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Thursday, February 03, 2011

Company: Gujarat Ambuja Exports: Dec 31,2010 - Segmental reporting...

Gujarat Ambuja Exports GAEL segmental data review is as follows:

1. Revenue breakup for Dec 31,2010 quarter is as follows:
- 75% of the sales are from the "Other Agro Processing Division" (Profit Margin: 4.88%) 
- 15% of the sales are from the Maize Processing (Bio Chemical) division. (Profit margin: 18.56%)
- 10% of the sales are from the "Cotton Yarn Division" (Profit Margin: 4.82%) 
- 0.20% of the sales are from the "Wind Mill Division" (Profit Margin: 35.36%)
As can be seen Other Agro processing division has driven the Dec 2010 quarterly revenues.. Company management had clearly stated that Dec and March quarter are the best 2 quarters for GAEL.

Looking at March 2010 Full year revenue breakup (Other Agro Processing: 62.34%, Maize: 24.38% and Cotton yarn: 12.80%) I would expect Maize division to contribute more for the next quarter of March 2011.
Also Maize division enjoys tax free status for Uttaranchal plant and we can expect the margins to be maintained.

2. As we can see the margins are as follows:
- Highest margin in Wind Mill division 35.36% but it is variable and dependent on wind patterns and other parameters out of company management control.
- Maize processing division Profit Margin is 18.56%. dropped from 20.40% in Sept but for the whole year April 2010 till date company has been reporting steady operating margins of around 18%
- Agro Processing division  Profit Margin is 4.88% which is slightly below year end march 2010 5.22% .. Also year end March 2010 Agro processing division margin was 9.18% so definitely in quarter ending March 2011 we should see higher margin around 5.5 to 6%

3. Increase in sales of lower margin "Agro Procesing Division" as compared to "Maize Processing Division" has changed the revenue mix .. resulting in lower "Net Profit Margin" as percentage of sales!!

Would expect GAEL to maintain margins and with expanded capacity in Agro processing division (new solvent extraction plant) we should see higher topline.. and as mentioned before we should be able to see 1900Cr to 2000Cr topline for GAEL for year ending march 2011. Year end March 2011 Net profit should also be around 90-100Cr.

In my previous article we were focussed on Quarter on Quarter growth numbers which are impressive to say the least.. the year on year numbers are even better (as last year results were subdued due financial crisis and global trade issues impacting trade for GAEL) Generally analyst look at "year-on-year" considering the fact that GAEL business is seasonal in nature.. here is the Y-Y and Q-Q % change data for everyone's consumption..

Conclusion: GAEL is a Strong Strong player.. much stronger that the other popular commodity companies. 
- GAEL has zero Long term loans (except for TUFS loan Technology Upgradation Fund Scheme) 
- All GAEL plants have co-generation plants which bodes well in a future where energy is bound to be scarce.. 
- GAEL has a judicious mix of segments (Spinning Division, Agro Processing division, Maize derivatives [Bio Chemical division] and Windmills) 
- GAEL is also expanding capacity in Maize Derivatives division by 70% by 2012. Maize Derivatives division is a higher margin business and has number of downstream application industries.
- GAEL is focussed in taking advantage of agricultural diversity of India and benchmarking itself to global standards.
- GAEL has also entered the markets of Sri Lanka with Agro processing plants.
- GAEL is also one of the largest castor oil and its derivatives producer. 
GAEL is a deep value stock yet to be discovered.. and the best part is a focussed and conservative(low leverage) management. A Stock that still qualifies for "Best Buy" rating as the best years are still ahead for GAEL.

Link to Dec 31,2010 Published Result (Company website)



Anonymous said...


Are GAEL and Jayant Agro both Castor Oil producers?

What'sUp Prahalad said...

GAEL produces castor oil and older generation of derivatives (lower magin castor oil derivatives)

GAEL processes castor oil along with other oils such as soya so castor is but a small part of the diversified business..

Jayant Agro is exclusively dedicated to castor oil and its derivatives ..
Jayant agro has recently started producing next generation castor oil derivatives.. in collaboration with mitsui..(hence we can see improvement in margins..)
Jayant agro has backward integrated into the heartlands of castor producing areas .. which will provide some level of input cost stability..

So yes GAEL and Jayant Agro both produce castor oil and their derivatives.. but Jayant Agro is exclusively focussed in castor oil and its derivatives .. and also is moving up the value chain by producing next generation derivatives.. which will result in margin expansion and value addition happening in India..

=happy investing

Anonymous said...

Thank you for the clarifications, sir.

What would you suggest should be the ratio of investment between GAEL and Jayant?

What'sUp Prahalad said...


Investment ratio is dependent upon your risk taking ability..

my personal investment ratio is 55:45 GAEL: Jayant Agro

=happy investing