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Saturday, August 27, 2011

Gujarat Ambuja Exports: June 2011 Result Review.

CMP: 23
Market Cap: 317.52Cr
Sales TTM: 2038Cr
PBDIT TTM: 156.64Cr
Net Profit TTM: 94.82Cr
Debt March 2011: 233.38Cr
Reserves: March 2011: 478.71Cr

GAEL June 2011 Results are as follows:
1. The Year on Year basis is the right way to look at the results as agro processing industry is dependent on harvesting seasons so Quarter on Quarter comparison leads to wrong conclusions.  The Year-on-Year data is as follows: 
- Sales up by +30.28%
- Expenditure up by +32.47%
- Other Income down by -44.02%
- PBDIT up by +7.5%
- Depreciation down by 4.24%
- Interest up by +142.06%
- Taxes up by +7.77%
- Net Profits up by +0.15%

- Topline growth at 30% indicates there is ample demand for products
- Expenditure has increased more than sales(32.47%).. indicates slight input cost pressures. 
- Interest rates have increased phenomenally. GAEL has less than 10Cr of long term loans, most of the debt (233Cr) is working capital loans for GAEL, the effect of RBI high interest rate policy can be seen in GAEL's income statement.
- Depreciation has reduced which could indicate that new capacity creation is down or the high interest rate scenario is delaying capacity addition.
- Tax increase (7.77%)though higher than PBDIT (7.5%) it is a small amount. GAEL management has been conservative and has always reported higher tax outflow which results in March Quarter reporting almost Zero tax.
- Net Profit Increase has been a pittance 0.15%  Its almost symbolic in nature.

2. On a segmented basis Topline (Sales contribution of various segments)
- Agro Processing Division:  contributed 52.31% 
- Maize Processing contributed 30.51% 
- Cotton yarn contributed 16.42%
- Windmill contributed 0.76%

- Agro processing division has always been the largest contributor. This division has seen a 45.93% increase in sales on a Y-Y basis which is huge.

3. Profit Margins: Profit margins are a percentage of sales.. The margins for each division are.
- Agro Processing Division 2.16%
- Maize Processing Division: 17.92%
- Cotton Yarn Division: 0.81%
- Windmill Division: 72.64%

- Agro Processing division margins (2.16%) are better than June 2010 (0.60%) this improvement is on top of 45.93% increase in sales which is very heartening considering June & Sept are cyclically the worst quarters for agro processing division. This also indicates good demand for products of Agro processing division (cooking oil, wheat, animal feed, deoiled cakes)
-  Maize Processing Division margins at 17.92% is the same as last year (June 2010: 17.91%)
- Cotton Yarn as such has done poorly barely scraping through.
- Windmills Division looks like had a bumper "Windfall" profit margin increased to 72%

Here is another look at the data from Maize processing division. Let us see the contribution of Maize Processing division to the PBIT of GAEL.

Maize Processing division contribution to the PBIT of GAEL
- Year ending March 2010: 42.88% of profits
- Year Ending March 2011: 54.97% of profits
- Quarter Ending June 2010: 71.30% of profits
- Quarter Ending June 2011: 75.10% of profits

- Maize Processing division has been consistently increasing its share in the profits of GAEL.
- On a Q and Q basis maize profits decreased from 27.31Cr (March 2011) to 20.21Cr (June 2011) but this is part of the business seasonality which depends on harvesting.

An important thing worth repeating from my old Blog is the Client List for GAEL 
India Client List: -ITC Limited, Amul Dairy, Heinz India,  Britannia Industries,  Dabur India,  Hindustan Lever ltd,  Parle Products,  Vadilal Industries,  Priya Gold Biscuits,  Colgate Palmolive India Ltd,  Paras Pharmaceuticals,  Goodrick Group of Companies,  Biocon Ltd,  British Biologicals,  P&G Pharmaceuticals,  Choice Laboratories,  Balsara Home Products,  JP Laboratories,  Agiomed Ltd,  Manisha Pharma Plast,  Goran Pharmaceuticals,  IPCO Industries,  Anchor Health and Beauty

Global Client List: Ellora Agro industries, Grand mills for flour and feeds, Tata Africa holdings, Katakit, Strategic foods international Co LLC, Modern Co for food products, Refined food company, National Biscuit and confectionaries co, English Biscuit manufacturers pvt ltd, Carton products ltd, Kuwait Biscuit and food manufacturers co,Omani packaging company,San Miguel foods incorporated,National company for sponge and plastics, Kuwait flour mills and bakeries co,IFFCO, MS unipex dairy products co ltd, AB Mauri lanka pvt ltd, Ceylon biscuits limited, Fooz factory for biscuits, Nizwa food industries llc, Mufindi paper mills limited, Myanma pharmaceutical industries

For the year ending March 2011 GAEL had 
- Total Sales: 1,949cr
- Export Sales: 547cr
exports is 28% of sales and 72% of GAEL's sales of 1,949Cr is domestic demand related. 
India with the largest youth population of the world and demand is something we can see by just stepping out  of the house into a shopping mall during weekends. Products like toothpaste and shaving cream consist of sorbitol a Maize Derivative supplied by GAEL to Colgate, HUL, Dabur, Balsara and Choice Laboratory.  GAEL provides inputs for everyday use products like biscuits, IceCreams, cakes, snacks, soups, ketchup and cigarettes

Conclusion: GAEL's June Quarter has been consistent.. there are signs of Interest rate and input cost pressures visible in the results. GAEL's client list includes the leaders of Indian Consumer goods industry like ITC, HUL, Colgate, Britannia, Parle, Dabur, Amul, Vadilal, Heinz, Priya Gold also the fact that only 28% of earnings are export related really makes "Exports" in the company name misleading. 
GAEL is committed to increase its capacity of Maize Derivative business, we will see higher profit margins going forward. GAEL is right now priced like a low margin commodity player .. with increased visibility (due to higher profit margins) the stock should see a re-rating.

here is a link to an old product video which is a must see. (link)
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Anonymous said...

HUL and other FMCG are having good 2-3 years. When their margins get compressed, GAEL will also face the heat.

I used to fall for that logic, Lot of end-products are using this companies products so this should eventually rise. I tried it with lot of companies and came to realize it does not work.

I think this stock will just linger around this range may be lower with unfavorable market conditions.

Anonymous said...

Maybe Cairn India is a better currency devaluation/commodity boom Play than GAEL.

India's consumption story can be bought in several other ways GAEL proved to be a weak strategy for last 1-2 yrs

What'sUp Prahalad said...


Can you give me more details about this company that you are talking about

"Lots of end-product are using this companies products so this should eventually rise"
Maybe we can have a look at the company as an investment idea..

By the way GAEL promoters just bought 10,000 shares from the market on August 26,2011
BSE: 5000 shares @ 23.07
NSE: 5000 shares @ 23.08

Even if the stock price is range bound the valuation of GAEL is rising as its networth is improving .. ultimately the stock price will have to respond to the fundamental valuations..

As Buffet says
"In the short term the market is a voting machine but in the long term the market is a weighing machine"

Right now HUL, Britannia, Colgate, Dabur, Amul, Vadilal, ITC all spend their money promoting the demand of GAEL's products. And customers have a choice .. a choice to buy GAEL products from HUL or Britannia or Colgate or Dabur or Amul or ITC or Vadilal .. and many more.

Even with increased demand GAEL has been able to maintain its margins which points to its manufacturing efficiency

at these valuations GAEL is a deep deep value buy!!

=happy investing

What'sUp Prahalad said...


You should look at a company called "Ashland" it is the maker of valvoline "engine oils"

Ashland was a company which had a chain of gas stations "Marathon" in US.
Ashland also had refinery to process crude and sell them to its gas stations..
US is a country where there is no public transportation and an avg household has 2.5 cars..

Marathon sold its refinery, gas station, road paving, distribution business and has moved exclusively into speciality chemicals ie. engine oil, water treatment chemicals and other high value products.

Reliance had a few quarters back attempted to buy a specialty chemicals company, Essar oil had an option to buy Refineries in Europe .. as you can see there is a churn and its all because of peak oil

Will Reliance ever rise to 1400 again?? II dont think so.

The fact is that as soon as general public realizes the Worldwide oil tank is at "Empty" demand for a number of products will fall

If you see the current financial turmoil, it is because of the energy equation.. investors are moving out of "cheap abundant energy scenario" industries to "Expensive limited energy" industries

One of the alternatives available was "Nuclear power" but with Japan's tsunami Nuclear power's popularity has dwindled.
(I think nuclear power companies/raw material are a great buy)

We are smack down at the center of a major fundamental shift and experiencing it first hand. .. unfortunately most us are oblivious of this change

Cairn produces "low quality "Heavy crude" which is more expensive and difficult to refine.. It has to be sold at a discount to the normal "Brent" in fact its so thick that it cannot be transported using pipelines. you have to mix good quality "Sweet" crude with Cairn's crude just to transport it to the refineries..

Indian refineries were not able to process this type of crude.. and had to buy additional balancing equipment just to process it..

Crude is in short supply and even the US Strategic petroleum reserve is more than 50% heavy crude..

I would say " hold on " cause we are all in for a roller coaster ride..

Choose your investments carefully.. my best bets are GAEL, Jayant, NHPC and Tata communications

=happy investing

Anonymous said...

I agree with your Peak OIL Analogy, but as long as govt doesn't nationalize cairn India, It will be selling OIL at high price and with proven reserves will be minting money till the last person switches to solar cars..

Regarding NHPC, I dipped in it but govt is so pathetically lazy in execution...I have hard time justifying holding on to it with FD yielding 10%

Yes NHPC will shine but we need to wait for Peak oil to catch up and govt to get its head out of sand.

When all the coal mines and nuclear options dry out maybe NHPC will be allowed to sell at higher rate and with poltics on farmer/irrigation Its better to watch rather than jump into it just yet

What'sUp Prahalad said...


Once the oil prices rise beyond a certain level.. people will stop using oil..
demand will drop..

the reason "peak oil" is not published/promoted.. because once a critical mass is reached the demand will drop like a stone.. irrespective of availability of oil.

every oil producing state is worried about fall in demand.. that's why "peak oil is not promoted .. or energy conservation is advocated.."

Yes "sustainable development" is the mantra when actually it should be "peak oil and how to have sustainable development"

Why would you buy a Car today if you know there is no oil available 5-10 yrs down the line..

=happy investing