2020 AGM notes
- [Operational highlights] The Maize processing business contributes 85% share in the overall margin of the company. Over the last 5 years, Margin has remained above 15% except this year when it fell due to an unprecedented rise in maize prices. Achieved capacity utilization of 69% in FY20. 40% of all starch output is value-added products and 60% is commoditized products.
- [Malda Capex] Implementation of Malda Capex (Additional 1000 TPD Maize processing plant) is on track for completion in 18 months. We expect to increase top-line by 600cr when Malda capex comes online.
- [HFCS] FSSAI standards for production of HFCS are expected soon this year. Post that, the company will take up 100 TPD HDFC plant at chalisgaon plant.
- [Future Guidance] Pre-covid, Capacity utilization was 80%. Now it is 70%. Expect it to come back to 80% in Q3 and 90% in Q4 FY21. Value addition plants have commenced operations in Chalisgaon. Full effects will be seen in Q3,Q4. Will double the Polyol capacity in next 12-18 months to 600 TPD. Maize prices have been 13-14 Rs this year. Expect them to continue to be stable (13-16 Rs) due to bumper Kharif crop. 90% power requirements are fulfilled through captive power generation. Expect to go up to 95% by FY22Q3. Soybean crop output will increase by 40-50% this year. Agro division should do much better this year. Post Malda plant, company will have 28-30% market share in maize processing. Will keep setting up new plants to increase capacity. Plan to expand outside current geographies. Will spend 500cr capex in next 2 years, majority in Maize segment. Including setting up new solar power plants.
- [Share splitting] Company board decided to split shares so as to make trading easier due to requests by share-holders: Volumes were less so it would be ideal to split it to make trading easier.
- [Industry picture]: GAEL’s gross margins are 4-5% higher than Competitors like Surjit and Riddhi Siddhi in spite of locations not being so different and competitors also having value added products. Margins are higher because the company is the most cost effective producer in the country. Raw material purchase planning is much more effective. 50% of all such products which are exported outside of India are done by the Company (export to 75 countries). Percent of starch converted to derivatives and sold is much higher for GAEL versus competitors. Contracts with clients are not always L1 since these are global FMCG and Pharma giants who require backup suppliers. These are not tenders either. Contract consists of a negotiated price. Export demand across the world has increased due to the China effort (global supply chain trying to diversify away from China). With maize prices coming down, avenues to export improve dramatically. GAEL is largest sorbitol, dextrose anhydrous, dextrose monohydrate, Maltodextrine producer in India. There is huge demand for Indian soybean because it is non-GMO.
- [Cotton yarn business]: Company is in Final stages of evaluating how they can turn it around and whether they even want to continue in this business. Haven’t done any Capex in the Agro sector since 2012.
I found point 5 to be a little concerning. It is not clear why investors would ask GAEL to split a 200 rupees stock into 2 100 rupees stock. It certainly can improve trading volumes. But why would investors care about trading volumes? Would be happy to hear what other boarders think.
As per the management the biggest risk to the business is Raw Material prices, which is my own assessment as well. GAEL is definitely executing very well. Would be reasonable to call it the most efficient/profitable maize processing company in India. The long gestation period contracts with oral care, FMCG and pharma companies act as some sort of a Moat for the company. However, the RM price should would always remain.
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