yes this qtr result is also not good now I understand the concept of Barasat Ki pani type of company but the ice cream and coconut oil Buisness seems to be good even whether that is cyclical sorry guys misread this one
From Dr. Vijay’s Blog
KSE Limited has been growing its sales at a decent pace of 15-20% year on year since last 10 years (FY2005-14). However, profitability of the company is very low. Operating profit margins (OPM) are barely 2-4% and net profit margins (NPM) are in the range of 1-2%. Moreover, profitability margins (both OPM & NPM) have been fluctuating wildly in the past.
Such low fluctuating margins are usually found in trading companies, which have very low pricing power with the customers. They are not able to pass on the increased cost of their raw materials to customers and thereby suffer in terms of low profitability.
An investor needs to be wary as companies with low profitability turn to losses very soon, in tough business environments.
I think all these concerns are very much valid and these are now showing up in the Quarterly result of the company due to which prices are going down.
Discl: Not Invested
KSE Net Profit is is abot 44Cr. Even if you exclude the Extraordinary item of 10cr the NP is 33cr on a Equity base of 71cr. thats a cool 46% ROE. Plus is has 38cr of cash sitting on its balance sheet. The PE is ridiculously low at 5-6 for a company which is a market leader in cattle feed.
For the past 2 years their capex is a mere 1-2 cr & an OCF of 20 - 35 cr. You will have to look far & wide for such valuations.
As far a profitability is concerned, its in the volume business and margins are bound to be low which is not at all alarming, there are literally thousands of companies operating on wafer thin margins and Mr.Market values them highly.
If the financial numbers are real, i think its a fantastic opportunity.
I agree Bheeshma, however you need to acknowledge the fundamental problem with this stock now. Earlier they were able to maintain that water thin margin. Has it changed now is the key question!
And this is because their inability to pass on the increased rice bran prices to cattle feed customers. In last FY 2014-15 AR they indicated they would pass on the prices however you can see from the past 2 quarters, clearly they haven’t been. Reason is they are competing with non-profit Govt. organizations who would never increase the prices in the interest of poor farmers. So you see the water thin margin can be boon or a bane and the risk profile of this is high, hence such valuation.
Disc.: Small position, looking to exit!
i agree with you that they seem to be struggling with pricing power. That may or may not change in the future, no-one knows… I think however, that the business they are in is a high demand 24 X 7 X 365 kind of a business and they have a strong position in that. So i remain optimistic!
It is been noted that, the stiff competition from other cattle feed producers like Kerala Feeds and Milma (Sub. of Milk marketing Federation of Kerala) is badly affected the co. lately. I have noticed the Milk co. op. societies are distributing Milma cattle feed for their members with subsidy. Though Milma’s feeds are not satisfactory to customers (learned from cattle growers) they tend to feed their cattle because they get subsidy on feeds.
Discl. Invested at 750 and booked some loss already.
I think an important fact here is what @Aksnehru mentioned about farmers ranking price, convenience and availability as key drivers for brand choice. It is easily imaginable that a farmer is not going to insist as much on quality as he will on the other 3 factors when it comes to feeding cattle (unless there is something alarming with the quality).
Hence the absence of pricing power is affecting KSE worse than quality is helping it.
both segments margins are shrinking so it means RM expenses on both animal feed and oil processing is increasing right ?
2000 + non stop rally
It seems to be promising too & even from 5-6 PE past few years ago, currently it is trading around 15 PE, which in itself indicates that Market is discovering its potential.
Also Low Equity Base, No dilution, Gud Div Yield, ROE all seem to be making it as a lucrative bargain.
Disclosure: Not Invested but just digging more.
Is KSE a potential takeover candidate?
If we look at theShareholding Pattern of KSE LTD, we may find that over a period of time the promoter holding has reduced in the company, Being a family run business there is a long list of people holding the shares as promoters. But the key here is, the emergence of Godrej Group, when we assess the Shareholding Pattern of KSE LTD, we see that in public shareholding there is a significant 1.63% stake with Mr Nadir Barjorji Godrej (Godrej Agrovet Chairman) in his personal capacity and another 2% stake through ENSEMBLE HOLDINGS AND FINANCE LIMITED, Apart from this HORMAZD NADIR GODREJ also holds 0.74% stake in the company. That takes the total stake of Godrej Family close to 4.37% (All this is bought in FY17-FY18) Beside since a long time there is one entity named PJD PROPERTIES & INVESTMENTS § LTD holding 17.50% stake in the company, Corp Filings show it is a Kerala based company, Maybe an entity related to the present promoter family. Earlier prior to Agrovet IPO the Godrej announced foray into the dairy space by picking up stake in a Chennai based south Indian milk products company Creamline … A P/E of 25 would fetch a price of 5000/- for KSE Ltd on an EPS of Rs 200 for FY18 and still below peer marketcap/sales ratio of 1.28. Have we spotted an undervalued largest manufacturer and a potential takeover candidate in KSE?
Thank you for the information. Interesting.
I see Nadir Barjorji Godrej has reduced stake in Dec 2017. Does this affect the possibility of Godrej Group taking it over!
Hi, take over is just a speculation .No offical news.Any how jan-march shareholding pattern will give more clarity.
Nadir Barjorjo Godrej has decreased stake. In Dec 2017, it was 1.63% and now 1.21% in Mar 2018.
Even lower stake by ENSEMBLE. From 2.02% to 1.89%.
Any change in view!
Investor education and protection fund authority has invested 0.68%, as per March 2018 qtr. It is a new entry here. Do you know why it invest in stocks?
What it means for us? Can I take it as good thing!
The shares for which dividend is not claimed for 7 continous years, need to be trasnfereed to Investor Education and Protection Fund with MCA. This is new change intorduced from 2016 and effective from 2017 .
some more details on same
But if that investing is taken as confidence booster for a stock or nothing. Like if a fund house invest in a micro stock then that is taken as good thing.