I had a further look at the charts since the grape export data to EU was looking interesting and the broadening formation i alluded to earlier while possible seems very unlikely now.
tabling the EU grape export data from grapenet for the last 4 years i divided it into the first 10 mths ( apr to jan) and the last 2 mths ( feb & march ). The data for the last 2 months of 2016-2017 ( feb & march ) is not out yet so it needs to estimated.
The last 2 months account for a majority of the exports to EU compared to the first 10 months of the yr. So its possible to come up with a multiple to estimate the exports for the final 2 months. for example in 2013-2014 the first 10 months did 304cr of exports and the last 2 months did 622 crores, so the last 2 mths did 2x the exports of the first 10. The multiples are as follows
I have taken an average of the 2013-2014,2014-2015 & 2015-2016 multiples to estimate the last 2 mth exports in feb17 & march17. By my estimate it should do 842 crores in feb&march. The first 10 mths of '17 have done 291 cr. So the total export to EU of 2016-2017 should be 1134 cr
I estimate Freshtrop fruits revenue for 2016-2017 to be ~190cr. ( comments are in yellow )
This means the final quarter of 2017 should do a revenue of 114cr since the first three have a combined revenue of ~76cr ( 76 + 114 = 190 cr ). This represents a QoQ increase of ~90% over the march16 quarter ( 59.65 cr march16 & 114 cr march 17 estimated ) - leading to a significant rerating upwards.
Assuming the PAT margin of ~7% holds this means a PAT of ~13cr . Applying the current PE multiple of ~15 would mean an expected market cap of 195crs from the current 136 cr offering a nice margin of safety.
The price pattern that has evolved confirms the expected developments.
The prices shot up from a cup and handle formation ( pls note : this is not strictly a cup n handle as the handle formation time is not shorter than the cup formation time - i missed that & manythanks for @manish962 for pointing that out!)
and after a steep rise and as correctly pointed out by @eyesice are consolidating for sometime. A closer look at the daily for the last two years reveals unmistakable shakeouts. Weak hands being “shaken out” of their positions.
A bullish ascending triangle has evolved as a result. Also a note to myself from this - dont look at the price patterns in isolation. Look at the context. Going back in time, the cup and handle base from which the prices shot up changed my mind.
The news on grape exports has been really bullish and several reputed sources have mentioned the bumper grape exports to EU in 2016-2017.
I think this is a good opportunity. However there are risks
The share of grapes in the Freshtrop revenue has been declining. So the thesis may not pan out if the share drops even further
The entry of biggies like mahindra who can easily take away share. The business has no moat.
60% of the company is inventory and receivables.
India is not the first choice for europe. The quality of the grapes plays an important role. There is a worldwide focus on quality of food being imported. Grapes contain pesticides.
Unseasonal rain in May / June can kill the crop.
Disclosure - invested at 114 levels