Monday, March 16, 2009

Investment Call: JVL Agro Industries Ltd.

The share of JVL Agro Industries Ltd. (JVL) (Code: 519248) (Rs.53), formerly Jhunjhunwala Vanaspati Ltd., is recommended for decent appreciation in the medium-to-long-term. Incorporated in 1990, JVL promoted by Mr. S.N. Jhunjhunwala with its factory in Varanasi. It produces vanaspati ghee and refined oils and its brand 'Jhoola' is a household name, particularly in Bihar and U.P. JVL commands nearly 30% share of the U.P. and Bihar markets, which are the biggest consuming centres of vanaspati in India. Its products are sold in packing of 200 ml, 500 ml, 1 litre in pouches and 2, 5, 10 and 15 litres tins and jars. It has a network of 17 depots in U.P.
and a strong marketing alliance over the country. Its 3 MW power plant commenced production in March 2007. For FY08, JVL posted 67% higher sales of Rs.1156 cr. and earned 66% increased net profit of Rs.23.7 cr. over FY07 with an EPS of Rs.37.2 and paid dividend of 20%.
For Q3FY09, sales were up by 14% at Rs.327 cr. and net profit by 7% to Rs.7.4 cr. For the first three quarters of FY09, sales surged by 38% to Rs.1092 cr. and net profit by 57% to Rs.27.8 cr. giving an EPS of Rs.37 for the 9 month period.
JVL has a small equity of Rs.7.5 cr. and with reserves of Rs.75.4 cr., the book value of its share works out to Rs.110. The promoters hold 51.5% in its equity capital, foreign holding is 1%, PCBs hold 19.8% leaving 27.7% with the investing public.
The company's expansion plan of 400 MTPD costing Rs.27 cr. of Red palmolein, RBD palmolein & Inter Sterified products including its preparatory section by Alfa Laval (India) has started the commercial production of refined oil in Q3FY09. JVL’s foray into refined mustard oil began with a purchase of an edible oil complex in Rajasthan at a cost of just Rs.12 cr. The company spent another Rs.10 cr. on modernisation and capacity expansion and the unit started earning revenue from FY08. It is also putting up a tin manufacturing plant and a large section for packaging.
JVL has already received SEZ approval for its 300 acre land in U.P. and has reportedly initiated talks with developers to build the SEZ. It has also set up a Rs.105 cr. new factory in Bihar, which will involve a refinery of 500 TPD, Vanaspati Ghee of 250 TPD, captive power plant and Neutraliser for Soya of 250 TPD. JVL is also looking for a suitable location to set up a factory in Jharkhand for setting facilities for 500 TPD refinery, 300 TPD Fractionation, 200 TPD Vanaspati, Neutraliser for 250 of TPD Soya refining and a captive power plant at a capex of approx Rs.110 cr. The project is targeted to be completed by December 2009. JVL is also planning to go in for palm oil cultivation. It is actively scouting for a partner in Indonesia to set up a joint venture. Once the partner for the plantation is finalised, it will also set up a milling unit in Indonesia. This project is likely to envisage an investment of about Rs.75 cr. In order to save costs, the company continues to directly import palm oil from Indonesia and Malaysia.
The vegetable oil & ghee sector plays a crucial and significant role in the Indian industry. While the economic growth has created significant business opportunities, the production of vanaspati ghee is much less compare d to the demand in the country. The middle income and upper income groups largely use vanaspati ghee and refined oil as a cooking medium. Hence the growth of the industry is inevitable. Earlier, the company issued 60 lakh warrants of Rs.80 each to be converted into equity shares of Rs.10 each on September 2009. Hence its equity may go up to Rs.13.5 cr. if the warrants are converted into equity, which is only likely if its share price shoots up beyond Rs.80. For FY09, JVL is likely to achieve sales of Rs.1600 cr. and earn a net profit of Rs.32 cr. leading to an EPS of Rs.42. For FY10, sales are expected to zoom to Rs.2500 cr. after expansion when net profit could go up to Rs.65 cr. giving an EPS of Rs.48 on its expanded equity of Rs.13.5 cr. At the current market price of Rs.53, the JVL share is trading at a P/E of 1.1 on FY09 expected EPS of Rs.42 and a P/E of 1 on its projected EPS of Rs.48 for FY10. The average P/E of the solvent extraction industry in which JVL operates, currently works out to 6, leaving good scope for its share to rise in future. Investment in this share is likely to fetch a decent appreciation of over 30% in the medium-to-long-term. The 52 week high/low of the share has been Rs.185/44.
Source: Internet (Moneytimes)

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