Attaching the link to initial analysis note on AVT Natural Products Ltd. (BSE-519105; NSE - AVTNPL), which, deserves to be a part of the core portfolio because of its world-leadership status in Marigold Oleoresin Industry, its Derisked-Business-Model wherein it ties up almost entire offtake with vendors, Clean Management with High Promoter Holding, Attractive Dividend Yield of 3.5 % as well as Commencing of Fruit-Bearing Phase after a 3 years' of capital-intensive phase.
Views Are Invited on the company.
Rgds.
-------------------------Link------------------
http://www.scribd.com/doc/54992638
-----------------------------------------------------------
Why AVT Natural Ltd. demands a place in one's Core Portfolio ? :
(1) Two of the three operational segments of the company (Food-Grade Marigold Oleoresin and Spice Oils & Oleoresins) have surpassed the immature stage which will see a multi-year demand boom starting from 2011. The third segment (Value Added Beverages) is still at a nascent stage but is bound to grow two years hence, once the decaffeination plant (one of the only three in Asia) set-up by the company fully stabilises. The new related segments in which company is entering now (Phytochemicals and Soluble Beverages) offer tremendous potential for growth.
(2) Company has a World-Leadership status in supply of Food-Grade Marigold Oleoresin.
(3) Is the only company in the world which has a large production-base in two (India & China) of the only three major countries (India, China & Peru) that supply marigold and so is the first preferred choice as a reliable supplier of marigold which is evident from its exclusive tie-up with Kemin Industries Inc. (one of the world's largest consumer of Marigold Oleoresin) and Chrysantis Inc.
(4) Is world's only player in marigold industry which has own cultivation as well as processing facilities.
(5) Is a rare end-to-end player in marigold market with in-house development of high-yield hybrid-seeds, firm contract farming arrangement (one of the largest in India) as well as own plantations for growing marigold, certified extraction plants to extract food-grade and feed-grade oleoresin from marigold and exclusive agreements (is the only supplier) with world's leading consumers Kemin and Chrysantis for the offtake of entire produce of marigold oleoresin. Hence, the only risk left with the company is the weather and therefore production risk which is very well mitigated by establishing large cultivation-base (production-base) in two countries viz., India and China.
(5) Kemin, AVT's largest client, has last month (April 2011) launched an aggresive multi-million dollar promotional campaign (second in its history and that too after a decade) with renowned celebrities like Lolo Jones, Emme, Aaron Scheidies and Jennifer Galardi to aggresively promote its FloraGlo Lutein brand for eye-care ahead of the release of AREDS-2 Study in 2015, to enable the brand to reach the annual sale figure of 100 mn. US$ by 2014 from current 50-55 mn. US$. In addition, Kemin has, in March 2011, started a personal care division in which it plans to use its FloraGlo Lutein in the formulations meant for skin and beauty care. These developments augur very well for AVT Natural as it has an exclusive agreement with Kemin wherein Kemin has to procure all its requirement of food-grade marigold oleoresin for production of FloraGlo Lutein from AVT only and so the business from Kemin is bound to rise exponentialy for AVT in the years to come which is evident from the robust financials registered by AVT in Q3FY11 & Q4FY11.
(6) AREDS-2 Study (a major clinical trial sponsered by US Federal Government's National Eye Institute), which is closely watched and is followed by almost all the leading Ophthalmologists around the world as well as Pharma & Nutraceutical companies, is likely to release its findings on intake of lutein and zeaxanthin on prevention of AMD (Age-related Macular Degeneration which affects more than 30 mn. people worldwide and accounts for more than 50 % of blindness in USA) in the beginning of 2015. Based on the progess done and the reports generated so far, it is almost certain that lutein and zeaxanthin will be given a prominent place in AREDS-2 study as they are actually found in high concentrations in the macula of human eye. Once this is done, the demand for these carotenoids (lutein and zeaxanthin) will rise exponentially which will significantly benefit AVT Natural as Food-Grade Marigold Oleoresins are the richest source for extraction of lutein and zeaxanthin and AVT is the world's largest supplier of the same.
(7) Spice Oils & Oleoresins, the other operational segment of AVT is also experiencing a demand boom because of two reasons first Because of the steadily growing demand from the domestic as well export markets due to their varied uses in confectionary, noodles, beverages, sauces, canned meat, soup powders, curries and poultry products, and --- Second Because of the increasing preference for quality products in each of the user-industry, use of spices is rapidly getting replaced with oleoresins and spice oils. Both these facts are validated by the recent Indian Spices Board report which states that in 2010-11 fiscal, a significant feature of spices export was the rise in shipments of spice oils and oleoresins. They made up over 15 % of the export basket.. AVT, being a significant player in this segment (almost second to India's largest exporter in the category Synthite) with a wide-spread customer-base numbering more than 80, is bound to exploit the opportunity of demand-expansion in the segment fully.
(8) The third operational-area of the company, Value Added Beverages, for which it has set up a Decaffeination Plant at Vazhakulam, Kerala (present processing capacity is 7 mn. kgs which is one of the largest in the world), learning phase has already concluded and stabilisation started which will see a significant rise in volumes going forward. This segment of AVT is again a niche one, because there are only 20 odd companies in the world who provide Decaffeination facilities out of which only two are located in Asia, Nine in Europe and Four in USA while others are located in Brazil, Mexico and Colombia. Major Beverage companies like Kraft and Sara Lee have their own Decaffeination Plants but most of the other beverage companies (including Unilever-Lipton) around the world outsource their Decaffeination requirement via what is called as toll arrangement wherein they provide tea or coffe to Decaffeinators (like AVT) and pay a fix processing fee. This is because, to set-up and maintain a Decaffeination plant, it requires a lot of capital and skill and so not many companies venture into this business. However, beacuse of health consiousness, the demand for decaffeinated beverages is, of late, robust, in both, developed and developing countries, but price is the major constraint hampering thier demand. Asian continent, especially China and India, are the obvious choices to outsource the Decaffeination requirement at the most competitive cost and this is evident from the first Decaffeination plant in Asia becoming operational in 2007 in Vietnam, only 2 years before the operationalisation of AVT's Decaffeination plant in India.
(9) Finlays, the largest independent tea trader in the world trading more than 100 mn. kilos of tea each year (also one of the largest producer of tea producing 45 mn. kilos of black tea each year), has chosen AVT for outsourcing its Decaffeination requirements w.r.t. Tea. It has entered into a toll arrangement with AVT till 2013. It is worthwhile to note here that Finlays already has an in-house Decaffeination plant in Hull, UK where it decaffeinates almost 3 mn. kgs of tea each year at present, but the demand as well as the need for offering Decaffeination at competitive rates is such that it has decided to outsource the Decaffeination requirement to AVT and this itself is the vindication of positioning of AVT in the space.
(10) Alongwith Finlays, AVT counts amongst its clients Harris Freeman (which through its division Harris Tea is the largest Own Label tea supplier in USA) in Decaffeinated Tea space.
(11) Company has a clean management being a group-entity of AV Thomas Group (69.6 % Promoter Holding + 4 % acquired on 6th May 2011 via Open Market Purchases at the rate of Rs. 150 so present promoter holding is 73.6 %) and is headed by a professional management under Mr. MSA Kumar (ex-vice president Shaw Wallace & former Chairman of CII Kerala).
(12) The company has grown its topline at a CAGR of 20.6 % and EBITDA at a CAGR of 5.3 % over last 5 years. This growth was achieved inspite of the company being in a learning-cum-investment phase (expanded capacity via addition of another extraction plant and added a capital intensive Decaffeination Plant) which depicts the bottomline-focussed approach of the company. If one analyses the balance sheet of the company closely of last 3 years, then we will find that the company has expanded heavily on assets front with no significant rise in topline as well debt-to-equity. The first part is quite easy to understand as normally the plants like these take atleast 1.5-2 years for stabilisation and therefore any meaningful contribution from them can be expected only after that. However, the second part of the observation is really commendable as the expansion is done without burdening the balance sheet with debt as also maintaining the profitability level and dividend payout level (35 % and 30 % in FY08, FY09 & FY10).
(13) With expansion already done and the stabilisation occured in all the three operational segments, going forward we can see a healthy topline growth, a glimpse of which can be seen in recently declared Q4FY11 results wherein company has attained a 101.5 % jump in topline YoY and a 105.6 % jump in PAT YoY.
(14) Company has maintained an average dividend payout ratio w.r.t. PAT at healthy 32.15 % over last 10 years which speaks highly of the management's concern towards the return of its shareholders and based on the expected FY11 dividend, the company is offering an attractive dividend yield of 3.5 % with a significant growth opportunity for the capital invested.
At current market price of Rs. 145, AVT Natural is available at a p/e of just 10.03 on declared FY11 EPS of Rs. 14.44 and at a market-cap-to-sales of just 0.75 on FY11 reported topline of 147.02 cr. If we look ahead, then based on FY12e numbers, company is available at a p/e of just 7.45 and a mcap-to-sales of just 0.62 and on FY13e numbers, company is available at a p/e of just 5.6 and a mcap-to-sales of just 0.48.
Past Financials of AVT Natural (alongwith key expenses as % of sales/ebitda/pat to assess quality)
FY11
FY10
FY09
FY08
FY07
FY06
FY05
FY04
FY03
(Fig. in ` cr.)
Revenue
147.02
85.65
87.13
89.65
72.37
71.72
57.29
52.03
32.6
EBITDA
25.11
16.61
17.26
16.97
18.64
17.09
10.72
6.27
2.6
PAT
10.99
6.72
7.12
9.15
8.71
7.5
4.83
2.16
(-) 1.7
Dividend Declared
To Be Declared
30 %
30 %
35 %
30 %
50 %
40 %
10 %
0
Div.Payout Ratio as % of PAT
To Be Declared
40.85 %
38.06 %
33.63 %
30.6 %
29.82 %
33.5 %
18.6 %
0
Taxes Paid
(% of EBITDA)
6.1
(24.29 %)
3.6
(21.67 %)
4.21
(24.29 %)
5.43
(31.9 %)
4.97
(26.66 %)
5.39
(31.53 %)
2.02
(18.84 %)
0
0
Interest Paid
(% of EBITDA)
4.81
(19.15 %)
3.51
(21.13 %)
3.46
(20.04 %)
2.53
(14.9 %)
2.95
(15.82 %)
2.17
(12.69 %)
1.86
(17.35 %)
2.12
(33.81 %)
2.31
(88.84 %)
Views Are Invited on the company.
Rgds.
-------------------------Link------------------
http://www.scribd.com/doc/54992638
-----------------------------------------------------------
Why AVT Natural Ltd. demands a place in one's Core Portfolio ? :
(1) Two of the three operational segments of the company (Food-Grade Marigold Oleoresin and Spice Oils & Oleoresins) have surpassed the immature stage which will see a multi-year demand boom starting from 2011. The third segment (Value Added Beverages) is still at a nascent stage but is bound to grow two years hence, once the decaffeination plant (one of the only three in Asia) set-up by the company fully stabilises. The new related segments in which company is entering now (Phytochemicals and Soluble Beverages) offer tremendous potential for growth.
(2) Company has a World-Leadership status in supply of Food-Grade Marigold Oleoresin.
(3) Is the only company in the world which has a large production-base in two (India & China) of the only three major countries (India, China & Peru) that supply marigold and so is the first preferred choice as a reliable supplier of marigold which is evident from its exclusive tie-up with Kemin Industries Inc. (one of the world's largest consumer of Marigold Oleoresin) and Chrysantis Inc.
(4) Is world's only player in marigold industry which has own cultivation as well as processing facilities.
(5) Is a rare end-to-end player in marigold market with in-house development of high-yield hybrid-seeds, firm contract farming arrangement (one of the largest in India) as well as own plantations for growing marigold, certified extraction plants to extract food-grade and feed-grade oleoresin from marigold and exclusive agreements (is the only supplier) with world's leading consumers Kemin and Chrysantis for the offtake of entire produce of marigold oleoresin. Hence, the only risk left with the company is the weather and therefore production risk which is very well mitigated by establishing large cultivation-base (production-base) in two countries viz., India and China.
(5) Kemin, AVT's largest client, has last month (April 2011) launched an aggresive multi-million dollar promotional campaign (second in its history and that too after a decade) with renowned celebrities like Lolo Jones, Emme, Aaron Scheidies and Jennifer Galardi to aggresively promote its FloraGlo Lutein brand for eye-care ahead of the release of AREDS-2 Study in 2015, to enable the brand to reach the annual sale figure of 100 mn. US$ by 2014 from current 50-55 mn. US$. In addition, Kemin has, in March 2011, started a personal care division in which it plans to use its FloraGlo Lutein in the formulations meant for skin and beauty care. These developments augur very well for AVT Natural as it has an exclusive agreement with Kemin wherein Kemin has to procure all its requirement of food-grade marigold oleoresin for production of FloraGlo Lutein from AVT only and so the business from Kemin is bound to rise exponentialy for AVT in the years to come which is evident from the robust financials registered by AVT in Q3FY11 & Q4FY11.
(6) AREDS-2 Study (a major clinical trial sponsered by US Federal Government's National Eye Institute), which is closely watched and is followed by almost all the leading Ophthalmologists around the world as well as Pharma & Nutraceutical companies, is likely to release its findings on intake of lutein and zeaxanthin on prevention of AMD (Age-related Macular Degeneration which affects more than 30 mn. people worldwide and accounts for more than 50 % of blindness in USA) in the beginning of 2015. Based on the progess done and the reports generated so far, it is almost certain that lutein and zeaxanthin will be given a prominent place in AREDS-2 study as they are actually found in high concentrations in the macula of human eye. Once this is done, the demand for these carotenoids (lutein and zeaxanthin) will rise exponentially which will significantly benefit AVT Natural as Food-Grade Marigold Oleoresins are the richest source for extraction of lutein and zeaxanthin and AVT is the world's largest supplier of the same.
(7) Spice Oils & Oleoresins, the other operational segment of AVT is also experiencing a demand boom because of two reasons first Because of the steadily growing demand from the domestic as well export markets due to their varied uses in confectionary, noodles, beverages, sauces, canned meat, soup powders, curries and poultry products, and --- Second Because of the increasing preference for quality products in each of the user-industry, use of spices is rapidly getting replaced with oleoresins and spice oils. Both these facts are validated by the recent Indian Spices Board report which states that in 2010-11 fiscal, a significant feature of spices export was the rise in shipments of spice oils and oleoresins. They made up over 15 % of the export basket.. AVT, being a significant player in this segment (almost second to India's largest exporter in the category Synthite) with a wide-spread customer-base numbering more than 80, is bound to exploit the opportunity of demand-expansion in the segment fully.
(8) The third operational-area of the company, Value Added Beverages, for which it has set up a Decaffeination Plant at Vazhakulam, Kerala (present processing capacity is 7 mn. kgs which is one of the largest in the world), learning phase has already concluded and stabilisation started which will see a significant rise in volumes going forward. This segment of AVT is again a niche one, because there are only 20 odd companies in the world who provide Decaffeination facilities out of which only two are located in Asia, Nine in Europe and Four in USA while others are located in Brazil, Mexico and Colombia. Major Beverage companies like Kraft and Sara Lee have their own Decaffeination Plants but most of the other beverage companies (including Unilever-Lipton) around the world outsource their Decaffeination requirement via what is called as toll arrangement wherein they provide tea or coffe to Decaffeinators (like AVT) and pay a fix processing fee. This is because, to set-up and maintain a Decaffeination plant, it requires a lot of capital and skill and so not many companies venture into this business. However, beacuse of health consiousness, the demand for decaffeinated beverages is, of late, robust, in both, developed and developing countries, but price is the major constraint hampering thier demand. Asian continent, especially China and India, are the obvious choices to outsource the Decaffeination requirement at the most competitive cost and this is evident from the first Decaffeination plant in Asia becoming operational in 2007 in Vietnam, only 2 years before the operationalisation of AVT's Decaffeination plant in India.
(9) Finlays, the largest independent tea trader in the world trading more than 100 mn. kilos of tea each year (also one of the largest producer of tea producing 45 mn. kilos of black tea each year), has chosen AVT for outsourcing its Decaffeination requirements w.r.t. Tea. It has entered into a toll arrangement with AVT till 2013. It is worthwhile to note here that Finlays already has an in-house Decaffeination plant in Hull, UK where it decaffeinates almost 3 mn. kgs of tea each year at present, but the demand as well as the need for offering Decaffeination at competitive rates is such that it has decided to outsource the Decaffeination requirement to AVT and this itself is the vindication of positioning of AVT in the space.
(10) Alongwith Finlays, AVT counts amongst its clients Harris Freeman (which through its division Harris Tea is the largest Own Label tea supplier in USA) in Decaffeinated Tea space.
(11) Company has a clean management being a group-entity of AV Thomas Group (69.6 % Promoter Holding + 4 % acquired on 6th May 2011 via Open Market Purchases at the rate of Rs. 150 so present promoter holding is 73.6 %) and is headed by a professional management under Mr. MSA Kumar (ex-vice president Shaw Wallace & former Chairman of CII Kerala).
(12) The company has grown its topline at a CAGR of 20.6 % and EBITDA at a CAGR of 5.3 % over last 5 years. This growth was achieved inspite of the company being in a learning-cum-investment phase (expanded capacity via addition of another extraction plant and added a capital intensive Decaffeination Plant) which depicts the bottomline-focussed approach of the company. If one analyses the balance sheet of the company closely of last 3 years, then we will find that the company has expanded heavily on assets front with no significant rise in topline as well debt-to-equity. The first part is quite easy to understand as normally the plants like these take atleast 1.5-2 years for stabilisation and therefore any meaningful contribution from them can be expected only after that. However, the second part of the observation is really commendable as the expansion is done without burdening the balance sheet with debt as also maintaining the profitability level and dividend payout level (35 % and 30 % in FY08, FY09 & FY10).
(13) With expansion already done and the stabilisation occured in all the three operational segments, going forward we can see a healthy topline growth, a glimpse of which can be seen in recently declared Q4FY11 results wherein company has attained a 101.5 % jump in topline YoY and a 105.6 % jump in PAT YoY.
(14) Company has maintained an average dividend payout ratio w.r.t. PAT at healthy 32.15 % over last 10 years which speaks highly of the management's concern towards the return of its shareholders and based on the expected FY11 dividend, the company is offering an attractive dividend yield of 3.5 % with a significant growth opportunity for the capital invested.
At current market price of Rs. 145, AVT Natural is available at a p/e of just 10.03 on declared FY11 EPS of Rs. 14.44 and at a market-cap-to-sales of just 0.75 on FY11 reported topline of 147.02 cr. If we look ahead, then based on FY12e numbers, company is available at a p/e of just 7.45 and a mcap-to-sales of just 0.62 and on FY13e numbers, company is available at a p/e of just 5.6 and a mcap-to-sales of just 0.48.
Past Financials of AVT Natural (alongwith key expenses as % of sales/ebitda/pat to assess quality)
FY11
FY10
FY09
FY08
FY07
FY06
FY05
FY04
FY03
(Fig. in ` cr.)
Revenue
147.02
85.65
87.13
89.65
72.37
71.72
57.29
52.03
32.6
EBITDA
25.11
16.61
17.26
16.97
18.64
17.09
10.72
6.27
2.6
PAT
10.99
6.72
7.12
9.15
8.71
7.5
4.83
2.16
(-) 1.7
Dividend Declared
To Be Declared
30 %
30 %
35 %
30 %
50 %
40 %
10 %
0
Div.Payout Ratio as % of PAT
To Be Declared
40.85 %
38.06 %
33.63 %
30.6 %
29.82 %
33.5 %
18.6 %
0
Taxes Paid
(% of EBITDA)
6.1
(24.29 %)
3.6
(21.67 %)
4.21
(24.29 %)
5.43
(31.9 %)
4.97
(26.66 %)
5.39
(31.53 %)
2.02
(18.84 %)
0
0
Interest Paid
(% of EBITDA)
4.81
(19.15 %)
3.51
(21.13 %)
3.46
(20.04 %)
2.53
(14.9 %)
2.95
(15.82 %)
2.17
(12.69 %)
1.86
(17.35 %)
2.12
(33.81 %)
2.31
(88.84 %)