SKM Egg Products - thinking out of the shell

(Mridul) #188

In my opinion this is a classic case of both forward and backward integration being done through separate promoter companies. Not very good for the public company shareholders. Buying 25% eggs from skm universal, marketing of the products being done by promoter entity. Sure shot profits in both businesses going to promoters at the cost of skm public entity.

Products might or might not be good. But this arrangement is not very much shareholder friendly.

(abhi2525) #189

Its raw eggs which they are marketing through the subsidiary. Raw eggs is not a product of SKM Eggs, the listed company. Egg paneer and liquid egss are – Listed on their website.

(phreak) #190

Branded eggs are a high margin product. Its a lot easier to sell than egg paneer or egg powder or liquid eggs in India and COGS will be a lot lesser keeping operational risks low. I am surprised that the company is selling this valuable product through a wholly-owned subsidiary of the promoter while keeping the high-risk, low-margin products in the listed company. On second thought, am not surprised at all.

(Pradeep) #191

If they have a distribution channel which can be used more effectively than any other, what is wrong with it to use it. World class facility with stringent quality polices and this added network effect from their non listed entity will prove to be an asset going forward… Company is a marathon runner and many of them want it to run Sprint but I believe management is doing exactly what it require to maintain stamina for long run… If you look at export data during last 2-3 quarters, there is a clear spike of egg export from chennai which hints trading activity of skm to maintain revenue stream…

(Rohit Balakrishnan) #192

The price movement here has been extremely sharp and difficult to understand. The B2C piece is something far in the future and as conservative investors we should perhaps not take that into account. There are both market risks and execution risks involved.

Coming to the egg powder business, which it exports - the rise in egg prices is a very big negative if I understand the business correctly. The end market for its products is global, which is still recovering from the lows. Thus, realizations in this market will not be very high. To top it, the domestic egg prices are on a tear, given these are two independent cycles, SKM will find it very tough to pass on prices in the international market for their egg products, especially in a market where supply, though declining is still high.

The gross margins should be severely impacted in this quarter too. I am not really sure what am I missing on this.

I don’t think B2C should be really ascribed any value at this point of time, its more of an optionality

Disc: Tracking, but not invested


SKM Universal marketing (unlisted sister concern) operates in Indian market whereas the company –SKM Egg Products- is 100% Export Oriented.
In order to satisfy business needs, SKM Egg Products needs way more eggs than available at in-house capacity. It does make business sense to buy the same from SKM Universal marketing as long as quality raw material is arranged reliably at reasonable price.
Questions we need to think about:
1- Is SKM Universal marketing selling the eggs at a reasonable price to the SKM Egg Products as compared to what they charge to the retail customers in the Indian market?
2- As SKM Egg Products- is 100% Export Oriented, how is the mechanism to sell Egg Panner and Egg liquids in the Indian market?
P.S: Not invested, reading about the company.

(Rohit Balakrishnan) #194

From Friday Nov 24, 2017 Issue of USDA-

(spiderman) #195

I agree with your point. Under SKM universal marketing the only crown jewel is " BEST " egg brand for which the turnover is less than 10 Crores. and most of the sales of skm universal comes in the form purchasing eggs from farmers and disposing the shells. From ROC companies you can take the P&L account, they also operate in very low margins.

from annual report , we can see the purchase price of eggs from skm universal marketing , the egg per piece comes below NECC rates.

Now they are investing on feed business which is through listed entity only. That is a high margin business.

(Pradeep) #196

If this is the case, how can one say company is not shareholder friendly? company is taking advantage of their affiliate company to absolve cost and doing value added business through listed entity. it is actually shareholder friendly…
Also they are using the brand name which is already established in the market to introduce their value added products which actually benefit listed company and shareholders. all value added product brands trademark issued under skm egg products not universal marketing

(phreak) #197

@pradeepbkv - Their value-added product business right now is a cyclical because they procure eggs in rupees and export the value-added products so the end-product price is subject to international price variations, especially in the US where a avian flu caused tremendous volatility in the prices couple of years back and was very beneficial for SKM but that went south just as quickly and you can see the effect in the numbers.

Branded eggs sold in domestic market on the other-hand can have fixed margins and the price variations can be passed on to the consumer. This is the most valuable business in my opinion (almost like a FMCG) and procuring eggs at (very) slightly lower than NECC prices from the subsidiary doesn’t offset it in my opinion.

(Pradeep) #198

I believe it is not cyclical but incidental. supply side is affecting due to incidents like flu which cause price to shoot up but it went back to normal price range. But, there is a sustainable appreciation of normal price from years. considering the shelves life, portability and other benefit of egg powder, demand side will improve in longer term for egg powder. Asian countries will follow demand pattern from west and this is true in all sector… and now it is fast adaptation than before even.
skm egg also started producing value added product for domestic market… this will also benefit skm for their revenue stream and i had a concern about company concentrating too much on product wise and geographical wise (japan) and this risk getting reduced. they started export to more countries and sustained revenue from last year even if there is only odd 10-15cr revenue from japan last year.

(Rohit Balakrishnan) #199

Not sure, if we can be so sure about Eggs being a secular demand business. In the US, Cal-maine Foods is the largest supplier of eggs. It has a section on its website on the cyclicality of egg market. Maybe India is different.

(Pradeep) #200

Below data from NECC for egg prices which is showing steady upward movement because of demand and supply gap.

Also another chart shows prices from different geography where india still have cost advantage in weighted average term

also may read below interesting facts about this sector

Another interesting read and data from poultry sector and plan from GOI. i believe India position to be in an advantageous path and this sector will see more boost in terms of export from GOI

(spiderman) #201

In Banglore Super markets.

(arvind.calyx) #202

Hi Spidernan,

It would be nice if you could answer the below question:
1.Have you used the products ?
2. Have you asked about the sales & demand of these products from the shop/store owner ?

(spiderman) #203

I have taste egg cubes. Its taste like panner. Have to check with dealer’s response.

Nammakkal egg prices down to 405 and Global Egg prices are firming up. Good for SKM.

Total 6 Products in B2C segment. If response is good for initial products we can see launch of other products also,

(Ramesh kumar) #204

Your link is asking for a login, hence posting the screenshot.

(Ramesh kumar) #205

Did you get a chance to get a feedback on the skm cubes/liquids from the warehouse/store you visited? Investors on MMB have reported seeing sale of SKM egg cubes/liquids in Benison supermarket, Hypercity Bangalore etc. Can you please verify the same and get independent feedback on the product experience from storeowners/customers etc.

Since the management never replies/responds to queries, scuttlebutt in the only option left to get a feel of how the products are faring.

(tgokulprasad) #206

Hi Sir,
Whether the revenue from India operations (SKM Best Egg cube and Paneer) will be added in the revenue under SKM Egg Products Export?

(Silent Investor) #207

There is absolutely no clarity about this. The management, though touted to be highly ethical, doesnt make much efforts to clarify such things.