SKM Egg Products - thinking out of the shell

“But unlike several smaller poultry players, SKM is also backward integrated and they have their own feed mill established for manufacturing poultry feed. Hence, while poultry feed price has increased from Rs 35 to 42 per kg, SKM probably has not felt as big of a pinch as of yet due to a rise in exports and the fact that they make their feed in house”

@ vx294 SKM make feed from the Maize which is bought from the outside market right? In that case Maize price should impact SKM as well.

Of course they will, and that is also one of the reasons for their margin contraction in the recent quarter. If they bought their poultry feed from outside instead of manufacturing it in-house their expenses would have been even higher due to the added distributor margin. Are maize prices increasing bad? Yes. Is SKM suffering as much as its competition? In my opinion - no. SKM looks to be better placed.

Sometimes I wonder if selling excess poultry feed could be an added source of income for the company, but I guess we will never know. :zipper_mouth_face:


Is it worth buying now …

Hi What is the source of Information details

I have been trying to identify the reason behind the drop in numbers in last quarter for the stock.

The big question here is:

  1. Was it a soft quarter for XYZ reasons.

  2. Or simply the growth was a bump up only due to supply chain disruptions and was unsustainable.

If it was first of the above stated, then this price is a steal.

I guess we will have to wait for further qtr numbers .

I had been trying to look for management interviews or concall pertaining to last qtr numbers, i couldn’t find anywhere .

If anyone has some information about the same. Please do share?

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SKM / Venky’s are commodity dependent companies.

The problem with any commodity company is lack of earning predictability. There is no guarantee that the performance of the last 2 years will sustain going forward. In fact, growth was led by Qatar world cup, bird flu in Europe, etc.

Looking at PE of a commodity based company is probably not right. Commodities work in cycles. When demand outsizes supply, companies with excess capacity benefit. Seeing this, all global players put up capacity. However, this is a losing scenario for all players as again supply outsizes demand.

The company doesn’t provide much investor guidance hence difficult to assess the future. The present TTM PE of 5.5 is irrelevant. If company repeats performance of last quarter going ahead, the PE becomes 12 (600/ 50).

However, company is super genuine with TN govt. body stake of 8%. No doubt on that aspect. But this is pure commodity play.


Hi Abhay,
Thanks a lot for the comment. I agree with you in your analyses of the commodity play. I had covered the cyclical aspect in an earlier post here:

Over there, I spoke about three major cyclical factors to consider for SKM:

  • Mortality Rate: Higher temperatures result in a higher flock mortality rate. And El-Nino this year has not helped that fact. February of last year was the hottest February India has ever faced in over a 100 years.

  • Production costs: As mentioned in an earlier post, maize prices have already caused a 20% spike in poultry feed price cost. And the added expenses are hurting SKM’s margins over the past year. SKM is currently sitting at its highest material cost (normalized) in the past 6 quarters.

  • Extreme conditions: The Tamil Nadu floods that occurred towards the end of 2023 was an unforeseen event that could have affected SKM’s business for the quarter.

This is definitely a down cycle that SKM is observing and I feel SKM have been unlucky with the floods too. But coming back to cyclicality, all of this has been priced into the stock and it is trading at valuations that existed back in 2010. We are definitely closer to the bottom of the cycle than the top.

A small correction in your point about forward PE. If the company was to repeat last quarter’s performance for the next quarter, the PE becomes 6.8 with an EPS of around 33Rs.



I too get the sense looking at valuations offer a lot of comfort on downside.

Valuations on all accounts looked reasonable to me, and have already started building small positions.

will have to wait for 1-2 qtr numbers to see if the cycle reverses, i sense this could be interesting.

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What I meant was repeating the performance of last quarter for next 3 more quarters, Forward PE becomes 12.
Present market cap → ~600 Cr
Net profit → 12 X 4 = 48 Cr, Fwd PE will be ~12

Also, looking at performance for upcoming quarters would be important when making a definite call on this.
The net profit of this company was 16 and 7 Cr in FY21 and FY22 respectively. The sudden increase to 76 Cr in FY23 and 105 Cr in TTM brought much positivity to the stock. From Dec 22 to Sep 23, the company delivered a 30 Cr net profit run rate. However, this profit run rate came down to 12 Cr in last quarter, which is exactly same to net profit in Sep 2022 (Before start of 30 Cr run rate)

So the question arises - What is the steady state net profit of this company? Is it 12 Cr a quarter or 30 Cr a quarter, or is it even less? Difficult to answer this without any good commentary from the company itself.

However, one should make their own decision. I am just laying my hypothesis.

In general, cyclicals work opposite to normal stocks. When PE is high at a steady level, that is the time to buy. Because when profits shrink (Cycle ends), PE looks exorbitant. When PE becomes low, it is time to sell in cyclical because your profit becomes very high and the stock price hasn’t caught up with that.


Yes thats the million dollar question, what is the average run rate.
Was that bump to 30 to 35 cr sort of bottom line, just one off quarters , or perhaps the median going forward will be around 10-12cr around.

Its just a guessing game, im absence of management commentary so guess will have to wait untill numbers come out over the next few qtrs.

If company goes bk to 200 sort of topline and 30cr sort of bottom line, & sustains that as a base, then there will be a massive rerating by the market.
For now lets hope so.

Rest we will know in due time.

Looking at the recent quarter results (Dec2023), Drop in profit was mainly due to Change in inventory of finished good. Not the revenue part. It is probably a temporary phenonmenon

Recently, a scrutiny assessment was conducted on SKM for income tax. For those who don’t know:

The income tax assessment is a critical procedure conducted by the Income Tax Department to authenticate the details furnished by taxpayers in their tax returns. This assessment is designed to verify the precision and legality of the assertions, deductions, and other particulars provided by taxpayers in their returns.

After the assessment, SKM have been ordered to pay a total sum of Rs 3.5 Cr over disputed additions to taxable income. This is a step in the wrong direction for SKM.

A company has the following options with the assessment:

  1. Accept the order issued by the Income Tax authority and pay any outstanding taxes or claim a refund.

  2. If there’s a clerical error, submit a claim for reimbursement under Section 154.

  3. Submit a revised application to the Commissioner of Income Tax under Section 263/264.

  4. Appeal the judgment if necessary.

SKM have opted for option 4 to appeal the judgement with "strong facts and legal
propositions in favour of the company ". Good news about this is: Until the appeal is concluded, they don’t have to pay the demanded amount. This could take several months. And if the appeal moves in SKM’s favour, then this will all just go away. Bad news: Hurts investor trust. Might lead to a lot of FUD in the coming days.


Hello Everyone,
Do you guys think below news will create any impact on SKM Egg ?


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The market cap currently is about 675 Cr. If we notice the cash flow, it is handsome cash flow compared to previous 10 years.

Even quarterly revenue performance is not too bad if we compare it against the quarterly run-rate 2 years ago.

My observation is their employee cost seem to have doubled. Also, material cost also have spiked up compared to immediate previous quarters.

Another observation is the company seems to be doubling the gross block compared to the total gross block 2 years ago (adding the fixed asset+CWIP). I think the investment in Bio-gas plant are reflecting here.

Potentially, when the revenue starts to accrue from Bio-gas plant investment, the margins should improve and operating leverage should get better. I may be wrong in assuming there is going to be added revenue/reduction in cost due to 70 Cr. investment they are making.

It will be useful to attend the AGM for this company as they don’t to earning calls.



Thanks that’a a very good observation.

My only concern here , topline isn’t showing signs , that it’s gonna bloom, there isn’t any gradual increase in topline as well.

Well it remains to see how the capex, of 70 odd cr, infuses some additional topline over FY25.

Stock is trading at intresting valuations, if we assume growth & margins are gonna come from capex.


That means you are okay with cycles,
Difference between steel and this is , commodity they are in which is highly perishable, if they make powder also birdflu like issues come at regular intervals, risky bet.

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Generally I hate cyclicals , u never know when u get caught at the wrong end of the cycle.

Plus post going through their past quarters, I don’t see huge fluctuations in terms of topline as is in case of most cyclicals, metals etc.

I don’t think this counter can be purely categorised into pure cyclical plays.

Just my observation, I could be wrong.