Recommendation From Food Processing Sector
This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.
CHAMAN LAL SETIA EXPORTS : LEADING WITH PRODUCT EXPERTISE
HERE IS WHY
✓ Highly experienced management team
✓ Good returns on capital employed
✓ Focus on strengthening core business
Recognised as a star export house by the Government of India, Chaman Lal Setia Exports is engaged in the business of milling and processing of Basmati rice. More than 90 per cent of its revenue is derived through exports. It was formed in 1974 and is one of the oldest rice millers cum exporters of a variety of Basmati rice in India. It sells products under its flagship brand ‘Maharani’ which includes raw rice, health rice, pesticide residue-free rice, parboiled and brown rice – all in the category of Basmati. The company has a loyal client base of more than 800 buyers spread across more than 80 countries.
The company reported net sales of Rs 852 crore in FY21 compared to Rs 798 crore in FY20, indicating growth of nearly 6.7 per cent. The EBIDTA stood at Rs 121 crore in FY21 as against Rs 82 crore in the previous year, a growth of over 47.5 per cent. Also, its PAT saw growth of 56.5 per cent, an increase from Rs 52.4 crore to Rs 82 crore from FY20 to FY21, respectively. The cash position witnessed de-growth of nearly 25.5 per cent as can be seen in the cash flows from operating activities decreasing from Rs 51 crore in FY20 to Rs 38 crore in FY21. Net sales for the quarter ended June 2021 stood at almost Rs 237 crore, implying growth of 5 per cent on QoQ basis but a decline of 3 per cent on YoY basis.
The EBITDA, exclusive of other income, was Rs 25 crore which saw de-growth of 20 per cent QoQ and nearly 32 per cent YoY. The net profit stood at Rs 17 crore, de-growth of 21 per cent QoQ and 32 per cent YoY. More than 90 per cent of the company’s revenues are generated from the sale of Basmati rice. Rice is subject to the volatile nature of commodities and the decline in profitability might be due to higher paddy prices which cannot be passed on to the buyers immediately. Also, the shortage of cargo containers at ports can disrupt exports. India usually has greater imports than exports with one of the exceptions being agricultural commodities.
India has been consistently maintaining trade surplus and even in the pandemic times the food supply chain was not disrupted. Also, India accounts for about 85 per cent of the global Basmati rice exports. All such macroeconomic factors indicate a sustainable market for Basmati rice, which augurs well for the company. The management team has a collective experience of more than four decades in the rice industry and is supported by a strong and competent third generation promoters with equally sound experience in the rice industry. It is important to note that the promoters have not deviated from their core business, which is very satisfying for shareholders.
The company has in-house rice processing units and uses parboiled, raw and steam process using the finest equipment to ensure that the product’s physical, aromatic and taste qualities remain intact. The company is now set to introduce a new aerodynamic system for the classification of paddy so that processing can be improved. On the returns front the company has been exceptional. For shareholders it has delivered ROE of 26.33 per cent. And as far as all the stakeholders are concerned, the ROCE stood at 29.52 per cent. Also, the stock was trading near price-toearnings multiple of just 7.99. It has minimal debt-to-equity ratio of 0.27. By virtue of all such factors, we recommend reader-investors to BUY the scrip.