AVT Natural Product Ltd. Buy and Add on Dips,

Transcription

1 AVT Natural Product Ltd. Buy and Add on Dips,

2 AVT Natural Product Ltd. AVT Natural Products Limited is engaged in the production of nutraceutical grade products. The Company's principal products/services are Marigold Oleoresins, Spice Oleoresins and De-caffeinated Tea. It operates through the solvent extracted products segment. It engages in contract farming in which it provides farmers with seeds. The Company has three product categories: marigold extracts for poultry pigmentation, eye care and food coloring; spice oils and oleoresins for food coloring and flavoring, and Value Added Beverages through removal of caffeine from black tea using different solvent systems like ethyl acetate and methylene chloride. The Company is specialized in the extraction of colors and flavors from natural source Synopsis: Company started Marigold cultivation on 200 acres of land that has since gone up to 35,000 acres producing 100,000 metric tones of flowers with the support of 30,000 loyal farmers. The AVT Integrated Spice Project is situated 22 miles from the port of Cochin and spread over 22.2 acres of land. Company has scale up new processes and products from lab to commercial scale, company has invested in pilot plant facilities for extraction/isolation, crystallization, column chromatography, reverse osmosis, specialized tea processing machinery, spray drying, microencapsulation etc. Company Installed a 6 KM long dedicated power line (Areal Bunched Cable) from Kerala State Electricity Board sub-station to the Vazhakulam factory. This reduces the transmission loss of energy as well as break downs in the distribution system. Outlook:. AVT adopted contract farming model to meet the twin objective of maximizing net farm returns to farmers and ensuring quality produce at optimum price. Contract Farming Model has been implemented at five different agro climatic locations in India and has now crossed the sea to China. Company is working in collaboration with global leaders like Ball Helix, Illinois, USA in seed development to suit local agro-climatic conditions. Department of science and industrial research gave approval for hybrid development and new product development for another three year which will help in increasing the portfolio of the company Cochin Port will soon get upgraded to a trans-shipment terminal. This enables Cochin port to berth mother vessels here itself instead of the current practice of moving to Colombo or Singapore by feeder vessels for trans-shipment. Marigold will remain a key performing vertical for the Company. Continued price pressure, post patent expiry, and a record production in China contributed to a 25% drop in global marigold oleoresin prices from the previous year Valuation: On our valuation front, at CMP Rs.40.1, the company is trading at a P/E multiple of 26.6x which is lower as compared to Peer average of 39.6x and EV/EBIDTA multiple of 14.2x which is lower as compared to peer average of 67.4x. Based on our estimates KDDL ltd will trade at a P/E multiple of 22.3x and 20.4x to its FY18E and FY19E respectively, on the other hand EV/EBITDA multiple company will trade at 11.8x and 10.7X to its FY18E. And FY19E Thus, we recommend a Buy and add on dips rating on this stock. Particulars (Rs. Mn) FY15 FY16 FY17 FY18E FY19E Revenue from 2, , , , ,591.0 OI Growth (%) 11.9% 8.4% 14.7% 4.6% 9.0% EBITDA (Excl OI) EBITDA Margin (%) 30.8% 25.1% 13.4% 15.1% 15.1% PAT NPM (%) 17.9% 14.5% 7.1% 8.2% 8.3% P/E EPS EV/EBITDA P/BV March 14, 2018 Rating Matrix CMP Rs Rating Buy and add on dips Holding Period months Current Level Investment 52 week H/L Rs Upside Potential 30-40% Face value Re. 10 Sector Other agricultural products Category Small Cap F&O Stock No Shareholding Pattern Particulars Dec 17 Sep 17 Jun'17 Promoter 74.4% 74.4% 74.4% FPIs Insti. 0.1% 0.1% 0.1% N. Insti. 25.5% 25.5% 25.5% Relative Capital Market Strength , , , , , AVTNP Ltd Sensex % % FY13 FY14 FY15 FY16 FY17 EBITDA EBITDA Gr (%) Quarterly Snapshot: Particular (RS. Q3FY18 Q3FY17 Change Mn) (YoY) Total Revenue % EBITDA (Excl OI) % EBITDA Margin (%) 10.0% 17.6% PAT % NPM (%) 6.7% 11.4% Source: Choice Research/ Annual reports; Financial data-ace equity 40.00% 20.00% %

3 Peer Comparison Companies CMP ROE (TTM) 12MR(% ) M. Cap (Rs. Mn) EPS (TTM) BVPS EBIDTA Margin (%) NPM (%) AVT Natural Product % % 7.3% Naturite Agro Production Ltd % % 22.9% Modi naturals Ltd % % -1.2% Flex food ltd % % 10.5% Average Companies P/E (x) P/Bv (x) P/Sales( x) EV/EBIDT A (x) D/E PAT(Rs. Mn) (TTM) EBIDTA(Rs. Mn) (TTM) Sales (Rs. Mn) (TTM) AVT Natural Product , Naturite Agro Production Ltd Modi naturals Ltd ,842.4 Flex food ltd Average ,727.8 Financial Snapshot: Particulars (Rs. Mn) FY13 FY14 FY15 FY16 FY17 Revenue from operations 2, , , , ,147.7 Gr (%) 11.9% 8.4% -9.7% 5.0% 14.7% EBITDA (Excl OI) EBITDA Margin (%) 30.8% 25.1% 17.3% 13.9% 13.4% PAT NPM (%) 17.9% 14.5% 10.1% 7.9% 7.1% Net Worth 1, , , , ,223.9 Total Assets 2, , , , ,845.5 Debt Cash flow from Operations D/E (x) Current Ratio (x) Profitablity ratios (%) ROCE (%) ROE (%) ROA (%) Efficiency ratios (x) Receivable days Inventory days Payable days Source: Choice Research/ Annual reports; Financial data-ace equity

4 Quater3 result highlight: AVTNP Ltd s revenue is decreased by -9.4% to Rs.679mn in Q3FY18 as against Rs.749.4mn in Q3FY17. EBIDTA is also decreased by 48.2% to Rs.68.2mn in Q3FY18 as against Rs.131.7mn in Q3FY17. Now company s EBITDA margin is at 10%. Profit after tax (PAT) is also Decreased by 46.8% to Rs.45.5mn in Q3FY18 from Rs.85.6mn in Q3FY17. Now company s PAT margin is at 6.7%. This decline is due to incresae in cost of material consume by 8.7% and other expenses by 5%. Company declared of Rs0.20 per share (20%) on face vale of Rs.1/- each amounting to Rs.30.5mn (excluding dividend tax) for financial year Research and Development: Presently the Company is focusing on two areas of R & D : (A) Marigold hybrid seed development: In pursuit of developing superior marigold hybrid seeds in terms of high xanthophyll content and flower yield, several new hybrids using conventional and molecular assisted breeding techniques have been developed. These hybrids have superiority in both the traits which has resulted in farmer s acceptance of new hybrids with higher Xanthophyll contents leading to increased net returns to the farmers. These selected hybrids are being produced for partial fulfillment of next year s commercial flower production. (B) New product line: Company is focusing to increase the product portfolio other than core competent products. New opportunities are explored in spice oleoresins, decaffeinated teas and tea extracts for nutraceutical application and soluble teas and specialty products to cater to ready to drink (RTD) business, which are significant product lines today and constitute about 60% of the overall business of the Company. Contract Farming Model Contract farming model ensures Quality at Source. AVT adopted contract farming model to meet the twin objective of maximizing net farm returns to farmers and ensuring quality produce at optimum price. Company have systems and controls to implement GAP (Good Agricultural Practices) that assures quality right from seed to the finished product and ensure good net farm returns to the farmers. The main focus of Contract farming model are: Higher yields Lower costs More active ingredient content, Consistent quality Product Portfolio Marigold Oleoresin Spice Oils and Oleoresins Value Added Tea Marigold (Food Grade) Marigold (Feed Grade OR paprika OR capsicum OR black pepper Curcumin powder 95% Decaffeinated tea Green tea - beverage grade, nutraceutical grade and application as antioxidant in food Instant black tea- which includes cold water soluble-iced tea and hot water soluble tea Exports of the Company Export of Spices, Natural Rubber, Coir Products & Food items. YEAR Foreign Exchange Earnings (Rs. Mn) Total Revenue( %) % % % 3 Source: Choice Research/ Annual reports; Financial data-ace equity

5 Plant Post Harvest Processing Centers Company have backward integration programs of contract farming in different geographic locations like Tamil Nadu and Karnataka. This plant known as dehydration centers uses specialized bags for storing the harvested flowers. Processing plant AVT Natural has a highly flexible extraction facility with two large continuous extraction plants that can process up to 100 metric tons of raw material per day, medium sized batch plant that can process about 4 metric tons of raw materials per day and small pilot plants that can process just 15 Kg per day. This varying throughputs give the plant flexibility to cater various customer volumes. Extraction Plant Pretreatment-Steam distillation for essential oil. This includes grinding, crushing, flaking, cutting etc. Continuous Extraction Plant -largest continuous extraction multi-solvent plant in the spice industry. -Capacity of Mt of Marigold meal per annum and 6000 Mt Paprika Pericarp. Batch extraction Plant. -For multi product,quick changeovers Mt. for Black Pepper, Turmeric, Capsaicin, Ginger, Celery and other seed spices. Pilot Plant - extensively used for New Product scaling up process and Process validation. Future Plan Of Action Molecular breeding in Marigold Focus has been given to advanced molecular assisted breeding techniques for new marigold hybrid with high Xanthophyll and flower yield. Molecular markers have also been developed for identifying the new male lines with high Xanthophyll Future expansion of existing business is in instant teas with incorporation of specialty products in this sector. Product portfolio will be expanded in value added spice extracts and natural ingredients in the food and animal sector with formulations and application studies Global Outlook : The global black tea market is expected to reach USD 153 million by 2025, growing at a CAGR of 4.8%. Nutraceuticals are a uniform grade of food sources with extra benefits in addition to basic nutritional value found in food. Addition of nutraceuticals with personal care has benefited the market with cosmeceuticals owing to its anti-aging properties. In addition, increase in demand for nutraceutical in dietary supplements is expected to drive the market, owing to decreased use of genetically modified food and crops. The country can leverage advantages, such as capable human resources, world-class R&D facilities and availability of diverse raw-materials to strengthen its industry. On the backdrop of rising consumer awareness and use of natural/ herbal products, the global Pepper Oleoresin market is anticipated to grow at a substantial rate. The primary driver which is promoting the Pepper Oleoresin market is that it is economical to use and is cleaner in quality than its equivalent spices available in the market Company Holding/Subsidiary/ Associate Holding AVT Tea Services Ltd, United Kingdom Subsidiary 100% AVT Tea Services North America LLC Step down subsidiary 100% AVT McCormick Ingredients Ltd. Joint venture company 50% 4 Source: Choice Research/ Annual reports; Financial data-ace equity

6 Choice s Rating Rationale The price target for a large cap stock represents the value the analyst expects the stock to reach over next 12 months. For a stock to be classified as Outperform, the expected return must exceed the local risk free return by at least 5% over the next 12 months. For a stock to be classified as Underperform, the stock return must be below the local risk free return by at least 5% over the next 12 months. Stocks between these bands are classified as Neutral. Don t be an Investor by Force, Be an investor by CHOICE Create a Wealth Building Portfolio with the help of CHOICE Fundamental Research. CHOICE Fundamental Research will handpick stocks for you to invest in an oversold market by helping you build positions in heavily beaten down fundamentally strong stocks. Opportunities to invest in fundamentally strong stocks at a low arise only 2-3 times in a full year cycle. Investors are advised to sell the stock if the recommended upside potential achieves. If recommended upside potential remains under-achieved, investors are advised to consider the update report on suggested stock. OUR TEAM Fundamental Research Team Name Designation id Contact No. Sunder Sanmukhani Head-Fundamental Research sanmukhanis@choiceindia.com Satish Kumar Research Analyst satish.kumar@choiceindia.com Rajnath Yadav Research Analyst rajnath.yadav@choiceindia.com Aman Lamba Research Associate aman.lamba@choiceindia.com Devanshi Shah Research Associate devanshi.shah@choiceindia.com Shrey Gandhi Research Associate shrey.gandhi@choiceindia.com Pratik Jain Research intern Pratik.jain@choiceindia.com customercare@choiceindia.com 5

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