SKM Egg Products - thinking out of the shell

(spiderman) #22

The company is expecting 100 Crores of turnover from Domestic Business that is mainly B2C segment. That segment is totally untapped with Brand SKM it can go places. Domestic margins can be as high as 15 to 20 Percent. Market size of egg powder is not known but for sure it is growing with more awareness and lifestyle changes.
A food Processing company changing from B2B to B2C should command a higher valuation.

(Amitdarji) #23

Hello Namo,

is this like commodity related business?

(Marathondreams) #24

Does anybody know whether SKM has built plant for Indian business? From reading somewhere I got impression that they have 100% EOU plants . Hence they are constrained and could supply only small quantity to Indian market.

(Kiran K) #25

@NaMo There seems to be reduction in volume sold in FY16 - 6606MT vs FY15 - 7375MT without much reduction in the top line. Do you have any idea on this ? Thanks

Disc: Not invested

(Rohit Balakrishnan) #26

@NaMo Thanks for initiating the thread on the company. Have been reading up on the company for some time. Want to understand a few things from you:

  • The company has turned around since FY12. The large reason as I understand is the situation in US & Mexico. Supply being hampered these players did well. How is the situation now? And why would they continue to do well?

  • Do we know typically how many suppliers do its customers have for the products that it sells? If it was easy to switch from US & Mexico players, how difficult/easy it is to switch back to them, now that supply is back

  • Would you know how are its contracts with its customers structrued? Are these fixed price contracts or they are linked with the RM i.e. Egg prices?

  • How does one track egg prices? Is there a unifrom egg market in India- or there is price differential in various geographies?

  • The company has a large RPT with its subsidiary… what is the reason for that?

(NaMo) #27

@Marathondreams They don’t have plant built for domestic sales alone. Lets hope in future, they may consider setting up in a tax free zone. Management response in the above link posted by Goutam says “Yes, we do sell in India, but not even 3%. Since we are 100% EOU we have the problem of 9% + 2 % + 1% duty issue (even though basically egg is a non-excisable product) , which makes the product expensive for the domestic consumers. If government supports us on this duty front, there will be very big demand for the liquid egg products in domestic market.”

@kkvinvestor my assumption is that they held the inventory during the egg prices were higher

@rohitbalakrish_ India is a small player in the global egg powder industry, currently. But Indian egg processors can scale up their operations significantly to catch the market share, since India is the 3rd largest egg producer in the world. Russia is a very big market for egg products. There is good demand for egg powder, especially, Egg Albumen Powder High Whip, and Egg Yolk Powder Heat Stable. Even though entering and getting registration is tough in Russia,SKM has succeeded after 3 years of continuous efforts.

The contracts are linked to egg prices. I am not sure how easy it is for customers to switch suppliers. But, I would assume that food processing companies will have long lasting association as long as quality is maintained.

You may track Indian egg prices at various region at national egg co-ordination committee website

Sorry. what do you mean by RPT? Also, I am no insider by the way;)

(almantri) #28

I can see really good answers there…
Will be really glad if you can answer some of my queries too…

  1. I can see from the link you shared for trend of Egg prices in India, avg rates are consistently increasing from roughly 250/- in 2011 to 400+ in 2016. What I want to ask is the point where egg prices are cheaper than the world is still valid now?

  2. also as per their AR, cost of electricity and feed is also increasing. Do we know that margins are still impact for say since last 4-5 years?

Disclosure: Not invested yet but looking ahead to do so.

(TT) #29

The reason they are constrained is because if you run an EOU under the Foreign Trade Policy, there is a very limited quantity you can divert to the domestic tariff area (i.e. India). This is to prevent industries from manufacturing tax free under EOU scheme and then selling in India. Essentially, diversion to domestic market would put everyone other manufacturer who is not an EOU at an immense disadvantage. Therefore, beyond a certain quantity they have to start paying duties. Further, what he is talking about in terms of the 9% + 2% + 1% is the duty structure and this is applicable to all importers (essentially, selling products in India from an EOU would be construed as an import).

If they want to sell in India seriously, they need to set up a plant for that.

(Kiran K) #30

@NaMo I assume RPT means related party transaction

(mahesh112) #31

Whats about the government holding in the promoter holding and related party transactions are confsing.

Recently sold on loss.

(sriG) #32

Hi Namo,

Awesome research.But in case u’re attending the AGM,pls clarify:

  1. Ovobel takeover rumor or any substance in it?
  2. Russian business scope for future!
    3 ) Really planning BSE re-entry or just misleading investors.
  3. Overseas business profits accounted towards SKM Europe and not to SKM India?
  4. Scalability of liquid egg busines and future clients.
    And finally, will it take months or years for SKM to breach prev high of 230 odd without any star investor entry…

(Rohit Balakrishnan) #33

I meant Related party transactions. If the contract is linked with egg prices, why are they making losses in the recent two quarters? I understand their COGS/RM (which is largely egg) has increased sharply. Now if they have linkages with that, the price rise should be a pass through. Would like to hear your views.

(Krishna Agrawal) #34

Superb Investor Presentation from SKM EGG. It was a surprise. Good they have started and taken note to inform their shareholders. It will boost confident and improve their visibility.

(Krishna Agrawal) #35

Though investor presentation do not reveal much about ongoing demand supply issues and also they didn’t provided any read map for future growth…this is a welcome move and I hope going forward they will improve on these fronts in their next investor presentation.

(Kiran K) #36

@krish Could please share the presentation if available in public domain ? I checked NSE corporate announcements, couldn’t the same. Thanks

(Krishna Agrawal) #37

(pkuppusamy) #38

Thanks krish for sharing the presentation.

I can see these messages as positive for SKM

  1. Ours is a TERM LOAN DEBT FREE Company. We had closed all the term lloans of our company before the due dates.
  2. The management has taken all the steps to get the listing from Bombay Stock Exchange (BSE).
  3. After this Annual General Meeting, listing will be considered by BSE.
  4. The pledged promoter shares of 33,72,752 (nos) belonging to Managing Director has been released by State Bank of India and there is no lien on shares.

SBI was blocking the listing on BSE, If that is cleared… listing is very much possible.

Disc: I have invested in SKM

(bramha) #39

Egg is the sole raw material and per AR, cost of eggs accounts for 78% of Revenue.

Average Egg prices for July August Sep of 2015 at Namakkal was 324.13, 324.26, 297.17. Corresponding month average prices in 2016 are 435.00, 369.84 and 340 (Sep - month to date).

Given the steep increase in RM prices, Q2 numbers will be stressed.

Disclosure: No holdings. Under watch list.

(ragav) #40

I have written down a summary of the outcome of the AGM and a conversation with Mr. Shree Shivakumar.

Highlights from Speech of Shiva Kumar:

Year end 2016 results were discussed . The reason that the company has made a lesser profit than PY 2015 was mainly due to the Egg prices volatility the previous year there happened to be a Flu in the U.S. Which affected the 30Cr hens and prices shot up which turned into profits as situation stabilised CY the company has lower realisation.

Capex : The company is not making any Capex as said because making capex when market are high and suddenly lower market demand could affect us . This situation would continue till 2017 and thus are postponing their capex plans .

SKM has approved global suppliers like Heinz , Monedlez , Csm etc which helps its products reach globally

Currently due to over production in Europe based on US markets prices remain weak .

Focus & Key drivers : The company is focussing on Russian markets and trying to gain market share of 50 % in coming 2 years which would be main driver of 500 cr revenues as mentioned previously . Every week 2 containers were shipped in 2016 , currently it’s having a order to ship 700 Mt in 6 months .

Debt : There is no term loan and only working capital loans remain . Cost of Working capital loans are very cheap at 2.5 % ( as mentioned by the CEO) the pledged shares of 22 % from the Bank has been taken back .

70 % of feed inputs are Corn and soya thus those prices influence the Raw materials to a great extent . And imports of those are regulated due to government intervention as to protect local Agri players .

Market share : SKM exports 60 % of Egg powder from India , 10 % of imports from Japan are from SKM . Started supply to Russia .

Going forward : The market situation remains dull due to Over supply and lesser demand . This cycle tends to remain for another 2 years . And thus net profit target of 500 Cr is further pushed to 2021-2022 from as said 2018. Cyclicality in prices to remain and thus the company expects another 2 years to be muted performance .

After AGM the company is planning to list the stock in BSE .

Disc : Invested . Opinions may be biased

(Krishna Agrawal) #41

Guys Good Morning…any views on the below