Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key points
High growth potential for Indian starch industry
compared to global average: The starch industry in
India is at a nascent stage with the per capita
consumption of starch in the country being the lowest
at 1.3kg compared with 64.5kg in the USA and over
10kg in many comparable Asian countries. However,
the same is likely to improve in the coming years, as
starch finds diverse applications in the food and
beverage, paper, pharmaceutical, textile and animal
feed industries. Thus, with the rising demand for starch
products from various industries, the Indian starch
industry is expected to grow by around 15% per annum
in the coming years.
Anil, largest player with wide product portfolio: Anil
is one of the top three players in the domestic starch
industry with an organised market share of close to
20%. However, in the high-margin value-added starch
products it has a market share of 40-50%. Research
and development (R&D) has played pivotal role in Anil’s
success, helping the company to gradually shift from
a commodity product business to a business of valueadded
products. The company has reputed clients
including players like ITC, Nestle India, Amway, Dabur,
Heinze, Lupin, Arvind Mills and Raymond.
Robust track record with aggressive expansion plans:
Anil has grown its revenues at a robust 31%
compounded annual growth rate (CAGR) in the tough
period of FY2008-11. The improving revenue mix in
favour of value-added products has enabled it to double
its operating profit margin (OPM) to 17.2% from less
than 10% earlier, resulting in an exponential growth at
76.7% CAGR in its earnings during the three-year
period. Going ahead, we expect Anil’s revenues to grow
at a CAGR of 25% over FY2011-14 and the increasing
proportion of the value-added products would further
boost the margins to around 19% in the next two years.
To achieve the same, the company is expanding its
manufacturing capacities to 1,000 tonne per day (tpd)
in a phased manner, aims to launch new products and
enhance its geographical reach to newer overseas
markets.
Additional triggers—food processing park and land
bank: The Anil group of companies received the
approval from the ministry of food processing industries
of India to set up a Mega Food Park project in Gujarat.
The group will form a special purpose vehicle (SPV; a
consortium of companies from the food processing,
logistic and infrastructure businesses) in which Anil
will have a majority stake of 40%. The group will bring
in land of 87 acres (valued at around Rs25 crore) for
its 40% stake in the SPV. Once the project is completed
it will add tremendous value to the stock of Anil. The
company’s manufacturing facility is located at
Bapunagar, Ahmedabad in an area covering 1.5 lakh
square metre. In future the company could shift its
manufacturing facility to a special economic zone /
tax benefit zone, thereby unlocking value in terms of
land bank (the Bapunagar land area is currently valued
at Rs800-900 crore).
Outlook and valuation: With the enhancing capacity,
Anil is well poised to cash in on the opportunity created
by the increasing demand for starch in the domestic
market. With most of the starch consuming industries
growing at a healthy rate we expect Anil’s top line to
grow at a CAGR of 25% over FY2011-14. Further, with
an expected improvement in the OPM, the bottom line
is expected to grow at a CAGR of 37.0% over FY2011-
14. At the current market price the stock trades at
3.5x its FY2013E earnings per share (EPS) of Rs70.4
and 2.3x its FY2014E EPS of Rs106.1 (rough estimates).
We see potential for a substantial upside in the stock
over the next 12-24 months. Historically, the stock has
traded at price/earnings (PE) multiple of 4-5x its oneyear
forward earnings.
Company background
Anil is the flagship company of the diversified Anil group.
It is a leading player in the Indian corn wet milling industry
having a robust manufacturing infrastructure as well as
R&D and application development capabilities. The
company, established in 1939, manufactures a varied
range of corn-based products, such as native starch,
chemical starch, modified starches, dextrins, dextrose
monohydrate, liquid glucose, corn syrup and sorbitol.
Anil’s manufacturing facility is located in a prime locality
in Ahemdabad spanning an area of 150,000 square metre
and is close to an international airport. Its core strengths
are R&D, technology and product development, which led
to a strong improvement in its profitability in a short span
of time. Anil’s top line and bottom line grew at CAGR of
31% and 77% respectively over FY2008-11.
Starch industry: an overview
Global starch market
Starch is one of the most popular biomaterials having
diversified applications in the food and beverage, paper,
pharmaceutical, textile and animal feed industries across
the globe. The present global starch market is around 70
million metric tonne (MT) and is expected to grow and
reach around 80 million MT by 2015. The modified starch
market is expected to be the fastest growing segment
over this period, thanks to the rising health awareness
across the globe and the growing functional and nutritional
needs in the global economy that are resulting in a higher
usage of innovative modified starches. Though corn
starches, wheat starches and potato starches are popular
starches across the globe, corn starches are the most
popular and most widely used across applications. China
has the highest production of starch with 17.5 million
tonne production, surpassing the USA with 13 million tonne
of starch output
Indian starch industry
The Indian organised starch industry has an estimated
size of around Rs2,000 crore. The industry is at a nascent
stage comprising around 40 products from corn derivatives
while the international market comprises more than 800
starch and derivative products. With companies globally
focusing on innovations in their product portfolio through
R&D, the demand for starch sweeteners and other
derivatives has picked up in a number of industries in
India as well as in the international markets. During the
period 2005-10, the Indian starch industry grew at a CAGR
of 21.81% and is expected to grow at 15% per annum in
the coming years.
Key positives
Anil, largest player with wide product portfolio: Anil is
one of the top three players in the domestic starch industry
with an organised market share of close to 20%. However,
in the high-margin value-added starch products segment
it has a market share of 40-50%. The company’s capacity
utilisation in FY2011 stood at 75%, which was an
improvement over the 60% capacity utilisation recorded
in FY2008. To grab a larger share of the domestic starch
market and meet the increasing demand, Anil is planning
to enhance its capacity to 1,000 tonne per day in a phased
manner. R&D has played a pivotal role in Anil’s success,
helping the company to gradually shift from a commodity
product business to a business of value-added products.
It has strong clients such as Nestle India, Dabur, Heinze,
Lupin, Raymond, Vardhaman, Arvind, Century Textiles and
BILT. The top five clients contribute close to 10% of the
company’s top line.
Top line growth to sustain at 25% in the coming years:
Anil manufactures a varied range of starch products used
in various industries, such as food processing, beverages,
confectionery, textiles, pharmaceuticals and paper. Most
of the industries are growing at 15-25% per annum. With
an increase in the demand for value-added products in
the domestic and international markets, we expect Anil’s
top line to grow at a CAGR of 25% over FY2011-14. The
growth will be driven by a mix of volume growth and
improved sales realisation over the same period. While
the volume growth is likely to remain in mid single digits,
the realisation growth would be in the 16-18% range in
the coming years.
OPM to stand at 19% in FY2014: The company has
increased its focus on selling value-added high-margin
products which has helped it to clock better realisations.
The contribution from the value-added products has risen
from 30% in FY2008 to 70% in FY2011. This along with
stringent cost reduction measures has aided the company
to achieve a strong improvement in the OPM. The OPM of
the company improved to 17.2% in FY2011 from 9.1% in
FY2008. The company expects the contribution from the
valued-added products to go up to 80% in FY2014, which
will help it to achieve an OPM of around 19%. Thus, the
company is expected to post a strong operating
performance in the coming years.
Key risks and concerns
A working capital intensive company: Being in a
commodity-linked business the company has a high
conversion cycle of around 180 days. Since most of
Anil’s value-added products are in the introductory
phase, the credit period given to the customers for
such products is high in comparison with that for some
of the other products in the portfolio. Unless these
value-added products attain certain maturity, we don’t
expect the cash conversion cycle to improve
substantially and hover in the range of 180-190 days
in the coming years.
Debt/equity ratio stands at 2.0x: The company’s debt/
equity ratio currently stands at 2.0x, as it requires
short-term debt for its working capital requirement.
Also, the company is planning to fund its capacity
expansion plan by raising funds through debt. Hence,
we expect the debt/equity ratio to stand at around
2.0x in FY2012E. The higher interest cost is likely to
put some pressure on the bottom line growth in the
near term. However, we expect the debt/equity ratio
to improve to 1x by FY2014.
Increase in raw material prices to affect margins:
Maize is one of the key raw materials for manufacturing
starch. The maize prices have gone up to Rs13.5 per
kg in March 2012 from Rs12.9 per kg in March 2012.
The prices have currently stabilised at around Rs12
per kg. However, any significant upward movement
from the current level would put pressure on the
company’s margins if Anil is not able to pass on the
entire hike in the raw material prices.
Outlook and valuation:
With the enhancing capacity, Anil is well poised to cash in
on the opportunity created by the increasing demand for
starch in the domestic market. With most of the starch
consuming industries growing at a healthy rate we expect
Anil’s top line to grow at a CAGR of 25% over FY2011-14.
Further, with an expected improvement in the OPM, the
bottom line is expected to grow at a CAGR of 37.0% over
FY2011-14. At the current market price the stock trades
at 3.5x its FY2013E EPS of Rs70.4 and 2.3x its FY2014E
EPS of Rs106.1 (rough estimates). We see potential for a
substantial upside in the stock over the next 12-24 months.
Historically, the stock has traded at PE multiple of 4-5x
its one-year forward earnings.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Key points
High growth potential for Indian starch industry
compared to global average: The starch industry in
India is at a nascent stage with the per capita
consumption of starch in the country being the lowest
at 1.3kg compared with 64.5kg in the USA and over
10kg in many comparable Asian countries. However,
the same is likely to improve in the coming years, as
starch finds diverse applications in the food and
beverage, paper, pharmaceutical, textile and animal
feed industries. Thus, with the rising demand for starch
products from various industries, the Indian starch
industry is expected to grow by around 15% per annum
in the coming years.
Anil, largest player with wide product portfolio: Anil
is one of the top three players in the domestic starch
industry with an organised market share of close to
20%. However, in the high-margin value-added starch
products it has a market share of 40-50%. Research
and development (R&D) has played pivotal role in Anil’s
success, helping the company to gradually shift from
a commodity product business to a business of valueadded
products. The company has reputed clients
including players like ITC, Nestle India, Amway, Dabur,
Heinze, Lupin, Arvind Mills and Raymond.
Robust track record with aggressive expansion plans:
Anil has grown its revenues at a robust 31%
compounded annual growth rate (CAGR) in the tough
period of FY2008-11. The improving revenue mix in
favour of value-added products has enabled it to double
its operating profit margin (OPM) to 17.2% from less
than 10% earlier, resulting in an exponential growth at
76.7% CAGR in its earnings during the three-year
period. Going ahead, we expect Anil’s revenues to grow
at a CAGR of 25% over FY2011-14 and the increasing
proportion of the value-added products would further
boost the margins to around 19% in the next two years.
To achieve the same, the company is expanding its
manufacturing capacities to 1,000 tonne per day (tpd)
in a phased manner, aims to launch new products and
enhance its geographical reach to newer overseas
markets.
Additional triggers—food processing park and land
bank: The Anil group of companies received the
approval from the ministry of food processing industries
of India to set up a Mega Food Park project in Gujarat.
The group will form a special purpose vehicle (SPV; a
consortium of companies from the food processing,
logistic and infrastructure businesses) in which Anil
will have a majority stake of 40%. The group will bring
in land of 87 acres (valued at around Rs25 crore) for
its 40% stake in the SPV. Once the project is completed
it will add tremendous value to the stock of Anil. The
company’s manufacturing facility is located at
Bapunagar, Ahmedabad in an area covering 1.5 lakh
square metre. In future the company could shift its
manufacturing facility to a special economic zone /
tax benefit zone, thereby unlocking value in terms of
land bank (the Bapunagar land area is currently valued
at Rs800-900 crore).
Outlook and valuation: With the enhancing capacity,
Anil is well poised to cash in on the opportunity created
by the increasing demand for starch in the domestic
market. With most of the starch consuming industries
growing at a healthy rate we expect Anil’s top line to
grow at a CAGR of 25% over FY2011-14. Further, with
an expected improvement in the OPM, the bottom line
is expected to grow at a CAGR of 37.0% over FY2011-
14. At the current market price the stock trades at
3.5x its FY2013E earnings per share (EPS) of Rs70.4
and 2.3x its FY2014E EPS of Rs106.1 (rough estimates).
We see potential for a substantial upside in the stock
over the next 12-24 months. Historically, the stock has
traded at price/earnings (PE) multiple of 4-5x its oneyear
forward earnings.
Company background
Anil is the flagship company of the diversified Anil group.
It is a leading player in the Indian corn wet milling industry
having a robust manufacturing infrastructure as well as
R&D and application development capabilities. The
company, established in 1939, manufactures a varied
range of corn-based products, such as native starch,
chemical starch, modified starches, dextrins, dextrose
monohydrate, liquid glucose, corn syrup and sorbitol.
Anil’s manufacturing facility is located in a prime locality
in Ahemdabad spanning an area of 150,000 square metre
and is close to an international airport. Its core strengths
are R&D, technology and product development, which led
to a strong improvement in its profitability in a short span
of time. Anil’s top line and bottom line grew at CAGR of
31% and 77% respectively over FY2008-11.
Starch industry: an overview
Global starch market
Starch is one of the most popular biomaterials having
diversified applications in the food and beverage, paper,
pharmaceutical, textile and animal feed industries across
the globe. The present global starch market is around 70
million metric tonne (MT) and is expected to grow and
reach around 80 million MT by 2015. The modified starch
market is expected to be the fastest growing segment
over this period, thanks to the rising health awareness
across the globe and the growing functional and nutritional
needs in the global economy that are resulting in a higher
usage of innovative modified starches. Though corn
starches, wheat starches and potato starches are popular
starches across the globe, corn starches are the most
popular and most widely used across applications. China
has the highest production of starch with 17.5 million
tonne production, surpassing the USA with 13 million tonne
of starch output
Indian starch industry
The Indian organised starch industry has an estimated
size of around Rs2,000 crore. The industry is at a nascent
stage comprising around 40 products from corn derivatives
while the international market comprises more than 800
starch and derivative products. With companies globally
focusing on innovations in their product portfolio through
R&D, the demand for starch sweeteners and other
derivatives has picked up in a number of industries in
India as well as in the international markets. During the
period 2005-10, the Indian starch industry grew at a CAGR
of 21.81% and is expected to grow at 15% per annum in
the coming years.
Key positives
Anil, largest player with wide product portfolio: Anil is
one of the top three players in the domestic starch industry
with an organised market share of close to 20%. However,
in the high-margin value-added starch products segment
it has a market share of 40-50%. The company’s capacity
utilisation in FY2011 stood at 75%, which was an
improvement over the 60% capacity utilisation recorded
in FY2008. To grab a larger share of the domestic starch
market and meet the increasing demand, Anil is planning
to enhance its capacity to 1,000 tonne per day in a phased
manner. R&D has played a pivotal role in Anil’s success,
helping the company to gradually shift from a commodity
product business to a business of value-added products.
It has strong clients such as Nestle India, Dabur, Heinze,
Lupin, Raymond, Vardhaman, Arvind, Century Textiles and
BILT. The top five clients contribute close to 10% of the
company’s top line.
Top line growth to sustain at 25% in the coming years:
Anil manufactures a varied range of starch products used
in various industries, such as food processing, beverages,
confectionery, textiles, pharmaceuticals and paper. Most
of the industries are growing at 15-25% per annum. With
an increase in the demand for value-added products in
the domestic and international markets, we expect Anil’s
top line to grow at a CAGR of 25% over FY2011-14. The
growth will be driven by a mix of volume growth and
improved sales realisation over the same period. While
the volume growth is likely to remain in mid single digits,
the realisation growth would be in the 16-18% range in
the coming years.
OPM to stand at 19% in FY2014: The company has
increased its focus on selling value-added high-margin
products which has helped it to clock better realisations.
The contribution from the value-added products has risen
from 30% in FY2008 to 70% in FY2011. This along with
stringent cost reduction measures has aided the company
to achieve a strong improvement in the OPM. The OPM of
the company improved to 17.2% in FY2011 from 9.1% in
FY2008. The company expects the contribution from the
valued-added products to go up to 80% in FY2014, which
will help it to achieve an OPM of around 19%. Thus, the
company is expected to post a strong operating
performance in the coming years.
Key risks and concerns
A working capital intensive company: Being in a
commodity-linked business the company has a high
conversion cycle of around 180 days. Since most of
Anil’s value-added products are in the introductory
phase, the credit period given to the customers for
such products is high in comparison with that for some
of the other products in the portfolio. Unless these
value-added products attain certain maturity, we don’t
expect the cash conversion cycle to improve
substantially and hover in the range of 180-190 days
in the coming years.
Debt/equity ratio stands at 2.0x: The company’s debt/
equity ratio currently stands at 2.0x, as it requires
short-term debt for its working capital requirement.
Also, the company is planning to fund its capacity
expansion plan by raising funds through debt. Hence,
we expect the debt/equity ratio to stand at around
2.0x in FY2012E. The higher interest cost is likely to
put some pressure on the bottom line growth in the
near term. However, we expect the debt/equity ratio
to improve to 1x by FY2014.
Increase in raw material prices to affect margins:
Maize is one of the key raw materials for manufacturing
starch. The maize prices have gone up to Rs13.5 per
kg in March 2012 from Rs12.9 per kg in March 2012.
The prices have currently stabilised at around Rs12
per kg. However, any significant upward movement
from the current level would put pressure on the
company’s margins if Anil is not able to pass on the
entire hike in the raw material prices.
Outlook and valuation:
With the enhancing capacity, Anil is well poised to cash in
on the opportunity created by the increasing demand for
starch in the domestic market. With most of the starch
consuming industries growing at a healthy rate we expect
Anil’s top line to grow at a CAGR of 25% over FY2011-14.
Further, with an expected improvement in the OPM, the
bottom line is expected to grow at a CAGR of 37.0% over
FY2011-14. At the current market price the stock trades
at 3.5x its FY2013E EPS of Rs70.4 and 2.3x its FY2014E
EPS of Rs106.1 (rough estimates). We see potential for a
substantial upside in the stock over the next 12-24 months.
Historically, the stock has traded at PE multiple of 4-5x
its one-year forward earnings.
No comments:
Post a Comment