Riddhi Siddhi Gluco Biols Ltd (Rs 142)
(BSE Code- 524480)
(P/E- 9, FY'09 Sales- Rs 534 cr. Mkt. Cap-158 cr.)
Riddhi Siddhi Gluco Biols Ltd (RSGB) is the largest manufacturer of various types of starch, liquid glucose, dextrose monohydrate and other derivatives, high maltose corn syrup and byproducts like corn gluten meal and enriched fibre, which are used in various applications such as chocolates, processed foods, glass and medicines, paper, glucose and textiles. RSGB controls about 17% of the total starch market. About 60-65% of its turnover comes from industry majors such as Nestle, Hindustan Unilever, Ranbaxy, Ballarpur, ITC, Grasim, Indian Rayon and Godrej. Catering to a sizeable market in India, RSGB has continuously tried to increase capacities and feed the growing industry demand, which is about 12-15% at present. Per capita consumption of cornstarch in India is estimated to be about 1 kg as compared with 64 kg in US and the world average of 6 kg, which leaves room for a sustainable growth in the years to come. In 2006, RSGB, the largest corn wet milling company in the Indian subcontinent having the highest crushing capacity, had joined hands with France's Roquette Freres, a leading player in this industry with a consolidated turnover exceeding $4.5 billion, to improve the yield parameters and develop new products
RSGB's new capacities are already in place and for technical expertise; it has found a partner in Roquette Freres, France, which is the world's fifth largest starch company. Roquette also has a 14.93% stake in RSGB. Roquette, which sells about 1,000 products, will help RSGB increase its current product offering of 40 to add more value added products in its portfolio by way of providing technology and knowhow. These new value added products will be for nutrition, biotech and health and dextrose for sugar free goods. These value added products will also help RSGB in acquiring a larger pie of the existing market and enter new industries. Considering these developments, RSGB is targeting a market share of 25% in two years as compared with 17% now. RSGB currently generates about 65 per cent of its revenues from value added products. It is planning to increase this to 80% over the next two years. RSGB is also working closely with brand-enhancing food companies like Nestle, Heinz, Cadbury, Hindustan Unilever and Britannia and pharma companies like Ranbaxy, Wockhardt, Sun Pharma and Nicholas Piramal with repeat business and sustainable revenues.
For the Q1 ended June 2009, RSGB has posted net profit of Rs 5.14 cr (down 37%) on net sales of Rs 156 cr (up 28%). Operating profit declined by 12% y-o-y as input cost increased because of MSP of maize prices (main raw material for the company) being increased from Rs. 620 per quintal to Rs. 840 per quintal. Because of weak global economy, RSGB has not been able to pass on the increase in input cost to the consumers. For the year ended March 2009, RSGB had posted net sales of Rs 533.9 cr (up 60%) and net profit of Rs 13.98 cr (down 30%). The net profit was down mainly due to higher interest burden, forex losses and higher depreciation. On a equity of 11.13 cr.(Promoters'stake-43%), the EPS stood at Rs 12.5 and the dividend declared was 20%.
With global economy showing signs of recovery, consumers willingness to spend more and demand picking up, demand for products like starch & glucose is also likely to pick up. Also, FMCG companies have continued to grow by volume and there by would in turn increase the demand for raw materials/inputs used in bakery & confectionery products. At the current market price of Rs 142, the stock is trading at a P/E multiple of 11 times its FY09 earnings and 8.6 times FY10E earnings (Rs 16-Rs 17). RSGB' market cap stands at Rs 158 cr, against expected net sales of Rs 650 cr. for FY10. Considering that the company is the largest player in its sector, investors can expect good returns over the medium-long term. Investors can start accumulating the stock at current levels and add more on declines for decent returns of 40%-50% over the next 6-8 months.
Source: Internet (Valuenotes by Sanjay Chhabria)
