Simran Farms – 30th June 2010 Qtr results
To log an update on analysis on Q1 for Simran Farms:
– Revenues are below my expectations but not that bad, both bottom and topline grew by 50%+ without debt
– Operating profits are just 7% of sales, compared to 25-30% for Venky’s and Srinivasa Hatcheries
– Operation efficiencies have not yet kicked in, and probably won’t for the next 4-6 quarters.
If you analyse how operational efficiencies makes investors rich, take a peek into TTK Prestige’s five year annual accounts. While the sales have only doubled during said period, net profits vaulted by seven and a half times.
– Company is in fight mode with other big established players (Saguna an unlisted player I respect) besides above two, thus undercutting its services to contract farmers to expand on market share for broiler breeding
– I was hoping for an EPS of 40 Rs by March 2011 which looks like a tall order for now.
– All said and done, 21 year old company that has not changed its line of business even once, never tomtomed its performance, is on track to become midcap.
I will continue to hold my full position in hope of four digit number within three years. Those who want to be aggressive in getting in and out on Simran Farms need to watch for maize futures here, maize and soya account for 80% of input cost. Steep rise may affect margins of whole poultry industry.
I am not hoping for a fancy PE ratio for a commodity stock, anything in single digits would be hunky dory, say 8 or 9. My hope is for operational efficiency and margin expansion which is taking wee bit longer until Simran gets a foothold. I continue to believe that one day (within three years) Simran Farms will earn a net profit of 10% on Sales margins i.e. 50 Crores profit on sales of 500+ crore, (EPS 125) and for that company is so far on track.