Last week we have discussed the long term prospects of sugar sector stocks.Many of them appreciated in an average of 20% in last week itself.Tea is another agriculture commodity having cyclical nature like Sugar.But the government control over this sector is very low compared with Sugar sector hence the supply demand scenario determines the price for a large extent.Tea prices showing a declining trend for a long time and now it is showing some signs of uptrend after a consolidation.As a true reflection of this trend , share prices of many of the listed tea sector stocks are hovering around multi month lows.From this tea pack I am selecting one company which is not so familiar for many of you - Rossell India Ltd.There is many other companies in this sector but I feels this company's diversification plans makes it more attractive than other companies from the same sector.
Company having Five tea estates in Assam in an area of 4000 hectares.For the last financial year Rossell posted a turnover of Rs.80 Cr and a net profit of Rs.18 Cr EPS is Rs.5/- ( FV Rs,2 Shares). In addition to the conventional Tea business company having two more divisions- Aerospace/defense , and Hospitality. Potential of these sectors differentiate this company from other tea companies.Under the Bangalore headquartered Aerospace and defense division - Rossell Techsys- company is offering services like custom embedded systems product design and development, product support services including Installation, testing, commissioning and maintenance, test solutions including test jigs, rigs, and simulators etc , and wire harness engineering and looming.Company representing many foreign companies like MacSema in India for their various products and services in Aerospace and defense.This division having an approximate employee strength of 70.
Recently company started a hospitality division to increase its presence in this sector.It is a point to note that company already having some experience in this field through their strategic investments in a company which is running the franchise of 'YUM'( owners of brands like KFC, Pizza Hut, and Taco Bell) in Nigeria.Few months before Rossell decided to start fast food chains in various cities in India too .It is not clear at this point that whether this is through a master franchise agreement of any well known brands or not.Anyway their previous experience in this field will be an added advantage.Apart from this ,company also having some interest in Lemon Tree Hotels which is running 12 hotel properties across India.
Company's share price is currently trading at Rs.40 /- with a P/E of 6 on the expected full year EPS of Rs.7/-. Considering the chances of an improvement in Tea prices, it is at the lower level .If the upcoming fast food chain venture turn as a success and defense and aerospace division posts decent growth after the expected opening of private sector in defense , this unknown stock may be re rated sharply. Only on the valuation of Tea division itself it is a better pick from the tea pack @ Rs.38/-
* Some of the information's ( About their Nigerian ventures) are taken from Company website .No guarantee for its Authenticity