IFB Agro Industries

Its results season again and an excellent time to tweak portfolios. For us its exciting times as we get several new ideas to work upon. One such new idea is – IFB Agro listed on bothBSE (507438) & NSE and trading at about Rs 105. The co has posted excellent Q1 numbers:

IFB Agro is part of the IFB group and it has two business divisions – IMFL & Agro Marine.

IFB Agro is one of the largest producer of alcohol in Eastern India, having 6 large captive bottling plants situated in Bengal, Orissa and North East. The company has a strong position and had made sale of 5.5 lac cases of IMFL products in 2011. The value of sales of Liquor division in 2011 was 327 Cr vs 241 Cr last year.

In the Agro Marine division, the company is into exporting of Prawns and selling of Feeds business. The agro marine industry was going through a tough time till 2009, but since mid 2010, the situation has improved and the future is bright. IFB has a 48% market share in the shrimp feed business in West Bengal. In FY 2011, the company achieved a turnover of about 122 Cr vs 52.59 Cr. “IFB Royal” is the brand name of the frozen marine product of this company

The liquor business is witnessing a strong demand and hence the company has set up a new bottling plant at Panagarh, West Bengal. Company is awaiting for a couple of approvals to start the operations.

Attractive Valuations at CMP of 105:

• Co has been growing at a CAGR of 26% for last 5 years. In FY 2011, the company posted a turnover of 451 Cr vs 293 Cr thereby growing @ 30%.
• FY 2011 NP was 17.83 Cr vs 4.43 Cr thereby posting an EPS of 22.
• Co reduced the debt from 31.4 Cr in FY 2010 to just 4.5 Cr in FY 2011. So it’s almost a debt free co now.
• Q1 results of FY 2012 have been strong and co has posted a 40% topline growth with 10 times increase in profits.
• Stock is available at less than 5 times FY 2011 EPS of 22.
• Stock is available at less than Book Value of 110.
• For FY 2012, the co should be able to cross the turnover of 500 Cr and may an EPS of 30-35. Stock is available at less 3 times expected earnings.

Concerns:

• Co had mentioned that WB Govt. has discontinued the molasses transportation cost reimbursement policy from December 2010 and this has made operation of distillery unviable. Though the quarterly results of both March & June quarter have been very strong but this might still be a risk. We are trying to understand the impact/outcome of the same.
• IFB Group hasn’t been giving any dividend till now.
• The business witnesses volatility in earnings.

Conclusion:

When the valuations are very attractive and business is showing early signs of strong growth or improvement in earnings, one should participate in the stock.

IFB Agro despite being a debt free company is available at a M Cap of just 85 Cr while in FY 2011, it had sales of 450 Cr and NP of 17.83 Cr. We feel IFG Agro is an interesting pick at these levels.