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The 62 per cent drop in K.S. Oils' stock price over the past one year has been precipitated both by a fall in stock valuations and by a decline in net profits. After closing 2009-10 with a strong 29 per cent expansion in net profits on the back of a 28 per cent sales growth, K.S. Oils' profits have been slipping for four quarters running.
Even as the top-line has continued to expand at 16 per cent in 2010-11, the company saw a 16 per cent profit drop for the fiscal. K.S Oils is a leading player in the branded edible oil market with the largest organised market share in branded mustard oil, consumed mainly in Eastern and North Eastern India. After registering strong growth in its home markets, K.S. Oils embarked on both a geographic and product expansion spree, expanding its brands into soyabean and palm oil and reach into North and Central India.
The company raised and invested substantial sums in acquiring palm oil plantations in Indonesia by way of establishing backward linkages in 2009 and 2010. However, rising borrowings in an increasing rate scenario have resulted in interest costs sky rocketing, undermining the company's net profit margins. The stock's PE multiple has slumped from over 10 times in July 2010 to about five times now.
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