the single largest unit, manufacturing Vanaspati Ghee in India. Its brand 'Jhoola' is a household name in Bihar, U.P. Company commands 30% share of U.P. and Bihar units which are biggest vanaspati consuming units in India. Its products are sold in the packing of 200 ml, 500 ml, 1 lt.in pouches and 2 lt., 5 lt., 10 lt. & 15 lt. tins, jars. Jhoola is the fastest growing Vanaspati Brand in India.
Last year, company had acquired a Mustard Oil Unit in Alwar and started selling mustard oil under the brand name of Jhoohi.
Last year, company also set up 3 MW Power Plant which is run on Agro Waste which has become eligible for carbon credits.
Strengths:
There is a general misconception that, vanaspati companies are not doing well. However, JVL has its presence in edible oils as well. Further, company has emerged as the most competitive and lowest cost manufacturer of Vanaspati Ghee in India due to various factors. Company operates the single largest vanaspati unit in India which has enabled it to reduce its production cost by 8% over 4 years.
It has inhouse packaging unit to produce PET bottles, HDPE containers & Tins, protecting it from freight rates. Film Grade packaging material and cartons will also be produced inhouse very soon.
It enjoys a discount over prevailing market rates for import of CPO due to huge volumes.
Until 06-07, company did not spend a single rupee on advertisement and yet, created Jhoola Brand among more than 62% of India's population.
Transportation cost of R/M is around Rs. 1100/- per tonne as against Rs. 1800/- of its competitors.
Company has low receivable cycle of only 10 days in what is widely dismissed as a commodity market.
Financial Performance:
Y E A R E N D E D
31.03.05 31.03.06 31.03.07 31.03.08
cr. cr. cr. cr.
Total Income 505.00 674.00 696.00 1169.00
Gross Profit 68.00 83.00 90.00 133.00
PBDIT 10.42 17.58 20.13 38.69
Interest 0.93 1.86 2.14 5.84
PBDT 9.49 15.72 17.99 32.85
Depreciation 1.47 1.81 2.04 3.18
PBT 8.02 13.91 15.95 29.67
Tax 8.02 1.15 1.80 3.47
Deferred Tax - 4.38 2.93 2.52
PAT 7.20 8.38 11.22 23.68
Equity 6.83 7.50 7.50 7.50
Book Value Rs. 53.54 62.39 75.65 111.28
EPS Rs. 10.15 17.01 18.87 31.57
Company has a track record of extremely consistent performance all these years. In 07-08, its income grew by 68%. EBDITA increased by 92.20%. NP surged by 85.16%. During the year, refined oil accounted for 14.55% of the turnover and DOC/other products were 8.50% of total sales. It paid 20% dividend.
After deferred tax, company has achieved EPS of 31.57, translating into P.E. Ratio of 3.39. Stock is available below its book value of Rs. 111/-. Company commands 35% of U.P. Vanaspati market, 23% share of Bihar, 5% of Jharkhand, 9% of Maharashra, 6% of M.P. and 8% of Gujarat.
Future Outlook:
Q 1 Y E A R E N D E D
08 - 09 08 - 09 09 - 10 10 - 11
cr. cr. cr. cr.
Total Sales 410.00 1800.00 2800.00 4200.00
PAT 10.21 41.00 75.00 110.00
Equity 7.50 7.50 13.50 17.50
EPS Rs. 13.61 54.65 55.55 62.85
P.E. Ratio 1.98 1.95 1.72
JVL has put in place various plants to grow at a scorching pace:
1) Expansion at Varanasi: Company is setting up another Refinery at existing site which will double its production capacity. Machinery from Alfa Laval are under installation. Total capex is Rs. 27 crores. Commercial production is likely to start from Nov. 08.
2) Greenfield Bihar Project: Company is setting up a new factory in Bihar at a capex of 105 crs. which will involve Refinery 500 TPD, fractionation 300 TPD, Vanaspati 250 TPD, DO for Soya 250 TPD and Captive Power Plant. Construction is under way and commercial production should start in March 2009.
3) Greenfield Haldia Project: Company has already acquired land to set up a new plant for 500 TPD Refinery, 300 TPD fractionation, 500 PD neutraliser for soya and captive power plant. This Factory should be operational by August 2009.
4) Expansion at Alwar: Company has already acquired additional land to set up 100 TPD Refinery for refined and soyabean oil.
5) SEZ: Company has already received State and Central Government approvals to set up multipurpose SEZ on 333 acre land.
6) Foray in Fertilizers: Through auction, company has purchased a Fertilizer Factory M/s. Pyrites Phosphates & Chemicals Ltd. at dirt cheap price. This Plant has capacity to produce 1000 TPD of SSP. using Pyrite route. In general, SSP is not a highly profitable business but, PPCL should prove highly profitable. Reason is that, company will produce SSP by using Pyrites. Conventional method to produce SSP is use of phosphoric acid as main R/M which is costing Rs. 13,000 - 14,000 per tonne. Whereas, PPCL, has Pyrites Mines and cost per tonne of Pyrites will work out to Rs. 7000 - 8000 per tonne. Hence, profit margins of PPCL will be extremely high. Further, total land of PPCL is 318 acres although plant is spread over just 60 acres. Hence, company will have nearly 250 acres surplus land which can enable huge expansion in future.
By 2010, JVL envisages:
Capacities:
a) 177000 TPA Vanaspati.
b) 24,000 TPA Bakery Vanaspati.
c) 315,000 TPA Soyabean Oil.
d) 125,000 TPA Mustard Oil.
e) 315,000 TPA Palmolein Oil.
Market reach:
a) 28 States.
b) 7 Union Territories.
Capacity:
a) Vanaspati capacity will go up by 145% and other oils by 450%.
Company is also aggressively looking for Palm cultivation in India and abroad. It will enable to bring down its R/M cost significantly.
Valuations:
By any standards, JVL is grossly undervalued (without assigning any value to SEZ potential, prospects of Palm cultivation)
Scrip is available at:
a) 0.98 x book value.
b) 1.98 x FY09E EPS.
c) 1.95 x FY10E EPS.
d) 1.72 x FY11E EPS.
It has emerged as the most efficient producer of Vanaspati Ghee. Having broadened its product basket by adding other edible oils, company is growing at a scorching pace of 50%. Once it gets ROC approval for changing its name to JVL Agro Industries Ltd., scrip will be re-rated. After having touched high of Rs. 233, current valuations are extremely compelling. Recently listed Gokul Refoils is trading at P.E. Ratio of 20. With peer comparison, buying J. Vanaspati at Rs. 107/- is like buying Gem for the price of a pebble. Fastest growing FMCG company available at cheapest valuations.
Due to volatile markets, investors have lost patience and booking profit at 5-10% appreciation. However, if investors can hold on to JVL for 12-18 months, even in dull market, this scrip should give appreciation of 100% - 250%. A strong buy.
Hemant K. Gupta
BigGains !!
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