Modern Dairies is a good value stock

ram.ramanathan · #1 7th February 2007, 09:04 AM

MODERN DAIRIES ( BSE CODE: 519287 ) - CMP Rs. 25

Everyone has certain angles when it comes to investing. One of the angles that has worked extremely well for me in the past is "Investing based on peer valuations". You are not going to find this in any theory books. But here is how it works. Identify a sector which you think has really good growth potential given the macro economics of the region or global.

1. One of the sectors that I have identified is Dairy sector. Australia which is a major player in the global Dairy market has experienced drought conditions leading to thinning supply of dairy. So the global Dairy prices looks BULLISH.

2. Next thing is regional. India is facing a huge demand for dairy. Hence prices are going higher and higher helping companies in this sector.

3. When I looked at the Dairy sector, I really liked Heritage Foods hence I made my last call. Heritage Foods has doubled (100% return in a few weeks) and still going up.

4. Now I'm greedy (The famous quote from Gordon Gekko in Wall Street Movie, "Greed is good", when it comes to investing). I want to get into dairy players with solid potential and not too expensive. Modern Dairies fits that bill.

5. Modern Dairies has a small quity too around Rs. 8.7 Crores. Current Market Capitalization at CMP around Rs. 24.1 Crores.

6. Modern Dairies reported a revenue of Rs. 50 Crores for the latest quarter ending Dec 2006. If you annualize it it works out to be around Rs. 230 per share in revenue. EPS for the latest quarter: Rs. 1.84, if you annualize that around Rs. 7.36 (Note: Modern Dairies is going through expansion, hence the profitability is better than it looks on paper)

7. Here is Modern Dairies website: http://milkplus.com
They produce a wide varieties of Dairy products including some premium products like speciality cheese (which is growing heavily in India). Check out the website.

8. Modern Daries is based in Haryana, very close to Delhi. It is located in a region which produces one third (33%) of India's dairy output. So supply is always good.

9. These are Modern Dairies customers from their website:
Glaxo SmithKline Consumer Health Care
Nestle
Britannia - New Zealand Milk
Mother Dairies
Domino's Pizza
Pizza Hut
Britannia Industries
Coca Cola - India
Raptakos Brett
Hindustan Lever Limited
Cadbury

Modern Dairies also sells Dairy products under their brand names: 1. Shweta , 2. Cow Bell, 3. Milkplus, 4. Modern

10. Now coming back to my original concept of PEER VALUATIONS angle. Modern Dairies is trading at Rs. 25. So it works out to be an annualized P/E of 3.4 . Price to Revenues annualized works out to be: 0.12 . Compare with companies like Milkfood at CMP Rs. 320 (they are based in the same region) and in the same line of products, their P/E is 320/ 8.49 = 37.69 . Thier Price/ Revenue is 1.35. There is huge FII buying interest in Milkfood. Last quarter Religare invested and acquired 14% of Milkfood. My last call Heritage Foods, is doing excellent and their P/E is much higher.

So hopefully I have given some insight into why I made my next pick MODERN DAIRIES.

Good luck!!!

kkseal · #2 7th February 2007, 01:04 PM

Quote:

Originally Posted by ram.ramanathan

MODERN DAIRIES ( BSE CODE: 519287 ) - CMP Rs. 26.95

Everyone has certain angles when it comes to investing. One of the angles that has worked extremely well for me in the past is "Investing based on peer valuations". You are not going to find this in any theory books. But here is how it works. Identify a sector which you think has really good growth potential given the macro economics of the region or global.

1. One of the sectors that I have identified is Dairy sector. Australia which is a major player in the global Dairy market has experienced drought conditions leading to thinning supply of dairy. So the global Dairy prices looks BULLISH.

2. Next thing is regional. India is facing a huge demand for dairy. Hence prices are going higher and higher helping companies in this sector.

3. When I looked at the Dairy sector, I really liked Heritage Foods hence I made my last call. Heritage Foods has doubled (100% return in a few weeks) and still going up.

4. Now I'm greedy (The famous quote from Gordon Gekko, "Greed is good when it comes to investing"). I want to get into dairy players with solid potential and not too expensive. Modern Dairies fits that bill.

5. Modern Dairies has a small quity too around Rs. 8.7 Crores. Current Market Capitalization at CMP around Rs. 24.1 Crores.

6. Modern Dairies reported a revenue of Rs. 50 Crores for the latest quarter ending Dec 2006. If you annualize it it works out to be around Rs. 230 per share in revenue. EPS for the latest quarter: Rs. 1.84, if you annualize that around Rs. 7.36 (Note: Modern Dairies is going through expansion, hence the profitability is better than it looks on paper)

7. Here is Modern Dairies website: milkplus . com
They produce a wide varieties of Dairy products including some premium products like speciality cheese (which is growing heavily in India). Check out the website.

8. Modern Daries is based in Haryana, very close to Delhi. It is located in a region which produces one third (33%) of India's dairy output. So supply is always good.

9. These are Modern Dairies customers from their website:
Glaxo SmithKline Consumer Health Care
Nestle
Britannia - New Zealand Milk
Mother Dairies
Domino's Pizza
Pizza Hut
Britannia Industries
Coca Cola - India
Raptakos Brett
Hindustan Lever Limited
Cadbury
By the way, if you have heard of Britannia's Milkman, Modern Dairies processes and packages the milk for Britannia.

10. Now coming back to my original concept of PEER VALUATIONS angle. Modern Dairies is trading at Rs. 27.70. So it works out to be an annualized P/E of 3.76 . Price to Revenues annualized works out to be: 0.12 . Compare with companies like Milkfood at CMP Rs. 320 (they are based in the same region) and in the same line of products, their P/E is 320/ 8.49 = 37.69 . Thier Price/ Revenue is 1.35. There is huge FII buying interest in Milkfood. Last quarter Religare invested and acquired 14% of Milkfood. My last call Heritage Foods, is doing excellent and their P/E is much higher.

So hopefully I have given some insight into why I made my next pick MODERN DAIRIES.

Good luck!!!

Excellent!! Mr Ramanathan. That's the best Fundamental Analysis i've come across in this site.

I had Heritage Foods in my portfolio but sold out a bit too early.

Anyway, hope to see more such stuff from you in future.

Warm Regards,
Kalyan.

ram.ramanathan · #3 7th February 2007, 01:27 PM

Hi Kalyan,
I'm glad you appreciate my analysis. I do the analysis, invest and let some others know through these forums such as traderji and mumbaibull .
Good luck!!!

kkseal · #4 7th February 2007, 02:52 PM

Quote:

Originally Posted by ram.ramanathan

Hi Kalyan,
I'm glad you appreciate my analysis. I do the analysis, invest and let some others know through these forums such as traderji and mumbaibull .
Good luck!!!

My pleasure, Ram (if i can call you that)

Just one small thing. I'd prefer the Sales/MCap ratio over Sales/Price for peer group comparison. I also look at the comparitive ROCE/RONW as a measure of the relative efficiency of the companies (off-course if a company is undergoing a big expansion it's ROCE is likely to take a temporary hit These things have to be factored in).

Could you possibly post a link to your thread/s on FA in Mumbaibull? is the UserName/ID the same?

I am also interested in knowing if you make use of the EV (Enterprise Value) of the company (and the ratios therefrom like EV/EBIDTA, EV/SALES etc.) If so, would like to know what method you follow for calculating the same.

Regards,
Kalyan.

P.S. There is likely to be some good news for the food processing sector (including dairies) in the forthcoming budget.

sureshk123 · #5 7th February 2007, 03:06 PM

Great post Ramanathan You have done verywell, You have shown us all how to post a recomendation

regards
Suresh

kkseal · #6 7th February 2007, 03:26 PM

Quote:

Originally Posted by sureshk123

Great post Ramanathan You have done verywell, You have shown us all how to post a recomendation

Exactly. Recommendation ho to aisa!

ram.ramanathan · #7 7th February 2007, 07:22 PM

Thank you all

ram.ramanathan · #8 7th February 2007, 07:26 PM

sureshk123

Thanks for those kind words. Even I was impressed after I typed up the post. I wasn't planning to structure it in points. But it worked out to be 10 good points on why Modern Dairies is a good investment.

ram.ramanathan · #9 7th February 2007, 08:34 PM

Some more reading (the more u read the more informed you're). BTW, I have posted in another site traderji as well.

• The Milk production in the country is growing at an average compounded rate of 3% plus per year.
• The plant of the Company is specifically located in the rich milk bowl of Punjab, Haryana and western UP and more than 33% of the milk production of the country is available in this area.
• The Company has established itself as a supplier of wide range of quality milk products namely Skimmed Milk Powder, Whole Milk Powder, Dairy Whitener, mozzarella Cheese, pasteurized butter, pure ghee and pasteurized milk in pouches under various brand names like Modern Dairies, Shweta, Cow Bell, Milkplus etc. in the industry.
• The Company is an ISO 9001 (quality), HACCP Certification (for food and safety) and 14001/2004 (for environment) certified company for its process, quality and safety measures.
• Excellent customer base. The Company has been serving the best of the Institutional clients in the country which includes Glaxo SmithKline Consumer Healthcare Ltd, Britannia New Zealand Foods Pvt. Ltd., Nestle India Ltd., Hindustan Lever Ltd., and Domino’s Pizza.
• The company is approved by Govt of India, for export of its dairy products and has established its network in middle East.
• Looking at the global opportunities available to the Indian milk market and growing requirements of the milk based products like Edible Acid Casein, Rennet Casein, Whey Protein Concentrate, Lactose – Edible Grade and Pure Ghee, the Company has decided to go for the proposed
Expansion Plan.
• For the proposed project the Company has / is acquiring state-of-the-art equipments from the world’s best equipment suppliers to ensure the best equipment & technology as well as quality of its products.
• The Food processing industry has been put in the priority list by Govt. of India and State Government.
• As per Policy of Government of India the Company is entitled for a grant up to an amount of Rs.50 Lacks through the Ministry of food processing.
• The Major expansion by way of new unit is for the value added products and the products of the new units are targeted for export/Global market and has huge demand, which is further growing. The Company shall therefore earn a substantial amount of foreign exchange.
• As per Haryana Industrial Policy 2005, to encourage the Food Processing Industry in the state , the State Government has offered incentives. Accordingly the Company is entitled to Sales Tax deferment and in land transport subsidy or exports benefits up to the extent of Rs.10 lacs.

kkseal · #10 7th February 2007, 08:39 PM

Quote:

Originally Posted by ram.ramanathan

My name in mumbaibull is called: heritage

because that's the name i used to post my last call Heritage Foods which has doubled since then. I know now my bar is set high, but I can't double every stock in a few weeks. But Modern Dairies is a good investment and it will be a winner.

Kalyan ji,
Thanks for pointing out that Price to Market Cap is better than Price to Revenues. Agreed. I live in California. Most of the analysis done here is P/E (Price to Earnings), PEG (Price to Earnings Growth), Price to Revenues. BUt I will add Price to Market Cap as well.

If you look at Modern Dairies, they are all extremely cheap. Milkfood and Modern Dairies are twins business model wise. Milkfood is trading at 300. Milkfoods equity is smaller at 4.75 Cr. Milkfood's P/E is 37, Price to Revenues of Milkfood is 10 times higher than that of Modern Dairies. Modern Dairies has some of the best clients as well as a retail brand network (Modern Dairies sells Milk products in the following names: Shweta, Cowbell, Modern & Milkplus). Milkfood is exactly in the same line of business in the same region near Delhi. So we are comparing apples to apples. Only difference Milkfood story has gotten out and FIIs have bought the stock. In Modern Dairies, the news is slowly spreading.

Hopefully my analysis will open a few eyes. I'm glad I could do that. I love to invest in stocks that are extremely undervalued, they have done extremely well for me over last decade and half both in the U.S. as well as India. I'm afraid of extremely high valuations. At a P/E of 3.7, Modern Dairies is certainly a value stock to me, Earnings is also growing, which is a great thing, revenues are growing rapidly as well. The market cap of Modern is Rs. 24 Crores and that of Milkfood is around Rs. 143 Crores. Modern is catching up and in fact making more revenues than Milkfood and earning more.

Hi Ramji,

Please stick to Kalyan, no 'ji' necessary.

Carry on your good work at both forums.

PEG is the best and most handy but unfortunately its not available for Indian stocks.

I calculate it for my chosen stocks based on the CAGR earnings growth for last 3 yrs and then keep adjusting/revising q-o-q. It's a lot of painstaking work as you'd know specially when you have to track it for 50-60 stks.

BTW, what about the EV stuff? Do you use it at all?

Regards,
Kalyan.

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