We would like to inform you that we reiterated Buy on Piccadily Agro Industries Ltd (PAIL) [BSE Code: 530305] at market price of Rs. 40.2 for price target of 120 over a period of 12 to 24 months. Currently stock is trading at Rs. 35 giving negative returns of almost -13% to our members. We would like to inform our members regarding the recent updates about the company.
1. Promoter Director of the Company - Mr. Kartikeya Sharma has resigned from the Board of Directors of the Company on 12th May.
2. Company has sold its entire stake of Nirvana Biosys (P) Limited on June 30, 2014 which company acquired on 25th Feb'14.
3. Dividend for last financial year is yet not declared by the management, usually company declares dividend in the month of May.
We tried reaching company's management and company secretary over phone and emails to understand the reason behind resignation of Mr. Kartikeya Sharma, sell of stake in recently acquired Nirvana Biosys and delay on dividend payment to share holders but have not received any response so far.
Saral Gyan Update: As above facts cannot be ignored, our team has decided to book partial losses in the company. Hence suggest our members to sell 60% of their holdings at CMP of Rs. 35 reducing equity portfolio allocation in Piccadily Agro Industries to 2%. As stock valuations looks highly undervalued, we have not decided to exit it completely. We will wait for company's 1st quarter results and in case company does not perform up to our expectations, we may later decide to exit completely from the stock.
Our readers might be disappointed by reading this update and booking losses on Piccadily Agro but it is always wise to take such hard decisions based on facts. We were confident that company will repeat its past performance by posting excellent growth under the leadership of Mr. Kartikeya Sharma, who played the key role in turnaround of company's performance. We were not expecting such a change in management and recent developments, hence we decided to sell and book losses in Piccadily Agro Industries.
We never suggested our members to invest only in Piccadily Agro Industries, maximum equity allocation suggested by us was 5% which we decided to reduce to 2%. Diversification is one of the most basic, and important, principles of good investing. In essence, it means making a variety of investments rather than “putting all your eggs in one basket”. If you only invest in one stock and the price of it falls sharply, your overall level of wealth will fall too. However, if you invest in a diverse range of stocks from different sectors, you reduce the risk by bringing more stability in your portfolio.
Below is the research summary of Piccadily Agro Industries Ltd published by our equity analysts team on 26th March'14:
Piccadily Agro Industries Ltd was incorporated in the year 1994. The company's principal activity is to manufacture sugar and their by-products. They operate in two segments, namely sugar, which is engaged in the production of sugar, molasses and bagasse, and other, which is engaged in the manufacturing of liquor. Their plant is located at Bhadson in Haryana. Haryana State Investment Development Corporation and Piccadily Hotels Pvt Ltd and their associates promoted the company. They set up a new plant for the manufacture of white crystal sugar refined sugar with the installed capacity of 2500 TCD along with the facilities for co-generation of 6 MW power at Bhadson in Haryana.
Company distillation plants are designed & executed by M/s Destichem & Praj Industries Ltd. Along with this the company also installed fermentation house to cope up to supply quality wash, & are gradually expanding the existing unit by inducting ultra modern machineries. Further two Grain plants of 100 tons / day Grain handling capacity each have been setup for distillation. The company has also set-up a food grade Co2 plant supplied by Wittaman of USA.
In FY13, company has sold nearly 8.4 million cases of country liquor (almost 4 times of what company sold in FY08) and their brands of the distillery i.e. Malta, Sofia, Ginn and Marshal continue to be well accepted by the people and have become popular brands in the state of Haryana. The distillery division has achieved a turnover of Rs. 2050 millions (205 crores) in FY 2013 and contributed 62% to total sales of 3317 millions (331 crores).
Now, if we look at first 9 months performance of 2014, company has achieved total sales of 2765 millions (276.5 crores), out of which sales of 1725 millions (172.5 crores) is achieved from distillery division where as sugar division contributed 1115 million (111.5 crores) of sales. Distillery division contribution in sales of first 9 months of FY 2014 is 60.7% .
Below is the snap shot of Annual Results (in Crores):
Compounded sales growth during last 3 years is 25.04%, same during last 5 years is 23.25%. Compounded profit growth is also impressive, profit CAGR during last 3 years is 25.71%, same during last 5 years is 70.4%. ROE (Return on Equity) is above 25% during for last 5 years.
2. Company Management
ii) Mr. Kartikeya Sharma - Director
iii) Mr. Akhil Sharma - Director
iv) Mr. Vinod Sharma - Chairman
Mr. Venod Sharma was a leader of Indian National Congress party from Haryana. He was a Minister of State in the Ministry of Civil Supplies, Consumer Affairs and Public Distribution in the Narasimha Rao cabinet.
Mr. Kartikeya Sharma is the younger of the two siblings of Mr. Venod Sharma. Till late FY 07, Mr. Siddhartha Vasishta better known as Manu Sharma was looking after the operations of the company, however post his conviction in Jessica Lal Murder Case, Mr. Kartikeya Sharma started looking after the affairs of the company.
Mr. Kartikeya is a young and energetic entrepreneur and under his guidance the company has been successfully steered towards liquor production. He has been instrumental in bringing about a radical change in the operations of the company.
3. Recent Development
i) Purchased 89% share holding of M/s. Nirvana Biosys (P) Ltd.
Piccadily Agro Industries Ltd has informed BSE that Company has purchased 89% shareholding of M/s. Nirvana Biosys (P) Ltd, which has become a subsidiary of Piccadily Agro Industries Limited.
M/s. Nirvana Biosys (P) Ltd incorporated in the year 2008 has set up a plant of winery at Bawal, Distt. Rewari in the State of Haryana as a joint venture with E.C. Oxenham & CY. Ltd lle, Maurice-winemakers for over 75 years with a French Lineage. The Company has a distinction of setting up of a first such winery in the Northern India.
M/s. Nirvana Biosys (P) Ltd is committed to producing affordable table wines for the Indian markets that are comparable to French & Italian Levels and has also introduced other unique variants that have never before produced in this region. The range includes Red, white, Sparkling, Port, Lychee, Mango , Rose & Herbal wines.
The products of Company are selling in more than 12 states of India along with various CSD canteens. This will enable the Company to expand the product range of the Company & will substantially affect the profitability of the Company.
Currently, in BSE and most of the financial websites, Piccadily Agro Ltd is featuring under sugar sector. This could be one of the strong reason why this stock is trading dirt cheap with so attractive valuations, investors have yet not realized that this Hidden Gem major revenue and profits are generated from liquor business and it is not purely a sugar company.
ii) In current financial year, profits are mainly because of distillery unit where as company incurred losses from its sugar business. Knowing the fact that sugar is a commodity and is a cyclic business in nature, entire sugar industry is going through the bad phase due to depressed sugar prices due to excess supply of sugar and increased in raw material cost (sugarcane). Once sugar prices turn favourable, we will see company delivering strong bottom line.
iii) Looking at valuations, we find PAIL is trading at extremely cheap valuations compared to peer companies and is currently available below its intrinsic value. Considering the fact that company is generating entire profits from its liquor business and incurred loss from its sugar business which is cyclic in nature, stock looks undervalued and offers good upside potential with limited downside risk in medium to long term.
ix) We expect company will continue to deliver similar growth in top line and bottom line like that of last 3 years from its distillery business. Sugar business may not perform well in near term due to depressed sugar prices but can add significant bottom line from second half of FY 14-15 which will help company to improve its operating margins.
ii) Mr. Siddhartha Vasishta, popularly known as Manu Sharma was convicted in the Jessica Lal Murder case and is serving life imprisonment. His link with the company may keep some conservative investors at bay.
iii) The Indian Liquor Industry is highly regulated and there’s even a ban on direct advertisements which may affect the future growth of the industry.
Team - Saral Gyan
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