Chamanlal Setia Exports: 19% PAT growth in H1-24 and a track record of PAT CAGR of 30%+ for FY19-23 at a PE of less than 8.5
Bottom-line focused company operating an asset light model, delivering robust financial performance, with sustained cash surplus in the process of building a brand
1. Leading private label exporter of basmati rice
clsel.in | maharanirice.in | NSE : CLSEL
Flagship brand “Maharani”
Chaman Lal Setia Exports Limited is one of the India’s leading basmati rice exporters. It has processing facilities in Karnal (Haryana) and Kandla (Gujarat). The company exports to more than 90 countries and 440+ distributors spread across the world.
2. FY19-23: PAT up 36% and Revenue up 16% YoY
3. Strong FY23: PAT up 82% and Revenue up 49% YoY
4. Weak Q1-24: PAT up 23% and Revenue down 36% YoY
Export volume declined by 30% QoQ and export sales declined by 25% QoQ to Rs. 234.8 Cr. due to weather disruption in Gujarat
Freight expenses have reduced significantly during the year, supporting margin improvement
Flagship brand ‘Maharani’ contributed ~17% to the overall revenues in Q1FY24
Middle East/Africa has contributed 50% to the overall revenues in Q1FY24
Domestic business contributed 11% of total revenue
5. Strong Q2-24: PAT 30% & % Revenue up 16% YoY
PAT up 46% & % Revenue up 23% QoQ
Export volumes (excluding China) up 30% YoY and 14% QoQ to 28,776 MT
Average realization was up by 5% QoQ during Q2 FY24
Rice being a staple, Company has not witnessed any impact on exports due to ongoing war in Israel
Brand sales share in total revenues stood at 14% during H1 FY24
6. H1-24: PAT up 26% & Revenue down 15% YoY
During H1 FY24, revenue growth was impacted owing to cyclone led disruptions at Gujarat port in June
Despite this, EBITDA grew by 26% YoY & margins expanded by 426 bps in H1FY24, supported by moderation in freight expenses, improved realizations and our efforts towards operational efficiency
Cash flow from operations grew to Rs. 253 crores, compared to Rs. 71 crores in H1 FY23, with growth in profitability and prudent working capital management
7. Business metrics: Strong return ratios
Majority of the production is through procurement of semi-finished rice and conversion to finished rice (mostly requiring Sortex), keeping the overall processing cycle short, and the company remaining relatively asset light
Inventory holding vis-à-vis peers remains moderate as the company does not engage into ageing and thus, possess lower inventory risk
6. Outlook: Strong PAT growth in FY24
i. Rs 1400 cr top-line in FY24 similar to FY23
last year our revenue was 1400 crore about so we have to achieve that target which we feel it will come.
ii. 19% PAT growth in FY24
H2-24 revenue = 1,400 - 576 (H1 revenue) = Rs 824 cr
H1-24 PAT margin = 9.4%. H2-24 PAT margin is expected to be better than H1-24. given the profitability expansion expected in Q3-24.
H2-23, PAT margin = 10.4%. Given that its a seasonal business we are expecting the same margin in H2-24.
H2-24 PAT = Rs 824*10.4% = Rs 86 cr
FY24 PAT = 54+ 86 = Rs 140 = 19% growth over FY23
We expect Q3 to be even more favorable for the company. Indeed, we have capitalized on this opportunity by procuring when prices were lower, which should enhance our profitability in the coming quarter.
7. 19% PAT growth in FY24 at a PE of less than 8.5
8. So Wait and Watch
If I hold the stock then one may continue holding on to CSEL.
The reason to stay in the stock is the transformation of CSEL from a private label exporter to a brand as it could lead to re-rating of its single digit PE
Brand sales share in total revenues stood at 14% during H1 FY24
My target is within a few years to increase the percentage level to at least 55% to 60% of our entire revenue. I think this is what my competitors also have achieved. This is the maximum you can do and I think in a few years we would manage that.
In the interim while the transformation is taking place its performance is reasonable in line with a single digit PE.
CSEL has delivered a good H1-24 and in line with historic performance.
It looks on track to deliver a good FY24 with a top-line of Rs 1,400 cr with improving profitability in Q3-24.
9. Or, join the ride
If I am looking to enter the stock then
The company is not suited for every one as CLSEL does not focus on the top-line
I follow the bottom line. I never follow the top line. I am more concerned that I don't pay any bank interest. I buy my raw material at the lowest level. I get the best quality. I manage my bottom line. Top line will manage itself, like you can see in the past. I don't want to give you any false hopes. I don't want to say I'll become a 2000 or 3000 crore company. It will follow. My intention is to buy raw material at the lowest price, best quality and I want to manage the best bottom line for my company. Top line is not the issue.
CLSEL is starting a journey from a private label exporter to a building a brand and that is the reason to enter the stock.
CLSEL looks like delivering 19% growth in PAT, given that Q3 is supposed to be more profitable than Q2 and H1 has already delivered 26% PAT growth. CLSEL at a PE of less than 8.5 for 19% PAT growth makes valuations quite attractive.
CLSEL at a market cap of about Rs 1,086 cr against an expected revenue of Rs 1,400 cr in FY24 means that it is available at a market cap to sales of less than 1
A net-worth of Rs 656 cr on a market cap of about Rs 1,086 cr, implies that CLSEL is available at a price to book of 1.67 which makes the valuations quite attractive.
The potential for a single digit PE moving to a a mid teen PE as the Maharani brand develops could provide multi-bagger upside in the stock over the long term.
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Disclaimer
It is an analysis of the company data and not a stock recommendation
My analysis can be completely wrong and can change the next minute based on changes in my understanding of the company
I look to own good companies at prices where there is a path to market beating returns over decades