SKM Egg Products is a successful turnaround story with competent management. Started in 1995 in collaboration with Belovo- Belgium, SKM produces Whole Egg powder, Egg Yolk (Egg Yellow) powder, Egg Albumen (Egg White) powder and liquid egg. Its customers are bakeries and FCMG companies. SKM combined the technical know-how obtained from Belovo with its own three decade long experience in the poultry industry to build the SKM brand. SKM products are exported to Europe, Japan, Middle East, Russia, Africa and Southeast Asia. SKM has sales offices in Netherlands, Japan and Russia. Promoters hold 54.27% stake with Tamil Nadu Govt holding 7.5% stake in company.
India ranks 3rd in egg production. Cost of egg production is cheap in India. But, processing of egg is at bare minimum in India. Good margins are available if processed egg is exported to developed markets provided quality of the product is ensured. Egg powder is immune to bird flu virus because virus becomes inactive due to high temperature pasteurization and processing.
SKM processes around 20 lakh eggs/day out of which around 5 lakh are from own farms and the rest are sourced through contract farming. Company controls the entire life cycle of egg processing. It supplies its own feed. All the chicken are regularly inspected. Automated system tracks every activity of egg processing. The above activities ensure export level quality. Currently SKM is operating at 90% capacity and they have plans to expand it to achieve 500CR revenue by FY18. Only 3 players exist in India in this business with high entry barrier ie; SKM, Venky’s and Ovobel. Though SKM contributes 57% of India’s export of egg powder, globally it has to compete with many competitors
Setting up new markets is a time consuming process due to regulatory hurdles. SKM built excess capacity in 2012 funding the expansion with debt ignoring these issues. Its turnover has touched 300 cr from 120 cr in 2012, net profit at 30 cr vs loss of 12 cr. Its debt stands around 30 cr vs 90 cr which is a great achievement. SKM Egg has wisely scaled down its expansion plans due to current global glut but India always has low price advantage. Rumours are that SKM Egg is surely going to acquire competitor Ovobel Bangalore to expand its capacity and to have ready customers.
Golden time for SKM will start when they expand capacity and get more share of Indian market also which is way underpenetrated in processed egg products and scope is huge. Eggs are the cheapest source of best quality protein. Egg powder and Liquid Eggs are more economical to transport and store than whole eggs with shelf life from 5 to 10 years. Egg powder is something which can help in eradicating the nutrition problems. SKM has created world class facilities in India. India is following the developed countries in the use of fast foods and Egg products so it is just about time that the demand for Egg powder will rise in India.
SKM’s inputs are raw material for feed and egg (in case of contract farming) where costs are highly variable. SKM had a fantastic journey from around 7 to 230 and now back to 62 with stock PE of 10.86. SKM is listed only in NSE. Market cap of 163 cr is less than annual sales. Good return on equity track record: 3 yr ROE 32.73%. Total share capital is only 26.33 cr which makes the share prices very volatile.
Disclosure: Invested. This is for study purposes and to invite comments from fellow boarders and to gain knowledge accordingly. I am not SEBI registered and this is not a Buy/Sell recommendation.