52-Week Loser: Raj Oil Mills

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52-WEEK LOSER: RAJ OIL MILLS

Despite being in the fancied FMCG sector that enjoyed such a favourable run over the past year, the stock of the newly listed Raj Oil Mills has declined by over 40 per cent in a year. The company makes and markets edible oils under the brand names Guinea (groundnut, sunflower and soyabean cooking oils), Cocoraj (coconut oil) and Must Raj (mustard oil).

In fact, the company which made its IPO at Rs 120 a share, saw the shares trade above the issue price only briefly before they began charting a steady downward journey. Two factors may have contributed to the stock's poor performance. One, a delay in setting up one of its expansion projects funded by the IPO. While the backward integration project at Rajasthan to crush mustard and sesame seeds was commissioned, the new refining facility at Manor was substantially delayed on account of escalation in project costs and design changes. Two, the company's financial performance since its IPO has been modest. After annualising its numbers for comparability (the company had a 15-month accounting period), the net profits dipped by about 10 per cent for the fiscal ended March 2010 even as sales expanded by 16.5 per cent.

The company's margins have been dented in recent quarters by rising prices of inputs as well as raw oils. Still, the stock's low valuation (PE of eight times) may help to contain a further fall in stock prices if the current financials hold up.

— Aarati Krishnan; Business Line