Thursday, May 31, 2012

>Venky's (India) Ltd.: Q4FY12 RESULTS

First signs of turnaround visible

■ Q4FY12 –Margins witness stark sequential improvement
• Venky’s India Ltd. (Venky’s) saw its net sales rise by 18.9% Y-o-Y to `2.67 bn led by a 31% rise in the poultry segment and 21% rise in the Animal Health Product (AHP) segment.

• The raw material cost which had rose for the seventh consecutive quarter on a Y-o-Y basis to 69% of sales. However, on a sequential basis, the raw material cost declined by 20 bps. The other expenditure declined by 30bps and 380bps on a Y-o-Y and Q-o-Q basis respectively.

• EBITDA was `218 mn for Q4FY12 against `254 mn for Q4FY11. The EBITDA margin declined to 8.3% in Q4FY12 from 11.3% in Q4FY11 but bounced back strongly from the 3.5% margin seen in Q3FY12.

• The other income component stood at `101 mn, above our estimates, resulting in the profit after tax rising by 16.8% Y-o-Y and over 500% Q-o-Q to `181 mn.

Result Highlights
■ Segmental revenues in-line with our estimates
The poultry and poultry related segment grew by 31.4% Y-o-Y to `1.99 bn and contributed 69% to total revenues as compared to 62.7% in Q4FY11. Similarly the AHP division witnessed a 21.1% Y-o-Y growth in revenues to `244 mn and contributed 8.5% to the revenues in Q4FY12 as compared to 8.3% in Q4FY11. The oil seed division on the other hand de-grew by 8% Y-o-Y to `644 mn and contributed 22.4% to the total revenues.

■ Segmental margins decline annually but bounce back strongly on Q-o-Q basis
The higher raw material cost pressures have been visible across segments over the last four quarters. The EBIT margin of the poultry and poultry related segment was 10.4% in Q4FY12 much lower than 13.6% in Q4FY11 but significantly higher from the 4.8% margin reported in Q3FY12. Similarly, the oilseed segment also clocked EBIT margins 10.2% in Q4FY12 from 6.1% in Q3FY12. The strong bounce back in the EBIT margin re-iterrates the turnaround for the company.

■ Valuation & viewpoint
Given the turnaround in realisations after the last few slack quarters and the strong macro conditions; we expect the company to report a 21.6% CAGR in revenues over FY12-FY14E. We expect the lower raw material cost to help margins to expand and reflect in the PAT with a CAGR of 57.3% over FY12-FY14E in PAT.

Venky’s is currently trading at 5.4x FY13E EPS and 3.6x FY14E EPS, a significant discount to its historical one-year forward P/E band. We have valued the company based on the average historical P/E band (5.6x) over the last four years to capture the cyclicality of the industry and its profits. With an assumption of the worst behind the company as far as the raw material prices are concerned, we value the company based on its next two years average EPS of `90 per share. Consequently, we reiterate our BUY rating on the stock with a target price of `515 per share.