NSE News - Latest Corporate Announcements

Thursday, July 08, 2010

SKM Egg: Value buy...


SKM Egg
CMP: 17.95
Market Cap:47.26Cr
Debt: 50.08Cr (March 2009)
Reserves: 30.86Cr (March 2009)
ROCE (March 2009): 25.49%
Sales TTM: 125.17Cr
Gross Profit TTM: 14.61Cr
Net Profit TTM: 1.4Cr
Debt Equity: 0.88 (March 2009)
Long Term Debt Equity: 0.52 (March 2009)
Site: http://www.skmegg.com/

SKM Egg Products on the face of it looks to be a fairly valued stock..
Enterprise Value = 47.26+50.08-1.54 = 95.8Cr Sales of Twelve Trailing Months (TTM) is 125.17Cr

What really makes SKM worthwhile investment is their product Egg Powder.
1. India has one of the largest (top 3) bird populations in the world.
2. India is also cost competitive and one of the lowest cost producers.
3. SKM is a listed entity in Egg Powder business which is a good margin business. Venky's promoters also have Egg Powder business but it is not part of the listed Venkys but the unlisted parent company Venkateshwara Hatcheries Pvt Limited.
4. SKM promoters are also one of the largest animal feed manufacturers in India and have good relations with the farmers. http://www.skmfeeds.com/
5. Largest export markets of Egg Powder are Europe and Japan. SKM manufacturers 4500MT of Egg Powder
6. SKM Egg is the largest exporter of value added Egg Powder making 65% of India's exports of Egg Powder.
7. SKM Egg is also getting into the branded egg business http://skmbesteggs.com/
8. SKM Egg has its own farm rearing 1.5 million birds
9. SKM Egg has also started Feed manufacturing (new segment) to control all inputs which is required to meet the high standards for Euro and Japanese markets.

Conclusion: SKM Egg seems to be fairly valued right now due to its debt. Considering its ROCE is above 20% and high value added product for developed markets.. I foresee a reduction in debt and ride back to profitability.. with top line growth and branded egg kicking off. One must remember that this is a long term play. recent quarter results were good but was helped by other income. So we have the largest player at an attractive valuation with good growth potential. Long Term Buy!!

58 comments:

Anonymous said...

Did you start investment in this counter? What are the chances the company become full fledged supplier of poultry (meat, eggs)


Thanks,
Praveen

What'sUp Prahalad said...

Praveen:

I have already started investing in SKM and I personally feel there is value in the stock at these levels..
Egg powder is a high value added business.. getting into Poultry meat and eggs will be high volume but lower margin business..

SKM have already started with branded table eggs I hope they will stabilise and make it profitable before venturing into poultry meat business..

All said and done I feel the promoters are experienced and should do well in their line of business..

It is a value buy ..

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Sir
The outcome result of SKM is not as expected. So the price is dipping. Shall we wait or hold or add from every dipping or sell off ?. What are you suggesting.
Thanks
Jo

What'sUp Prahalad said...

Jo:

I would buy on dips..
One must remember that long term investing will have dip in stock value..

take for instance GAEL dropped from 24 to 17 before rising back to 29-30 levels right now..

The only way one can hold on to the investment is if you have:
1. Long term investment horizon.
2. Investment in Dips/buckets..
- Donot invest all cash at one go.

Last but not the least ..pls remember its your cash.. and it is not necessary that my idea of holding and buying more on dips will work for you also..

I would continue to invest more as the stock drops as SKM has a lot of value and should do well in the long run..

I would however suggest GAEL,Jayant Agro as stocks more ripe for picking (potential of growth in next 6-12 months)

SKM is a long term play as its still reporting losses..

=happy investing

Vijay Chandrakar said...

Dear Prahalad,

I have been an admirer and follower of your posts and recommendations. Thanks for the analysis.
Just one concern...I see that the promoters have pledged around 50% of their shares. Is this not a concern.

Regards,
Vijay

What'sUp Prahalad said...

Vijay:

yes generally pledged shares would mean credit issues .. which could also result in the stock being depressed.. for some time.

SKM right now is in accumulate zone and will take more than a year to bear fruits.. positive results..

having said that its at a good price to start accumulating.. as its cheap..

the stock will start bouncing back much before the results get better.. So best to buy when every one is rejecting it..

Also looks like the next generation of promoters are stepping in.. which could be the reason for the turmoil.. the business as such is well set up so most of these issues should be short term in nature..

=happy investing

Purushottam said...

Prahalad:

I checked recent interview of CFO of SKM speaking to CNBC and personally dont see anything good in his interview.. he seems to indicating tough times for another year ahead.
Link below.. Nice if you can share your view..

http://www.moneycontrol.com/news/business/skm-egg-products-expects-to-post-loss-this-year_482475.html

Purushottam said...

The Focus product Scheme does include egg powder.. not sure why CFO is not sure yet.. Check this below Link for more details.

http://www.thehindubusinessline.com/2010/01/13/stories/2010011352540200.htm

What'sUp Prahalad said...

Purushottam:

Great links.. I had read the Moneycontrol interview but the Business Line news item has definitely helped..

Moneycontrol Interview:
- Generally there is always a disconnect between what is being asked by the anchor and what the management is reporting.

The anchor is trying to get a guidance for topline.. but the management is concerned only about input costs and does not provide any guidance for topline.

All throughout the interview the management has spoken about input cost pressures.. with regards to topline.. one thing comes out clear..
1. management is confident about their quality and demand in export market.
2. Only problem is input costs and export incentives..
3. the 2% FOB which you have provided in the business line article clearly shows that Egg powder is included ..

All said and done:
- company products are accepted and this (losses) is a short term phenomenon
- once the input costs reduce (not likely) or sale price increases (more likely)

SKM will be all set and roaring..
As I have said this is clearly 1.5+ to 2yrs target stock not a 6-12 months stock.. so I would recommend buying at these levels at every dip that is how we build a good solid base..

If possible you can do short term trades but with only part of your investments..

=happy investing
whatsup-indianstockideas.blogspot[dot]com

Purushottam said...

Prahalad:

I see that in Sep 2010 shareholding pattern the promoter are holding only 53.26% only compared to 61% what they were holding in Last quater.

Seems like promoter is selling...

What'sUp Prahalad said...

Purushottam:

Thanks for pointing it out..

Well generally promoter selling is not a good sign..

I however do like SKM business model and they are trying to go to the next level.. (higher value added products and backward integration..)

I would suggest buying only on a quarterly basis (once a quarter)
and at the lowest price..

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

I had great faith in SKM Eggs, started investing way back in 2006. I am a small time investor, and invested in over 4000 shares till now. Finally my patience gave way, and I sold 3000 shares yesterday at 19.50 on the BSE. Just a handful of shares left for old times sake. I wonder if I did wrong.

blogger_ks said...

the major issue that I see is, the poultry unit is owned by the promoter and the scrip as such will enjoy only the benefit of the value-add(powder making). The price of the raw-material which is Egg is going up in co-relation with the increase in cost (land, feed etc..). when downstream companies pass on the cost increase, it might affect the margin of this scrip, however the private subsidiaries of the promoter group like the poultry unit and skm feed will simply benefit with increased cashflow and margin. I still believe, the majority benefit goes to various subsidiaries of promoter group and one should not go by the future promises of getting into meat and actual egg business. As these businesses are more lucrative in relation with local consumption, management could as well tap these opportunities through it's other private subsidiaries. My opinion, so pls do your own research.

What'sUp Prahalad said...

Anonymous:

IF you do have a better stock to invest or had the need for cash then its a good thing..

The problem with individual investors is we bail out before time..
good things take time to mature..

I think SKM is going to be one of the best stocks of the future.. A Mini.. Venky's in the making ..

Its a long term play as true value will be unlocked 1-2 yrs minimum timeframe..

=happy investing
whatsup-indianstockideas.blogspot.com

What'sUp Prahalad said...

Blogger_ks:

I think SKM Egg has setup their own layering (farm for producing eggs)

They buy feed from a promoter company SKM Feed (which is the largest feed plant in india..)

related party transaction between SKM and SKM Feed was 5Cr..

for a company with 200Cr sales that is 5% not something to be worried about..

Eggs are being produced in-house now (earlier it was being bought from the market..)

Company will take time to scale up production..

=====================
European union has a population of 500 million
japan has a population of 127 million..
======================
India has a population of 1 billion with the largest population below 35 years in the world.. (more than 50% of india's population is below 35)
======================
It would be wise to also concentrate on India but not at the expense of profitability..
======================
All said and done SKM is a future leader if the promoters remain focussed in their area of expertise..

=happy investing
whatsup-indianstockideas.blogspot.com

Purushottam said...

Prahalad:

What happens when the stock price of skm go below 10 with respect to pledged shares with bank.? Bank would have given loan taking into consideration the stock price at that moment. Will they go to open market and sell..(Something like margin call)? or will they ask skm promoters to pledge more?

What'sUp Prahalad said...

Purushottam:

I must state my guess is as good as your's cause I have no experience as far as loans or pledged securities..

1. Securities are pledged against the loan amount sanctioned.
2. Pledged securities will be sold only when there is a default in payment..
3. As per the annual report Operating cash flows were 9.72Cr while interest payments were 4.35Cr

Yes SKM is taking a lot of debt.. I presume to increase the number of birds .. also if you see the tonnage of egg powder sold it increased from 3865MT to 4391MT which means there is no drop in demand just a case of cost mismatch which generally takes 6 months to one year lag due to contract issues etc...

We need to keep track of operating cash flows and interest payments and debt ..

==========================
I think its a question of confidence between the promoters and bankers.. I guess you will have more dealings with your bankers not just your loan.. so they might ignore the drop in price till your loans are in good conditions (interest payments are on time)
==========================

Ideally if stock price falls 50% then the lenders might ask for additional collateral (I think)

=happy investing
whatsup-indianstockideas.blogspot.com

uma said...

i agree with all your presumptions of SKM Egg. But as a share , i feel unless some financial institutions show interest in this scrip, chances of its price rising seems less... there are hardly any scrips whose 'value' is discovered only by retail investors.. i own good quantities of SKM for quite a long time.. recent results are bad,mainly due to high egg price, and there is an erosion in general reserves of the company as losses are mounting.. may be couple of qtrs we have to wait before it turns green..

What'sUp Prahalad said...

uma:

Current market cap of SKM is just 24.50Cr I dont think it can accommodate any Institutional investors..

My take on losses.. is that the company is increasing the head count of chicks.. and that means additional startup costs ..

I think 1 year down the line when SKM has enough chicks in its farm it can really start showing good profits ..

So its just the initial ramp up cost nothing else..

=happy investing
whatsup-indianstockideas.blogspot[dot]com

Anonymous said...

Hi whatsup,

SKM is now at Rs9 levls.....Any idea y the stock is falling like this? One year down the line what u feel would be its approx. price range?

What'sUp Prahalad said...

Anonymous:

As you can see my foresight about SKM is as good as anybody else.

The stock is under performing and dont know how to deal with it..

Though SKM stock is dirt cheap..

And I like the business "egg powder"

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Hi whatsup,

Whats ur take on SKM EGG at th current rate? Whn do u feel the compnay will start posting profits?

Anonymous said...

Hi Whatsup,

Just saw a message abt SKM EGG on moneycontrol. Could you let us know whats the meaning of "At 13:49 hrs SKM Egg Product has formed a strong bearish bar reversal chart pattern today."

Where can we see skm egg 1 year down th line?

What'sUp Prahalad said...

Anonymous:

SKM Looks to be a value buy .. I also saw that the "Branded Egg" division has been stopped which is good news.. as it was a drain on the finances of SKM..

With regards to the comments about chart patterns (Candlesticks..) I have no info.. but you can see the info in this link for chart patterns..
http://www.hindustanbulls.com/StockPage.asp?CompanyTicker=SKMEGGPRO.NS&MarketTicker=National%20India&Typ=S

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Hi Whatsup,

What is ur take on SKM EGG results they just declared??

Y do u think the share valure has gone down so badly?

What'sUp Prahalad said...

Anonymous:

I like SKM I hold close to 10k shares
Company has reported Zero revenues from branded egg division.

This is good cause It was a loss making division and I dont think its still the right time to start a high end branded egg division.

SKM wants to address the Russian market which is a large volume market and I think that would be the right area.

I would start buying at these levels.. Investments take time to grow.. promoters have more than 2 decades of experience..

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Hi Whatsup,

Do u think its time to exit this counter as the stock seems only falling and falling.

What is ur call?

What'sUp Prahalad said...

Anonymous:

not selling .. I would buy at these levels..

They have stopped the branded egg division which was a real drain on cash flows..

Which is the right thing to do.. I see a bright future..


=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Hi Whatsup,

Thanks a ton for ur feedback on Skm egg.

Can you give me insights on FCS software? How do uu think it is for investment?

What'sUp Prahalad said...

Anonymous:

FCS Promoter holding 13.21%
Public shareholding 54%

Equity March 2006: 14.07Cr
Equity March 2011: 102.95Cr

Equity increased 728% in 5 yrs.. I dont think I can beat that as returns from my investment..

Promoters are having a ball at the expense of investors..

BIG SELL

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Hi whatsup,

What your take on skm egg as on date? its been just falling...

When do u see it going up?

Anonymous said...

Indian food market to treble to $900-bn by 2020: Report


The domestic food market is likely to triple to USD 900 billion by 2020 from the current USD 300 billion, according to an industry report.
"Accounting for 16% of the world population and 12 percent of the world food production, India is one of the largest producers and consumers of food in the world. Indians spend around 35 percent of their total spend on food - USD 300 billion annually that will grow to about USD 900 billion by 2020," a Boston Consulting Group report 'India Food Processing: Mission 2020' said.
However, the report adds food processing levels are substantially lower than most emerging and developed economies with only six percent of the agricultural produce in the country being properly processed. Of the total food consumed today (USD 300 billion), 20% is processed and it is expected to increase to 35 percent (of USD 900 billion) by 2020.
"Food processing system needs to be remodelled. We have to figure a way to invest more in people and capacity among other things," BCG India principal Nimisha Jain said. "Food processing is important as it helps to extend shelf life and reduces wastage, thereby increasing food supply," Danone Director Eric Soubeiran said.
The domestic food processing industry is likely to invest Rs 14,000 crore in the next two years, according to Ficci. Most of the investment is likely to come from the existing companies.
"It is difficult to estimate what will be the investment cost but company wise, Danone is setting up manufacturing unit, Britannia is going towards north-east, we at Nestle are doubling all our capacities. So there is tremendous interest in investing," Nestle chairman and MD and Ficci food processing committee chairman Antonio Helio Waszyk said.
The report also found that last year there was a shift from pulses to poultry, and this year it is towards fruits and vegetables. Fruits and vegetables today account for 25 percent of the food consumed and by 2020 it is likely to be 40% of the food consumed.

what'sUp, can you suggest best pick from this industry ?
.

What'sUp Prahalad said...

Anonymous:

SKM seems to have formed a bottom..

I Think its time to get in..

Pls note I already have substantial holdings in SKM.

=happy investing
whatsup-indianstockideas.blogspot.com

What'sUp Prahalad said...

Anonymous:

I have no other stocks in Consumer foods sector other than .. GAEL.SKM maybe camlin fine chemicals (anti oxidants..)

My real concern for stocks and markets as a whole is "Peak oil" and its really very very important that we keep this in mind... in all our investment ideas

maybe if you have any stock ideas pls share..

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Hi Whatsup,

What your take on skm egg as on date? i had bought it at Rs 11. I have significant shares of gael apart from skm.

Let me know your call? Do they pay dividends skm egg?

What'sUp Prahalad said...

Anonymous ji:

SKM is reporting losses and is not paying dividends right now.

I think there has been some regulations change in EU with regards to import of egg powder.. which is the reason for additional investments to be compliant..

Having said that I think this stock will remain depressed for some time.. we can see that the stock has bottomed at less than 6 and is a great buy at 5.50 6.50 levels..

But pls understand that its going to be high risk.. as its reporting losses.. I expect the company to turn around.. but will test our patience..

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Hi whatsup,

What is your take on SKM egg results? Look forward to your analysis

What'sUp Prahalad said...

Anonymous ji:

I would say SKM Egg is a dark horse stock ..... and is a long term buy at less than rs 6/=

Operating level profit..
Poultry division has -ve working capital.. (that mean peak bird levels have been reached and going forward poultry division is self sustaining..

losses I think were due to new EU regulations which required SKM to go for backward integration to be compliant..

now that's all settled I see the company doing much better..

Still its a long term buy!!

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Hi Whatsup,

Whats ur take on skm egg as on date? i had bought it at 11 levels when u had recommended but now its below 6. Should i sell it or average it?

How long will it take to get back to 11 levels?

What'sUp Prahalad said...

Anonymous ji:

I would say this (6-8) is a great long term buy price..

New EU Regulations want that imports into EU should have complete trace-ability.. which means the eggs have to be grown inhouse and feed has to be monitored..

SKM has setup its own hatchery and now has complete traceability..

Nobody does business for a loss.. and surely skm will turn profitable..

Also look at capital required for Poultry Division its -17.20Cr which means company is selling the birds and now selling price is higher than cost price of new chicks.. by 17.20Cr

SKM is a strong Value buy at these levels.. but for long term ..2+yrs investment horizon.



=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Whatsupji,

Whats ur take on SKM EGG results ?

Anonymous said...

Hi Whatsup,

Y is that SKM EGG some days it does not move at all and one day suddenly it goes up 15%?

What'sUp Prahalad said...

Anonymous ji:

SKM is the largest player in Egg powder business.. it is also the only publicly listed company in this space..
having said that stock is in dumps as company is reporting losses.. and this is a good time to buy.. but wait period could be easily 2+ yrs..

Price is right..

Stock has moved up just 1 buck.. and since the price is so down.. it translates to 15% upmove... liquidity is low..
if you want to accumulate you will have to pay premium..

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Hi Whatsup,

In moneycontrol is says that skm egg has not traded in NSE for past 30 days.... so its not been trading in BSE or NSE for 30 days?

Whats the reason? what will happen to people who already hold these shares like me?

What'sUp Prahalad said...

Anonymous ji:

SKM has moved to auction mode hence you cannot see the price..

you can however see the price during trading period..

here is an article in eco. times
http://articles.economictimes.indiatimes.com/2013-03-07/news/37531859_1_illiquid-stocks-trade-for-trade-settlement-exchanges

=happy investing
whatsup-indianstockideas.com

Anonymous said...

Whatsupji:

Will this be beneficial for small investors like us? Will we able to sell our shares which we already hold anytime?

What'sUp Prahalad said...

Anonymous ji:

The auction is held every hour during the trading period ie. 9:15 to 1:30

so there is ample time and if you want you can sell your stock...

though I feel price discovery is more difficult..as you donot have a price quote.. (like you have in normal trading) you have to set your sell/buy price..

so you might have to pay more while buying and get less when selling.. maybe 1-2%.. I tried buying superhouse at 48 48.50 but did not get through.. even though it showed that auction price was 47-48 levels..

Personally I am not selling skm.. but I would not buy more (I already have more than 10,000 shares of skm) I will wait for improvement in results and for the company to return to normal trading..

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Hi Whatsupji,

Thanks for your inputs. I will also do the same then and wait till it returns to normal trading and gives better returns.

Thanks a lot again...

Anonymous said...

Hi Whatsupji,

Your SKM recomm is rocking. Thanks a ton. What you feel its upper limit could be? IS it time to sell?

What'sUp Prahalad said...

Anonymous ji:

there is a saying that "stock price can remain irrational longer than you can remain solvent.."

stocks rarely stay at optimum price levels they move from extreme pessimism (like skm@7 MCap: 18.4cr) to extreme optimism.. (skm@63.8, MCap 167.9cr)

what I'm trying to say is.. what price to sell is a call you need to take keeping in mind that stock price often exceed expectations..

Personally I would sell 5% on every 10% rise..
----------------
maybe you would prefer selling 5% every 20% rise..

I dont think now is the time to buy SKM.. its either a hold or sell..
=============
In 2010 SKM had reserves of: 31.8cr
In March 2014 SKM has reserves of: 18.72cr
-------------
SKM egg has not been paying taxes..
(March 2014 Annual report:
Current Taxes:0
Deferred Taxes: 2.92cr)

company in 2010 started building the poultry farm invested about 40cr or more with 17cr worth of birds which were depreciated (resulting in losses and high depreciation and interest .. and cancellation of deferred taxes.)

now the poultry business has been sold.. and re-leased back..

I dont want to spoil the party @ skm.. but now is a good time to slowly start offloading your skm stock in the market..
----------------------------
just chk out.. Page 36 on skm March 2013-14 Annual report.. have paid all taxes and duties within 6 months except for the following.. the dues listed are 2 pages long starting from 1997 all the way to 2013.. I think it all adds to 6.18cr
==================
my suggestion is.. just keep a weary eye.. if you want to ride the rally in stock price of skm.. cause its a suckers rally ..
------------
I personally am planning to sell in this rally slowly but steadily..

stock might continue to rise.. but its time to look for greener pastures (Jayant Agro is my personal suggestion.. at cmp 130/-)
------------

Hope that helps..

=happy investing
whatsup-indianstockideas

Anonymous said...

Whatsupji,

Whats ur take on SKM EGG at these levels?

What'sUp Prahalad said...

Anonymous ji:

SKM egg is too expensive.. I am sure once they hype is gone we will get skm at lower levels.. and by then the company will also be performing consistently..

So give it some time..

=happy investing
whatsup-indianstockideas

Anonymous said...

Whatsupji,

Whats ur take o SKM at these levels?

Hold/Sell or buy?

What'sUp Prahalad said...

Anonymous ji:

SKM egg is definitely not a buy at these levels.. as its already selling at more than 16 times book (March 2014) you can sell or hold based on your risk apetite...

general rule of the thumb is let your winners ride..

personally I am waiting for skm egg stock to move out from 5% trading range into normal trading band 20% ..

that is the time when the stock could develop some weakness.. right now its in strong hands..

enjoy the ride till it lasts...

buying now is risky cause the stock could also fall down on circuit with no buyers.. the same way it has been rising..
-----------
the modi govt has given leeway to companies to reduce tax outgo by changing how they value their assets & inventory and lots of companies are taking advantage of the same..
-----------
right now tilaknagar industries and bajaj hindustan(sugar) look like attractively priced stocks ..

Jayant Agro of course is the top all time favourite!

=happy investing
whatsup-indianstockideas

Anonymous said...

Hello Whatsupji,

Do i hold or sell SKM? Your views please?

What'sUp Prahalad said...

Anonymous ji:

SKM from a fundamental prespective is fully priced.. only from a trading point of view you can expect upside/downside.

I Personally have sold all my holding of SKM

=happy investing
whatsup-indianstockideas

Anonymous said...

Hi Sir,

Can you please help me understand why SKM has not been paying taxes and duties? should we question the numbers posted in the annual statements or is it because of a tax dispute?
Thanks,

Anonymous said...

Whatsupji,

SKM has declared 10% dividend. what does it mean? 10% of what?