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Rice Stocks Prices Analysis


Price analysis of BSE listed Major Rice Stocks as on Mar 7 2012

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									                                                                                               7Th Mar 2012.

        Here are my opinions on some of these Rice sector stocks and I am not advocating any
stocks, neither am I digging deep into fine details of the business of these companies as I am not an
expert at this, and I believe no one is. My opinions are highly subjective and purpose of this article is
to take bets on stocks which have the highest probability to generate 3-4 times of your investment.
So Use your own head and instincts when taking positions in these stocks. (Kindly correct if I have
put any wrong numbers anywhere in this post)

Price - 18.35
52WH - 34.45
52WL - 12.75
KRBL has a strong retail brand name with very well known products. It too has it own problems
like every other company, but it has good sales, profits, dividends record, (except for the –OCF this
fiscal). It carries D/E ratio of 1.48. Now about the price…it is available at very cheap
valuation(BV=25) with low to moderate downfall from current levels, but at the same time it has a
limited upside potential as well. Highest price traded was close to 53 in Nov 2010. FII’s have nearly
halved their holding in this stock from Sep’11 to Dec’11 period. So one can expect the moderate to
high appreciation in this counter with cheap liquidity running around.

This stock can give above average returns ahead but one has to wait patiently for a raging bull
market to achieve this.

KRBL is up 30% this year and 43% from its low of 12.75(Outperforming Sensex till date i.e.   From 30th Dec ’11 to 7th
Mar ’12)

REI Agro.
Price - 15
52WH - 30.4
52W L- 13.7
REI Agro is a behemoth in this sector with sales of 3500Cr+, good profits, however it only turned
+OCF this year since Mar 2007, but this can be understood for these companies as highly
commoditized nature of their business as cash goes out of the books as soon as it is received. But
anyways let’s not get into the details as we want to see which stock is most likely to get above
average returns.

This stock is quite leveraged with D/E ratio of around 1.67, in addition close to 50% of the
promoter holding is pledged with the banks/FIs. FIIs over-own this stock(around 41%), hence it
seems every possible news is already reflected in the price and any upside from this level is limited
and capped(52 week high of 30 per share) with a book value of only 24. It turns out more weight
the stock has, more energy it takes to move it, and this is one big heavy stock. Though it is still a safe
bet available with reasonable valuations.
REI is down -8.5% this year and 9% up from its low of 13.7. (Underperforming Sensex till date i.e.   From 30th Dec ’11
to 7th Mar ’12)

LT Foods.
Price - 41.4
52WH -62
52WL -37
LT foods too have a strong retail presence like KRBL with well accepted brands. Sales and profits
are decent but balance sheet is highly indebted (D/E of 3.4) and promoters have pledged 47% of
their holding. With these numbers in sight, it upside remains very limited from this levels as during
the bull run from 2009-2010, it was traded in the range of 60-75 per share. But, you never know, as
which stock could fly in next run, but right now I have checked the fundamentals on its face value
without digging too much into every company. But I would rather suggest KRBL over LT because of
much better fundamentals of the former.

LTF is up 7.7% this year and 11.8% from its low of 37(Underperforming Sensex till date i.e.   From 30th Dec ’11 to 7th
Mar ’12)

Kohinoor Foods.
Price -36
Then there is Kohinoor Foods. Not a pure play rice business but has a diverse portfolio of products
including ready-to-eat, spices, pastes, frozen foods etc. This is one extremely leveraged company
with D/E of around 5.1, one of the highest among the stocks discussed. In fact some of the net worth
of the company eroded due to current year losses. With limited chance of some decent gains in the
price(52 week high being 64), book value of 61, combined with no dividend paid by the
company(last one being in 2007), it offers very little incentive to invest your money in this stock.

Kohinoor is up 19% this year and 20.8% from its low of 29.8. (Outperforming Sensex till date i.e.    From 30th Dec ’11
to   7th   Mar ’12)

Price - 16.5
52WH - 53.95
52WL - 13.05
Finally Lakshmi energy & Foods (LEAF). Company seems to be in trouble for quite some time now
and took a heavy bashing on the bourses since last 1-2 years.(Traded in the range of 70-95 in Sep to
Nov 2010). It surely has a leveraged balance sheet but has the lowest D/E among the stocks
discussed above. Based on their latest AR, it can be seen that company is aggressively expanding
into retail front by setting the related infrastructure (warehousing, distribution channels,
appointing well known marketing firms for launching the products, importing new machineries).
This is actually a good thing as rather than sticking to a business model which is not rewarding
enough( non-basmati rice, over-dependence on FCI for rice intakes etc.), the company has dared to
venture into retail markets and aggressively looking for new export markets hence accepted the
need to flex their business model. On the financial front, company generated negative growth in
revenue and profit front as expected due to revised business plans of company, but improved their
OCF quite a bit(though still negative).

Despite the heavy negative publicity of this stock on every financial website, FIIs/MF have still not
deserted the company completely (e.g. Allied Digital), which means that they too are optimistic for
any positive development on retail front, which could take another 2-3 quarters. Even a slight
upside in financials could trigger a sharp positive rally in this counter as I assume lot of investors
are closely looking this stock, but everyone is waiting for the other investor to punch a first major
buy order.(Though BSE reports suggests increasing delivery as % of traded shares since last few
days, last one being 92.85%(7th Mar’12). So some silent activity has surely started in this counter.

On a positive side, the management does not play around with the stock too much(keeping their
holding unchanged for quite some time now), it still pays the small dividend out of its profits, plus
despite being leveraged company it has enough bargaining power with the banks to avoid their
shares being pledged. In my opinion, LEAF aims to be what KRBL is today, which will of course take
some time.

The price of LEAF is so much hammered that it at least deserves a look by the investors(BV=112). If
the company delivers according to their plans, this could be the best multi-bagger among the stocks
in next bull run. So be ready to take risks. But most of the downside about the company is
discounted in the price, so any more sharp fall is less likely( only exception being when markets
nosedives, it takes every stock with it).

LEAF is up 14.5% this year and 26% from its low of 13.05. (Outperforming Sensex till date i.e. From 30th Dec ’11 to
7th Mar’12). It touched 21.45 per share on Feb 22 ’12, indicating that it moves in tandem with the index.

So follow your instincts and take a call, I would still suggest KRBL for investment, but one could
assign little bit of your investable capital in this stock for possible above-average returns. I would
advise you to go through their latest annual report to decide for yourself.

Mar 7th 2012

                                                              Data Source – RediffMoney, BSE, Google Finance, Yahoo Finance

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