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Friday, August 29, 2014

Flex Foods Ltd: Target Achieved - ROI @ 84% in 4 Months

Dear Reader,

We are glad to inform you that our Hidden Gem stock of April 14 - Flex Foods Ltd (BSE Code: 523672) has achieved its target price of Rs. 60 within short span of 4 months and yesterday closed at price of Rs. 60.2 giving absolute returns of 84% to our Hidden Gem members. Our team suggested Buy on Flex Foods Ltd at price of 32.50 on 28th Feb'14. 

Company announced its quarterly results on 06 Aug'14, net profit of Flex Foods rose 102.38% to Rs 4.25 crore in the quarter ended June 2014 as against Rs 2.10 crore during the previous quarter ended June 2013. Sales rose 18.29% to Rs 17.66 crore in the quarter ended June 2014 as against Rs 14.93 crore during the previous quarter ended June 2013. We suggest our members to continue to hold Flex Foods Ltd in their portfolio.

Below is the summary of Flex Foods Ltd shared by our team under Hidden Gem stock recommendation - Apr'14

1. Company Background

Flex Foods Limited, part of Uflex Group of companies, started its operations in 1992 as an Export Oriented Unit, located in Dehradun-Uttarakhand (foothills of Himalaya) engaged in Freeze Drying, Air Drying, Individually Quick Frozen(IQF) and Canning of white button mushrooms, fruits & vegetables, culinary herbs and green pepper corns catering to European, US, Canadian, Australian and Domestic market.. The company has its own captive state of art mushroom growing facility with fully equipped mushroom spawn and compost preparation facilities. The Company has complete backward integration for cultivation of culinary herbs,fruits & vegetables with 100% buy back arrangement through contract farming

The Company is engaged in the business of agro based value added food products catering to the international markets mainly in Europe, USA, Canada & Australia. The company started its commercial operations in 1992 by establishing an 100% EOU for vacuum freeze dried vegetables mainly mushroom and culinary herbs with a total processing capacity of 2000 MTs per annum.

FFL is in the business for last more than one decade and has been selling its products mainly in US and European market through it renowned and reputed distribution channels.

List of countries where company export :
  • USA
  • North America
  • Canada
  • Europe (U K, Germany, Denmark, France, Belgium)
  • Australia
  • South Africa
  • Middle East countries
World class manufacturing facilities with "state-of-the-art" technology, GMP & Quality systems make Flex Foods a leading company in the category.

The processing infrastructure includes the most modern plant equipments from leading technology providers i.e. M/s NIROA/s , Denmark ; M/s NON, Holland; M/s BINDER, Germany & EUROTEK, UK along with those from the leading Indian companies. The plant can process upto 20000 MTs of mushrooms, herbs, fruits & vegetables per annum in the form of freezedried, frozen, IQF, air-dried and canned products. All the process steps starting from the reciept of raw materials till final packaging of the product , are under strict quality environment & hygienic conditions to achieve the highest level of microbiological & phytosanitary standards.

The facilities have been certified for KOSHER, Global Standard for Food Safety (formely British Retail Consortium(BRC)-issue 5th January 2005 at Grade-A) and HACCP complaince. 

The technical human resource comprises of highly skilled professional experts in the field of Food Technology, Total Quality Management, Engineering & Agro- Sciences from leading institutes supported by a highly skilled & trained staff and allied manpower.


Flex Foods offers a wide range of Vacuum Freeze Dried, Air-Dried Dried, Frozen and IQF (Individually Quick Frozen) product range of mushrooms, herbs, spices and fruits / vegetables, meeting strict quality & hygiene standards. Canned button mushroom in various shapes and sizes is also available as per the customer requirement.

FFL is a single point source of supplier of Frozen / IQF, Air Dried as well as Freeze Dried products to the customers as per their requirements.

2. Saral Gyan Recommendation (as on 28th Apr'14)

As Small cap index has seen a sharp rise of 14% in last 4 months and 20% since last 2 months, correction in stock prices with some profit booking can not be ruled out. Hence, our team has ensured that the scrip chosen as Hidden Gem - April'14 must have limited downside risk and offer good safety in case of correction in stock market due to any negative surprises post election.  

Our team has followed Walter Schloss principle's while finalizing Hidden Gem stock of the month. Walter J. Schloss was a well-regarded value investor, as well as a notable disciple of the Benjamin Graham school of investing.

The legendary Walter Schloss checked the stock on the following 4 criteria to determine if the stock merits a place in the portfolio:

• Zero or very low debt equity ratio
• High Promoter holding
• Stock purchase price lower than book value
• Dividend yield of at least 3%

Flex foods Ltd satisfies all 4 criteria's and offer good safety with limited downside risk. 

1. Debt to equity ratio of Flex Foods stands at 0.27, promoters share holding in the company is 59%, stock is trading at 0.71 times of its book value and company is paying dividend of Rs. 2 since last 6 years, which at current market prices of Rs. 32.75 works out to an attractive dividend yield of 6.1% (tax free on the hands of investors). This consistent dividend payouts makes the stock attractive over bank fixed deposits for long term investors. 

2. Company revenue growth is merely 5.4% in last 5 years, however operating profit margins of the company have improved to 22.2% in first 3 quarter of FY 2014 compared to OPM of 18%, 17.3% and 17.6% in FY 2013, FY 2012 and FY 2011 respectively. 

3. Company generates more than 60% of its revenue from exports and any depreciation of rupee from current levels is expected to improve company's performance. 

4. Moreover, Flex Foods is going through expansion of its manufacturing facility with an investment of Rs. 12 crores and hence we can expect better revenue growth with higher net profits in coming years. Company is trading at trailing PE ratio of 5 and considering increase in its revenue from ongoing expansion, Flex Foods is a good investment opportunity for long term investors. 

We suggest you to invest in Flex Foods Ltd at CMP of Rs. 32.75 for a target of Rs. 60 over a period of 12 to 24 month.

Portfolio Allocation: 3% of your equity portfolio.

We would like to inform our readers that Hidden Gem - Aug'14 stock research report / recommendation is yet not published by our team and will be released on 31st Aug'14.

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Team - Saral Gyan.

LEGAL DISCLAIMER: Saral Gyan Capital Services (hereinafter referred as 'Saral Gyan') is an independent equity research Company. Use of the information herein is at one's own risk. This is not an offer to sell or solicitation to buy any securities and Saral Gyan will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. Before acting on any recommendation, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. All content and information is provided on an 'As Is' basis by Saral Gyan. Information herein is believed to be reliable but Saral Gyan does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Saral Gyan may hold shares in the company/ies discussed herein. As a condition to accessing Saral Gyan content and website, you agree to our Terms and Conditions of Use. The performance data quoted represents past performance and does not guarantee future results.