Dear fellow boarders,
Studied into SKM Egg forum of valuepickr, really quite amazing stuff, it’s kinda almost a-z study on the company. Everything covered. Hats off to the great contributors.
With due respect to all, I come up with a lil different logic on the stock.
At first impression, looked like a scary story exposed to unforeseen / unpredictable global vagaries & vigorous raw-material price volatility – with too many variables out of company’s control; companies profitability at the mercy of occasional global tail winds.
But no more after I looked into the historic numbers. Highly impressive sales volume and value growth over solid 19 years – from since inception at 1997 to 2016. This single graph tells the whole story of BIG PICTURE.
HISTORIC VOLUME GROWTH:
The company started with a volume of 304 MT in FY1998 and the volume for the latest year FY2016 was 6603 MT with peak volume achieved in last fiscal FY2015 at 7375 MT. In all those two decades of topsy-turvy global and domestic industry scenario, the company suffered volume decline in only 5 years (compared to previous year) – in FY2004, FY2009, FY2011, FY2012 & FY2016. Quite commendable!
HISTORIC SALES GROWTH:
This is even more impressive story. The company started in FY1998 with sales of Rs 4.54 cr; sales for latest fiscal FY2016 was Rs 270 cr with the peak in last fiscal FY2015 at 271 cr. (Consolidated sales for FY16 was Rs 303 cr, which is also of very consistent growth).
The down years were just 2 – that too very marginally – in FY2010 (down by 6%) & in FY2016 (down by 0.7% - !?). Effectively I could say, THEY NEVER HAD A DOWN YEAR IN TERMS OF SALES OVER 2 DECADES. Amazing!!
But yes, stock price is ultimately a slave of cashflows and bottomline, not of topline. The story here is not so linear like sales, but with wild gyrations driven by occasional (alternate?!) global head winds & tail winds. But mostly they managed to churn profits and GREAT OPERATING CASH FLOWS.
Now they are no more a child playing in the dynamic and risky global highway, but a well grown-up, established name globally. And now with the debt drag is entirely out of the way, they are having more fire-power to deal with this global slowdown and to swing into green ASAP.
Moat business with high entry barriers / market leader in India’s egg powder exports with more than 50% share / leading player in many of the countries they have presence / continuously entering new geographies / constantly expanding customer base (minimum 2 customers added every year, as per the historical average) / decades old strong relationship with global MNC food giants / top of the league quality products commanding a slight premium over global competitors / now armed with ammunition of debt free B/S / investor friendly, capable, kinda intelligent fanatic Mgmt with ambitious targets / very consistent topline numbers.
The good part of staying with honest and competent people (mgmt) is that they do all the worries and takes care while investors can sit back and relax. SKM Egg is having that kind of management. Even I tend to say, it will join the elite club of companies run by Intelligent Fanatics – Shree Shivkumar & team is so dedicated.
IF TWO DECADES OF PAST PERFORMANCE IS OF ANY INDICATION, notwithstanding the current severe business down-cycle, THEY WILL FIND A WAY AS THEY HAVE THE WILL.
So, it’s BASICALLY A BET ON MANAGEMENT CAPABILITY to turn every stone for growth.
Given their size, scale and global franchise now, the downside for stock price would be very limited below the 52 week low of Rs 50.
Stock may not be attractive in the short-term; may be few more quarters of difficulties in terms of numbers due to the current GLOBAL GLUT AND DOMESTIC DRAUGHT.
But certainly makes sense to an investor with over 3+ years view. Things could evolve to make it a serious long-term story. Also now I sense the entry of smart money into this stock.
Its a call is based predominantly on BIG PICTURE rather than number crunching, keeping investing simple AMAP.
Happy value investing!
Disclosure: I have entered recently @ 62; still adding on weaknesses.