Had written this piece in Sept 2012, posting it here after updating CMP, etc :
Umang Dairies - Refreshing Cuppa
Umang Dairies is Uttar Pradesh based dairy products company belonging to the JK Group. It’s products include milk powder (skimmed & whole milk) , dairy creamers & whiteners, tea & coffee premixes, ghee, butter, fresh cream and liquid milk.
Its main brands are White Magik , Dairy Top, Umang and Milk Star, plus it also manufactures products under private labels for retail chains.
The Company supplies its products to major retail chains & it recently received aSupplier of the Yeara Award 2011 a Private Brands category from Bharti Wal-Mart.
The company enjoys a leadership position in Premixes for Tea & Coffee vending machines.
The company has two plants - a drying plant & a liquid milk packaging plant - located in the milk surplus state of Uttar Pradesh and has 300 villages and 12,000 farmers in its village level collection (VLC) network.
The drying plant has a capacity of 3 Lac Litres per day . Utilisation was 21% in 2009-10, 39% in 2010-11, 55% in 2011-12 & should improve further to 70-75% in the current financial year.
Liquid Milk Packaging (LMP) Plant:
Capacity utilization of the liquid milk plant was 39% in 2009-10, 60% in 2010-11, 87% in 2011-12 & should reach nearly full capacity during the current financial year.
Consequent to the steady improvement in capacity utilization of its 2 plants over the last couple of years, the financial performance has also showed a steady improvement. Sales are up from 50.57 Cr in 2009-10 to 150.22 Cr in 2011-12, and PBT is up from a loss of 2.02 Cr in 2009-10 to a profit of 13.83 Cr in 2011-12.
The company went through trying times a few years ago & had turned sick. It went through a BIFR-sanctioned restructuring process and has turned around in the last couple of years. Accumulated losses are likely to be wiped out in the current financial year, as the company moves from strength to strength.
Umang Dairies Ltd **- Brief Stats **
Company Website : www.umangdairies.com
BSE Scrip Id : **UMANGDAIR **
BSE Scrip Code : 500231
CMP : Rs 56.25 (closing price, BSE - 19th Nov, 2012)
FY11-12 EPS : Rs 6.29
FY11-12 Dividend : Nil
Investment Rationale :
Demand for milk & milk based products has been rising at a faster pace than production in recent years. Per capita milk (and related products) consumption in India is still on the lower side, but is rising at a brisk pace, due to lifestyle changes & higher disposable income. Organized Retail is also growing at a fast pace, leading to increased demand for milk & milk products . This will be a significant growth driver for the dairy industry going forward.
With the LMP plant approaching full utilization, and the drying plant set to follow suit in a year or so, Umang Dairies has planned for the expansion of both plants, to capitalize on the opportunity.
Expansion of the LMP plant is being contemplated from 5 Lac litres/day to 6 Lac litres/day by the end of Oct 2012, and the drying plant capacity is to be expanded from 3 Lac litres/day to 4.5 Lac litres/day by end of the current financial year. These expansions are being funded from internal accruals. Entry into flavored milk (and possibly yogurt) is also being contemplated in 2013-14.
Conclusion & Recommendation
Looking at the company’s steady progress over the last 2 years, as well as it’s current & future expansion plans, the author feels that an investment in the company has the potential to give steady returns in the medium term (3 years).
The author recommends readers of this blog to closely study & track this company going forward, and take an appropriate call based on their own conviction in this idea, after proper research.
Author : Bosco Menezes
Recommendation Date : 14.09.2012 (Updated on 20-11-2012). Note that the stock has run up in the last 2 months, so margin of safety is correspondingly less.
At the time of writing this article the author has a position in the stock covered by this report. The author or any of his dependent family members may make purchases or sales of the securities mentioned in the report while the report is in circulation. Readers/recipients of this report are strongly advised to do their strict due diligence, and should be aware that the value of investments can go down as well as up. The author shall not be liable for any direct or indirect losses arising from the use of the contents of this report, and readers are therefore cautioned to use the information contained herein at their own risk. In fact, readers would do well to seek the advice of a qualified independent advisor. The author certifies that all of the views expressed in this report accurately reflect his personal views about the subject company at the time of writing this report. Feedback / brickbats may be hurled at the author at firstname.lastname@example.org