SKM Egg Products - thinking out of the shell


(Marathondreams) #228

I think it is premature to assume that listed entity owns the brands just because they make announcement. Nobody stops them to make announcement if they are just marketing it but if the manufacturing(and hence the margin) is owned by related party.
I may be wrong here but would like to see more proof of ownership , something like printed label on the product.


(sreered) #229

Please look at the product photos put up in the earlier messages. The label clearly says there too that the manufacturer is SKM Egg Products. But I felt that announcement to the exchanges cannot be false and hence a confirmation for the same


(phreak) #230

From an image uploaded earlier - The manufacturer is indeed SKM Egg Products (The listed entity) but the distributer is SKM Universal Marketing. What if the arrangement is such that the listed entity does contract manufacturing for the unlisted related-party promoter entity (SKM Universal Marketing) which will enjoy the higher margins?


(sreered) #231

You can argue the other way round too. There are many companies whose products are distributed by someone else but who is the brand owner matters. So the fact that SKM claims these products as theirs in the announcements is what is important. That is my opinion. You are free to have yours.


(Pradeep) #232

liquid egg is not a new product for them and you may find details in their website also. they are regularly exporting to uae and product have good reach there


(Hitesh Patel) #233

The whole arrangement I think is because SKM Egg is an EOU and cannot sell in domestic markets if it is to remain an EOU and enjoy benefits therof.

Hence although SKM Egg manufactures these new products, because it itself cannot sell in domestic markets it sells through a sister concern SKM universal Ltd.

Same thing happens with procurement of eggs. SKM Eggs needs eggs of a specific quality. But it cant pick and choose from the supply from egg farmers. There will always be eggs of desired quality and some inferior quality ones. It has a problem of what to do with the inferior quality because it cannot sell anything (including poor quality eggs) in domestic markets. Hence SKM Universal procures eggs, provides SKM Eggs with top quality eggs and sells the unrequired eggs in domestic markets.

The argument would be about related party transactions in both instances and aspersions would be cast about management skimming some margins in all these transactions. I personally think management seems to be above board and remain invested.

Basically this is a cyclical business with all its problems. How long the downcycle lasts and when upcycle begins is anyone’s guess. At what price all the negatives of downcycle are priced in is a question which investors have to grapple with.

Peak net profits company made was in fy 15 of about 25 crores. current market cap is around 250 crores. If company were to make/surpass peak profits made during last upcycle in next couple of years then stock is available at 10 PE kind of valuations based on peak profits.

disc; invested.


(phreak) #234

I think the last peak profits were due to a special situation than a routine up-cycle. The US avian flu in CY 2015 was a one-off and out of sheer coincidence, the Namakkal egg prices during that time were very subdued in the 250-300 range. So exceptional increase in demand with an exceptional decrease in RM prices (domestic) - This required quite a few things to go right at the same time. The swiftness with which the cycle turned in early 2016 as US capacities came online should also make it difficult use the peak profits for valuation.

The bigger risk is that unlike other commodities like Steel or Copper that follow global pricing trends, eggs follow different pricing trajectories in different geographies based on their culture, consumption and weather. Cost arbitrage goes completely out of whack when domestic demand for eggs is high causing pricing pressures. India has a fast-growing demand for proteins and eggs are complimenting pulses in that regard. Very recently the demand for eggs were so high that they were almost on par with chicken. So competing with egg capacities in the US by paying in rupees and exporting in dollars is not always going to be profitable unless its a special situation.

Just my 2 cents.


(zulfiqar) #235

Sir at the peak of cycle market cap was around 600cr, besides this nowadays people are becoming more health conscious and egg are most considered as vegetarian nowadays, could this be a change in consumption trend


(Rohit Balakrishnan) #236

Domestic egg prices have been around Rs2.5-3.5 for a fairly long time. We can check that from NECC website and Namakkal prices is what is relevant for SKM.

As regards the Egg cycle, we need to track the US market which is showing signs of recovery from the troughs of earlier years. The inventory of egg products is consistently declining which is a good sign.

SKM was burdened with debt prior to 2015. So any profits earned in upcycle was used up in servicing debt. This time that will not be the case. If the gross margins revert to 20-25% which they have done in most of the up-cycles they can do a PAT of ~ 25 Crores.

While the risk of rupee appreciating is definitely there. Net net the bet is cycle in the US is reviving and SKM being the largest player in India should benefit from it.

Discl- Invested
SEBI Registered Investment Advisor


(Ashwini Damani) #237

Any way of checking the Egg Cycle of US / UK


(spiderman) #238

BEST egg brand is owned by unlisted entity.
Around 80 to 100 Refrigerators are put up in Banglore for B 2 C products.
Entire investment for distributing storing and transporting is done by SKM universal marketing ltd.
As per the CFO the company margins on SKM Best cubes are higher than Egg Powder.
Since they are 100 Percent EOU they have come in this arrangement. They are targeting any major revenues from Domestic Front in next one year but by 2021 they are expecting 50 to 60 Crores from it.

Now listed entity will work as contract manufacturing only but this give stable earnings gng fwd.

Disc invested


(Ramesh kumar) #239

All skm brands are either owned by SKM egg exports ltd OR SKM Shree Shivkumar as per the website ipindiaonline.gov.in . Search for class 29, for egg and egg products head.
This contract arrangement with SKM universal is understandable since the listed entity is a EOU.
However, projected targets of 50-60 Cr for domestic business is too small or cautious forecast.
Meanwhile, skm products have spread to 10 cities now, prominent additions being Pallakad(Kerala) and Madurai (Tamil Nadu). Availability in Reliance Fresh and Big bazaar should improve visibility and create further demand.
If management interacts with any of the friends on this forum, would like to know their expansion plans, status of acquisition proposal of Ovobel Foods & Projected corporate structure for domestic business.
Disc: Invested


(spiderman) #240

I asked the same and CFO denied it. As per the CFO listed entity has no connection with BEST eggs Brand. If it is held by Shree Shiv Kumar also it wont benefit listed entity.
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(spiderman) #241

USA egg prices near 3 Year high and Egg Alubmen near 3 year high ( Around 9 Dollars per kg)
Nammakkal egg prices are 360 ( in Other cities arounf 5 to 10 Percent lower)

http://www.e2necc.com/e![Capture|570x377]

(upload://je41KpdulSnDDhQh3j05sZUYODW.PNG)ggdailyandmontlyprices.aspx


(spiderman) #242

Capture


(spiderman) #243


(spiderman) #244

Paid website…I have not read it.


(aerofire) #245

Suzuki Motors with ISE Japan entering this space will be interesting development.


(spiderman) #246

image

USA Egg prices doubled

image

ALbumen trading around 10 to 12

NECC egg prices 335

Dollar rate 65

Good for skm…


(Rohit Balakrishnan) #247

Quoting from the report

Wholesale prices for shell eggs continue to move sharply higher to levels notseen since the avian influenza-induced shortages of 2015. Competition remains active for limited offerings, particularly from egg products manufacturers who are actively competing with carton business for available supplies. Supplies remain light to moderate and the pace of trading is moderate to active

The monthly inventory of total dried egg products for February declined 10 percent from January and is 46 percent below February 2017. Stocks of whole dried eggs decreased 10 percent from January while stocks of whites declined 14 percent. Yolk stocks were down 7 percent while stocks of blends were unchanged.