Saturday, February 2, 2013
This stock earlier recommended in 2010 and appreciated reasonably over this period.You may ask why this small and relatively unknown company again near at its all time high price especially even it belongs to a boring industry like –Edible Oil Manufacturing.This time it is due of some interesting developments in this company .When I recommend it in 2010 , even if its name indicates some activities directly related with food ,it was mainly an Edible oil maker .As you are aware Edible oil is an volume driven industry where profit margins are very thin.After hiking their stake through a preferential issue and an open offer , now the promoters are moving in the right direction.Slowly they are now transforming this company from mere an edible oil producer to a food company in true sense .Leveraging on its good brand image and large marketing network across India ( except south) which consists of 50 depots, 1500 distributors and over 5 lakhs retail outlets company now moving into value added products.
As I mentioned earlier , this company is a Gujarat based Edible oil maker producing Groundnut ,Mustrad,Sunflower,Cotton Seed, Soya bean ,Rice bran and Corn oil under ‘Vimal’ Brand.Since my readers are already aware about its edible oil business through my earlier posting ,I am not repeating it here.Let us go through the recent developments .
First of all ,In last week company decided to subscribe 31,20,000 equity shares of Vimal Dairy ltd – a company owned by the same promoters. By this purchase Vimal Oil will hold 52 % stake in Vimal Dairy and it will be a Subsidiary of the listed entity.Vimal Dairy is one of the largest private sector dairy in Gujarat with a milk processing capacity of two lakh litre milk per day.Company is now planning to hike its capacity from 2 lakh LPD to 5 lakh LPD in near future.Considering the valuations of certain deals materialized in dairy industry in recent past this valuation is reasonable .Along with milk ,company selling many value added products like Cheese,Paneer,Butter ,Flavoured milk and Ice Cream under ‘Vimal’ brand.( Link to Company’s Ice Cream division HERE)
In another development ,Vimal is now planning to introduce dairy alternatives to target people who are not in a position to use dairy items due to health issues related with life style diseases. Company will launch tofu to substitute paneer, soya cheese and rice cheese to replace cheese, margarine to replace butter, soya cheese spreads against cheese spread and soya mozzarella against mozzarella.Out of this margarine is already introduced under the brand ‘Vimal lite’. Market for these type products are now limited in India but growing at good pace. Health conscious life style will increase the penetration of these products going forward and the sales trend we are experiencing in developed countries are extremely positive for these items.
In another forward step ,recently Vimal decided to enter in the snacks and frozen food category .Company will launch more than 20 snacks products under ‘Vimal Fresh’ brand in another three months.An investment of with a cost of Rs. 100 Cr is implementing for this division.Frozen food brands will be launched by 2015.( Read latest update HERE) .There is lot of opportunities as well as challenges in both these categories.Company already established good network even in remote villages for its milk collection and edible oil selling .This will be an added advantage for its new ventures.
Share holding and Financials.
Company having an equity base of Rs.11.5 Cr .Out of these almost 75% stake is held by promoters and related parties (including 5% shown in public category) .Not a single share pledged so far .It is interesting to see that even this company having an equity of Rs.11.5 Cr its entire shares are held by just 2000+ share holders .About the financials ,Vimal posted a turnover of Rs.1248 Cr , a net profit of Rs.6 Cr and an EPS of Rs.5.5in last FY.Even its cash flow is not very robust ,company never skipped dividend for the last 13 years.
I believe, company is now planning to reduce the quantum of edible oil business mainly due to its low margin nature and mounting sundry debtors position and decidedt to concentrate in high margin ( compared with edible oil) value added food products.For this expansion we can expect some fund raising in near future . Its recent decision to take stake in dairy business is a step to increase the quality of its balance sheet for this purpose . Purely on financial parameters, this stock is not suitable for low risk investors.But I think the promoters realised the bad shape of their present business and balance sheet and started treatment at the right time.These type business acumen and flexibility is very important for the success of any business.I believe ,leveraging on their vast experience and already established infrastructure and marketing network Vimal will become a food company in true sense in another few years .Since my above opinion is based only on some assumptions and readings from the body language of the promoters ,some of their recent decisions and not on any numbers,I am not recommending this stock for those who are die-hard fans of investment theories ,equations and ratios but only for very high risk kind investors.CMP is Rs.109 /-
Link to Company Website HERE
Link to latest Annual Report HERE