SHARETIPSINFO >>Research Reports >>Chaman Lal Sethia (Added on 16 Dec, 2010)

COMPANY OVERVIEW:
Chaman Lal Sethia was established as Partnership Company in the year 1983 and was converted public limited company in the year 1994. The Company is presently operating rice milling units in Amritsar and in Karnal. Both these locations are in close proximity to the Rice producing areas of India. The firm has over the years built a good rapport with the Rice cultivators and enjoys a good reputation among them.
Chaman Lal has been in associated with the basmati trade for the past 20 years and has been exporting rice, wheat, pulses.

Distribution Network:
In India through Brokers Company cater to in excess of 3500 outlets in Punjab and the satellite towns.

Manufacturing Units:
The Company is presently operating rice milling units in Amritsar and in Karnal. The present milling capacities of the Amritsar unit and the Karnal unit is 2 tons per hour, each.

INVESTMENT RATIONAL:
Rice, the staple food of more than three billion people, may as much as triple in 18 months as flooding in exporters including Thailand tightens supplies and demand climbs, according to Duxton Asset Management Pte.
The most severe floods in five decades in Thailand, the top exporter, may trigger a 7 percent fall in rough-rice production, which accounts for 70 percent of its total output, the Agriculture and Cooperative Ministry has said. Crops in Vietnam and Pakistan have also been hurt by severe weather, while a typhoon cut harvests in the Philippines, the biggest importer.
Rice inventories held by the world’s five biggest exporters will likely decline next year, tightening supply
Global production will be 697.9 million tons, 6.5 million tons smaller than previously estimated, as crops around Asia “deteriorated,” the FAO said in a report yesterday. That’s the third forecast cut since April.
Rough rice on the Chicago Board of Trade gained as much as 1.7 percent to $14.115 per 100 pounds today, extending an advance from the year’s low of $9.55, which was set on June 30. In 2008, the price peaked at $25.07 per 100 pounds.

SHAREHOLDING PATTERN:

FINANCIAL:

Key Highlights:
Total Income rose at CAGR of 23.85% in the last four years to Rs 183.44 crore in FY10.
PBDITA increased at CAGR of 30.18%% in the last four years to Rs 13.3 crore in FY10.
PAT rose at CAGR of 34.5% in the last four years to Rs 6.64 crore in FY10.

RATIOS:

Key Highlights:
EPS rose at CAGR OF 34.5% in the last four years to Rs 6.9 in FY10.
PBDITA Margin improved from 6.2% in FY07 to 7.25% in FY10.
NPM too improved on back of lower interest cost from 2.81% in FY07 to 3.6% in FY11.
Interest Cover increased from 3.06 in FY07 to 8.6 in FY10. This shows the declining interest cost.

COMPARISION OF Q4FY2010 WITH Q4FY2009:

Key Highlights:
Total Income declined by 15.5% in Q1FY11 to Rs 34.68 crore.
PBDITA declined by 10.8% in Q1FY11 to Rs 1.9 crore.
PAT showed improvement in Q1FY11, up by 7.5% to Rs 0.71 crore.

VALUATION &OUTLOOK:
We expect company to close FY11 with EPS of Rs 9.5 on conservative basis. At EPS of Rs 9.5 it is trading at 4.5X to FY11E EPS. The industry average in 7.7 X. Even if we value the stock on conservative basis at 5.5X, the fair value come at around Rs 52.
Stock seems to be undervalued at this price. The outlook of the rice industry remains intact because of the supply constraint and rising demand. The increasing prices of rice worldwide will improve the margin of the company significantly.
At current market price dividend yield is 4.1%. Company has consistently given dividend.

CONCLUSION:
We feel investor should buy into the stocks with the investment horizon of 8-10 months. The food crisis, supply constraint and rising demand will keep the prices of food items up and hence will benefit the company. Risk reward ratio is very favorable.

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