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Investment Rationale
India’s Poultry Industry - set to lay golden eggs in the years to come
We expect the Indian poultry industry to grow at +9.5% CAGR in FY11-13E considering a) we are
the 6th largest poultry populated nation, b) the cheapest Country in the World in terms of cost
of eggs sold, and c) amongst the cheapest Countries for day old chicks (Sri Lanka is the
cheapest). Moreover, the potential to grow remains intact with the Indian Egg industry having
achieved a mere 29% of its true potential (per capita consumption of 53 eggs vis-a-vis NIN’s
recommended 180 eggs). Similarly, the poultry meat segment has achieved a 32% of its
potential (per capita consumption of 3.5 kgs as compared to NIN’s recommendation of 11kgs).
With a low export share, low per capita consumption and lack of other alternatives like beef
and pork due to religious reason, we believe there is plenty of scope for the Poultry industry to
continue its growth trajectory.
The best bird amongst the flock in India’s Poultry Industry
Venky’s is amongst the best candidates to capture the growth in the Indian poultry industry in
FY11-13E (+9.5% CAGR) due to its healthy track record and a strong parent company backing.
Venky’s is part of the VH group and with a group turnover of `35 bn offering a whole host of
benefits like a) Pan-India presence (Venky’s has a strong presence in North and West India while
VH group has its presence in South and East India), and b) the large scale of operations result in
operating leverage with lower transportation, marketing storage cost per unit enabling higher
margins. The Pan-India presence has helped Venky’s to increase its presence across the value
chain as well diversified portfolio with AHP and solvent extraction insulating its risk at times of
flu’s and viruses and poultry products being non-impacted by global slowdown.
Venky’s XPRS – the future wings of growth
Venky’s has entered the hospitality industry with the launch of ‘VENKYS XPRS’ to serve their
customers with a range of healthy, hygienically cooked, and yet reasonably priced chicken
delicacies. The first store was rolled out in Jan, CY10 and currently five stores in India are
operational. The company plans to invest ~`2.5 bn for its research and development and set up
over 100 Venky’s XPRS outlets (including London) over the next three years. Though currently
the contribution from this segment is minimal, the scope for growth remains high given the
changing demographics in India with a rise in disposable income, higher working population
(both youth and women).
Strong Financials – Fine feathers
With a strong growth in the Indian poultry industry we expect Venky’s to grow at 20.6% CAGR in
FY11-13E to `12.4 bn driven by 23% CAGR in poultry and poultry products, 11.5% CAGR in animal
health products and a 16.4% CAGR in the solvent extraction division. We expect high raw
material prices to impact margins in FY12E with a strong bounce back in FY13E with retracing
feed prices. Consequently, we expect the EBITDA to witness 21.5% CAGR from FY11-13E to `1.68
bn. With a higher interest cost (higher capex and debt and higher interest rates), higher
depreciation rate and lower other income, we believe the PAT growth would be marginally
lower at 17.2% CAGR from FY11-13E to `1.0 bn.
Valuation
At CMP Venky’s is currently trading at 7.1x FY12E EPS and 4.1x FY13E EPS, a 34% discount to its
historical one-year forward P/E band of 6.2x and a 45% discount to its average one-year forward
P/E band over the last 12 months of 7.4x. We have valued the company on the four year
average of its historical P/E band (5.1x) to capture the cyclicality of the industry and its profits.
We believe there is good potential upside in the stock and initiate coverage with a Buy rating
and target price of `544 per share (5.1x FY13E).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment Rationale
India’s Poultry Industry - set to lay golden eggs in the years to come
We expect the Indian poultry industry to grow at +9.5% CAGR in FY11-13E considering a) we are
the 6th largest poultry populated nation, b) the cheapest Country in the World in terms of cost
of eggs sold, and c) amongst the cheapest Countries for day old chicks (Sri Lanka is the
cheapest). Moreover, the potential to grow remains intact with the Indian Egg industry having
achieved a mere 29% of its true potential (per capita consumption of 53 eggs vis-a-vis NIN’s
recommended 180 eggs). Similarly, the poultry meat segment has achieved a 32% of its
potential (per capita consumption of 3.5 kgs as compared to NIN’s recommendation of 11kgs).
With a low export share, low per capita consumption and lack of other alternatives like beef
and pork due to religious reason, we believe there is plenty of scope for the Poultry industry to
continue its growth trajectory.
The best bird amongst the flock in India’s Poultry Industry
Venky’s is amongst the best candidates to capture the growth in the Indian poultry industry in
FY11-13E (+9.5% CAGR) due to its healthy track record and a strong parent company backing.
Venky’s is part of the VH group and with a group turnover of `35 bn offering a whole host of
benefits like a) Pan-India presence (Venky’s has a strong presence in North and West India while
VH group has its presence in South and East India), and b) the large scale of operations result in
operating leverage with lower transportation, marketing storage cost per unit enabling higher
margins. The Pan-India presence has helped Venky’s to increase its presence across the value
chain as well diversified portfolio with AHP and solvent extraction insulating its risk at times of
flu’s and viruses and poultry products being non-impacted by global slowdown.
Venky’s XPRS – the future wings of growth
Venky’s has entered the hospitality industry with the launch of ‘VENKYS XPRS’ to serve their
customers with a range of healthy, hygienically cooked, and yet reasonably priced chicken
delicacies. The first store was rolled out in Jan, CY10 and currently five stores in India are
operational. The company plans to invest ~`2.5 bn for its research and development and set up
over 100 Venky’s XPRS outlets (including London) over the next three years. Though currently
the contribution from this segment is minimal, the scope for growth remains high given the
changing demographics in India with a rise in disposable income, higher working population
(both youth and women).
Strong Financials – Fine feathers
With a strong growth in the Indian poultry industry we expect Venky’s to grow at 20.6% CAGR in
FY11-13E to `12.4 bn driven by 23% CAGR in poultry and poultry products, 11.5% CAGR in animal
health products and a 16.4% CAGR in the solvent extraction division. We expect high raw
material prices to impact margins in FY12E with a strong bounce back in FY13E with retracing
feed prices. Consequently, we expect the EBITDA to witness 21.5% CAGR from FY11-13E to `1.68
bn. With a higher interest cost (higher capex and debt and higher interest rates), higher
depreciation rate and lower other income, we believe the PAT growth would be marginally
lower at 17.2% CAGR from FY11-13E to `1.0 bn.
Valuation
At CMP Venky’s is currently trading at 7.1x FY12E EPS and 4.1x FY13E EPS, a 34% discount to its
historical one-year forward P/E band of 6.2x and a 45% discount to its average one-year forward
P/E band over the last 12 months of 7.4x. We have valued the company on the four year
average of its historical P/E band (5.1x) to capture the cyclicality of the industry and its profits.
We believe there is good potential upside in the stock and initiate coverage with a Buy rating
and target price of `544 per share (5.1x FY13E).
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