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Sunday, January 02, 2011

Stock: Agro Dutch Industry: Dark horse ...soon Black Beauty

Agro Dutch Industries:
Stock Price (CMP): Rs 15.20 
Market Cap: Rs 826.3 Million
Debt: 4.154 Billion
Reserves: 523.3 Million
Sales TTM: 1.31 Billion
Gross Profit: 97.6 Million
Net Profit: -ve 476.8 Million
ROCE: -ve 9.02%
Well looking at the company.. one can easily state that this is a stock which is in the dumps.. 
- Huge pile of debt 4.154 Billion 
- Reserves just 523.3 Million
- Gross Profit just 97.6 Million

Lets start with an introduction about Agro Dutch Industries..
Agro Dutch Industries Limited is an Indian company, listed on the stock exchange. In 1992, Agro Dutch, was the first large company to bring the concept of integrated, year round, climate controlled Mushroom production to India, with complete traceability.

The company processes and markets a range of sizes of canned and frozen mushrooms, conforming to international quality standards.

Agro Dutch is continually focused to be the most efficient Mushroom Company in the world. From a mere 3,000 Tons per annum capacity, today Agro Dutch has grown to 50,000 Tons per annum.

Agro Dutch is 14 Mushroom Years and 5 CAN years old, the world’s largest integrated mushroom producer, with an average daily production of 125MT. It is also India’s finest and largest food-can maker. First in India to manufacture FP Easy Open Ends at a speed of 1500 ends per minute.

With 10000 Tons chilling capacity, 200 Tons boiler capacity, and 10MW captive power plants, Agro Dutch serves a key food segment globally and earned a reputation as a reliable, quality can maker and enjoy “partnership relationships” with suppliers of equipment and raw material.

==========================
I know that is a lot of storytelling with nothing to prove on the ground level.. 
We just need to go back in history to see how the company was doing in the past when it started with 3000 Tonnes per annum capacity..
Here is a snapshot of Agro dutch for the past



Agro dutch was making more money when it had a 3000 tonnes mushroom capacity. now it has 50,000 Tonnes capacity and a can making facility.

Recent news flow is positive:
- Oct 12,2010: Agro Dutch Industries Ltd has informed BSE that the Company has bagged the approved supplier status from General Mills Inc, a US$ 17 Billion Fortune 500 company, for supply of its mushrooms. The company will now be the sole supplier to General Mills out of India. Agro Dutch expects orders to be placed and shipped to General Mills in the coming weeks.

General Mills team took this decision after visiting the Company's facilities on separate occasions over the past two months and after analyzing the company's quality standards. This positive development is part of Agro Dutch's overall strategy to win back strategic clients over the world.

Due to the recession and consequent crash in world mushroom prices, the Company was forced to sell at lower prices and scale back on its expansion plans. However, with the increase in mushroom prices and their stability thereafter, world demand has picked up and orders have been robust.

Agro Dutch plans to reach optimum capacity utilization towards the end of the current fiscal year.

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Conclusion: This is a dark horse with a stock price very close to its historic lows.. Company has during the past few years expanded capacity to become the largest integrated mushroom manufacturer in the world with captive power plants.. promoter shareholding is also comfortable at 57.39% 
Total shareholder Sept 2008: 23,129 Individual shareholders stake: 31.23%
Total shareholder Sept 2010: 19,180 Individual shareholders stake: 15.26%


Debt rescheduling and additional preferential allotment of shares has been done successfully..
I would suggest buying 1000 shares at current market price for long term 5+ yrs when Agro Dutch Industries could be a 5 bagger or more..



14 comments:

Jagan said...

Hi,

I like thought process that you put into your investment ideas. I request you give your opinion on Himalaya internationalm whose business model is similar to that of agrodutch, may be even better than agrodutch.

Thanks,
Jagan

What'sUp Prahalad said...

Jagan:

Himalya International .. financials looks much better.

however its more of a value adder/processor .. rather than a producer.

Company is planning to setup 8500 tonnes capacity mushroom (In gujarat) while agro dutch has 50,000 tonnes capacity..

Himalya's day is still some distance off.. (I would however keep an eye on it..) as investors seem to be queuing up

=happy investing
whatsup-indianstockideas.blogspot.com

Raja said...

This one sounds like a turnaround candidate especially in the light of news of 'General Mills Inc'.

Few questions that come to my mind:

1. In India is there are a provision for tax-loss-carry-forward ? I learn that it's a good option (in US) which often makes life of turnaround companies better as they don't have to pay tax in the immediate years after turn around owing to tax adjustment for previous years of loss.

2. Can we get some data on the rates at which Agro Dutch can expect to sell mushrooms to General Mills Inc ? I mean, if we assume that now Agro Dutch will now be able to sell all their produce to GMI, how much can we expect their annual earnings to be ?

Regards
Raja

What'sUp Prahalad said...

Raja:

Yes its a turnaround candidate.. but the promoters are the real question..

last time when there was a rights issue.. at say 25-35 (I dont remember) Agro dutch was quoting at 70 levels.. and promoters were selling lock stock and barrel...

they then bought more at lower levels.. through rights at 10-15 bucks..

Company is fully integrated and will be one of the lowest cost producers.. and now with CAN making also in place they will reduce their input costs drastically..

Ideally at wholesale levels.. mushrooms sell at 25 bucks per KG.

There are overhead costs of canning and brine solution which costs money.. the calculation that I have is:
100 tonnes of mushroom fits in 50,000 cases and profit is: 22.15 lakh

that would give a net profit of 110.52Cr (That would be gross profit for 50,000 tonnes.)

Please note these are based on Rs 25 per kg cost of mushroom and 105 cost of one Can (A-10 size - fits 2kg mushroom)

=happy investing
whatsup-indianstockideas.blogspot.com

sagi said...

HI,

On a purely technical analysis basis, it is not the time to buy this stock .It is bound to fall down further and I expect that we will have oppurtunity to buy this stock at about Rs 5.75/6.75. there are two optios in making money with this stock.
1. buy at about 6.25 nd then if it goes dowm further wait till it reaches the level of 5.25 and buy twice as much stock as u bought at 6.25, thereby the average cost is about 5.65 . Then hold the stock till it rallies up to Rs 14 and sell all the quantities bought at 5.25, holding the quantity of stock bought at 6.25. Now we will be holding back the stock in our core portfolio at "zero cost" and relax since uwe have nothing to lose and if the company becomes pink in health ,
ultimately enjoy the mushrooms throughout the life at no cost.

2. The second option is watch the quarterly results and when the results show signs of recovery , then buy and hold the stock.

Sagi

What'sUp Prahalad said...

Sagi:

ofcourse there are a number of ways to skin the cat..

I would like to get a leg on the door initially and as the financial's improve invest more ..

=happy investing
whatsup-indianstockideas.blogspot.com

b-lal said...

Hello,

Please advise me on this stock (Agro Dutch Ind.).i have been stucked ...since a long time.

..should i add more at current price...??

..i am holding app. 2100 shares with average price of app.32.00

please help me...

What'sUp Prahalad said...

B-Lal:

Even though Agro Ducth company is good the promoters are not interested in sharing the wealth.

Agro dutch had taken loans to expand capacity and start Can manufacturing unit.. but now they are not interested in paying back the banks and are looking to turn Agro Dutch into a BIFR company.

My suggestion: Sell Agro dutch and buy Jayant at current prices 90 bucks..

You can keep a weary eye on the development in Agrodutch and once the management has restructured we can plan to enter at a later date.

Right now stick around with Jayant Agro.

This is my personal opinion.

Stock market short term losses can be carried in your books for 8 yrs (provided you have disclosed it in your tax return.)

book losses and you can make it back in other investments.

=happy investing
whatsup-indianstockideas.blogspot.com

b-lal said...

Thank you very much Mr. Prahalad.

still i have 2 quarrry, please clear them at your conviance....

1.though i have shown in my Income tax return.....but i have shown the total amount invested during the year and not given the list of shares.....

2. i have been having these shares since 2006 and some were accumulated at later date....

..if i sell them...now...will i able to carry this loss for next 8 years...??

thanks...and with regard....

What'sUp Prahalad said...

b-lal:

If its long term then it cannot be carried forward. I have however heard that is the sale is done offline (STT is not paid) then the losses can be written against profits from other long term investments such as property.

I must state that I am not a tax expert you need to consult a tax expert to get a confirmation.

=happy investing
whatsup-indianstockideas.blogspot.com

Parag said...

Current price is Rs 3.80/- Vol hv come down relatively.
What would you suggest?

What'sUp Prahalad said...

Prag ji:

for the daredevil that you are .. you can buy some small amount..

if you already have stocks.. then wait for the results to improve and look for promoters increasing stake in the company..

That would be my advice..
=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

whatsupji,

Agro Dutch is 2.75 CMP. What is ur take. Can we invest and buy now or avoid?

What'sUp Prahalad said...

Anonymous ji:

till there is distinct improvement in sales.. there is no use investing in Agro Dutch..

right now its like digging a ditch and putting money in it..

wait for results to turn positive first..

no use buying right now..

=happy investing
whatsup-indianstockideas