With a massive scale up through expansion projects & acquisitions, and growth visibility in coming years, JVL Agro with revenues of Rs.1155 crores, expected EPS of Rs.50 for FY 09 and a market cap of Rs.58 crores looks undervalued, in an industry unlikely to go out of fashion.
JVL Agro Industries Ltd.JVL Agro Industries Ltd. was incorporated in 1989 under the name of Jhunjhunwala Vanaspati Limited. The company set up its unit at Jaunpur, close to Varanasi in the year 1990 with the production capacity of 25 tpd. From a 25 tdp capacity in 1990, the company has grown substantially and now claims to be India’s largest unit for manufacture of vanaspati with a capacity of 72,000 tpa at Jaunpur. The company besides Vanaspati now produces various Refined Oils and Mustard Oil and has recently diversified its business activities into fertilizers and other agro based products.
The company has its manufacturing facilities at Jaunpur, close to Varanasi and at Alwar, Rajasthan. The company has a capacity to produce 72,000 tpa of Vanaspati, 1,14,000 tpa Refined Oils and 81,000 tpa Mustard Oil.
The company sells its products under ‘Jhoola’ brand which commands a market share of 35% of the Uttar Pradesh vanaspati market, 23% share of Bihar, 5% of Jharkhand, 9% of Maharashtra, 6% of Madhya Pradesh and 8% of Gujarat. (Source : Company’s Annual Report March 08)
Expansion and Diversification Projects:
The company has undertaken various expansion and diversification projects which will add substantially to its scale of operations leading to higher revenues and profitability.
• Greenfield Project in Bihar - The Company has acquired around 10 acres at Dahri-on-sone in Bihar to set up a 750-tpd capacity refinery/vanaspati unit. The project is in the final stages of implementation and the first phase for 500 tpd is expected to go on stream in May 2009.
• Expansion at Varanasi Plant - The company has set up a new refinery at Varanasi with a capacity of 400 tpd which has gone on stream in December 2008. This has doubled the production capacity at its Varanasi plant. (from 72,000 tpa before the expansion.)
• Greenfield Project at Haldia - The Company has acquired around 8.5 acres at Haldia to set up a 1000-tpd capacity refinery. The project is under implementation and is expected to go on stream in 2010-11.
• Expansion Project at Alwar - The Company is setting up an edible oil refinery of 100 tpd at Alwar, Rajasthan, to manufacture refined and soybean oil.
• Acquisition of Fertilizer PSU - The Company acquired the assets and properties of 318-acres factory unit of M/s Pyrites Phosphates & Chemicals Limited (a PSU in liquidation) at Amjhore, Bihar, through auction to venture into fertilizers. The unit besides land of 318 acres also has captive pyrite mines, which is the main raw material for manufacture of sulphuric acid used for manufacture of Single Super Phosphate (SSP). The unit has over 250 acres of surplus land which can be utilised for expansion of the unit in future.
• Multi Services SEZ – The group had acquired a stake in Hari Fertilizers Ltd. located in Varanasi and plans to develop a 333 Acre SEZ on the land of Hari Fertilizers Ltd., for which the company has received State and Central Government approvals.
Investment Rationale:
JVL Agro is one of the most attractive proxies of India’s cooking media sector. The company possesses a product basket extending from vanaspati to various refined oils. With a market share of 35% in Uttar Pradesh and 23% in Bihar in Vanaspati, the company commands leadership position across two of India’s most densely populated states. The company has established a strong foothold in these markets, without spending much on advertising. The company has a brand that is visible, attractive and available; has a scale that is imposing and economical and enjoys a reach that is extensive and penetrated.
The various expansion projects undertaken by the company will add substantially to the topline and bottomline of the company in the years to come. The group has plans for Real Estate development on 333 acres in Varanasi in which it proposes to develop a Multi-services SEZ for which approvals from Central and State Government has been obtained.
The market cap of the company at the current price is Rs 58 crores. The entire debt of Rs 70 crores (Term Loans of Rs 7.16 crores and the balance as Working Capital) is against Cash Credit Limit (against Rs 85 crores which the company holds as Fixed Deposits). For the first 9 months of FY 08-09, the company has reported PAT of Rs 28 crores. For full year, it is expected to be around Rs 36-38 crores, resulting in an EPS close to Rs 50. The stock thus trades at a PE of just 1.5 at its CMP. Moreover, out of the total turnover of Rs 1155 crores in FY 08, the revenue from Trading is just Rs 281 crores, majority of revenues coming from refining/ manufacturing activity.
With a few expansion projects having gone on stream and the others expected to be on stream soon, we expect a significant scale up of its operations in the coming years with significant growth in Sales and Profitability.
Consider this :-
• The company has a Book Value of Rs 105 (expected to increase to over Rs 150 in Mar 09),
• Generates healthy ROCE of 29%
• The company has a receivable cycle of just 10 days, which talks of prudent financial management & controls
• The impact of expansion projects and acquisitions on the company’s Sales and Profitability will show in the coming years.
• The revenue and profit potential of its 333 acres SEZ in Varanasi as and when the active implementation takes place,
With the roadmap of growth chalked out by the management by way of various expansion projects and acquisitions, the capacities of the company in various segments will go up significantly than the current capacities.
The stock trading at Rs 77 with a PE of 1.5 and a market cap of Rs 58 crores looks grossly undervalued. The growth in the company is clearly visible which we believe could be atleast 25-30% each year for the next few years.
The extent of undervaluation of the company becomes even more evident when compared with the peer group.
Investors can choose to accumulate the stock at the current price and on declines.
