SKM Egg Products: PAT growth of 236% & Revenue growth of 32% YoY at a PE of 8
In the middle of a strong earnings growth cycle which started from FY23. Available at very attractive valuations providing opportunities for re-rating of multiples & generating multi-bagger returns.
1. Largest exporter of egg powder from India
skmegg.com | skmbesteggs.com | NSE: SKMEGGPROD
Accounts for 70%-75% of export of egg yolk & albumin egg powder from India
Today, we are one of Asia's biggest egg processing plant
SKM Egg Products Export (India) Ltd (SKML) is engaged in the manufacture and sale of egg powder and liquid egg with varieties of blends used in various segments in the food industry and also in health and pharmaceuticals sector.
SKML has an installed capacity to break 2 million eggs per day to produce 8,000 MT of egg powder annually.
SKML is a joint sector undertaking along-with Tamil Nadu Industrial Development Corporation Limited.
2. Spectacular performance in FY23
The growth in the income and improved profitability was largely driven by the healthy demand for the egg powder products from India in the export markets following outbreak of Bird flu in the US and UK regions and due to lower production cost of eggs in India compared to the other geographies.
Performance of FY23 in contrast to an average stint thru FY19-22
3. Momentum of FY23 continues in Q1-24
Superlative results YoY
4. Strong Q2-24: PAT up 135% & Revenue up 10% YoY with expansion of margin
5. Strong H1-24: PAT up 236% & Revenue up 32% YoY with expansion of margin
Standalone results
6. Return ratios & cash conversion are well maintained
No growth for FY18-22, yet an efficiently run company
7. PAT growth of 236% & Revenue growth of 32% YoY at a PE of 8
8. So Wait and Watch
If I hold the stock then one may continue holding on to SKMEGGPROD.
Coverage of SKMEGGPROD was initiated after Q1-24 results. The investment thesis has not changed after a strong H1-24. The only changes are the delivery of a strong H1-24 and the increased confidence in the management to deliver a stronger FY24
One may hold on to SKMEGGPROD as it is in the middle of a period of spectacular bottom-line growth and one can play it quarter by quarter till growth lasts. On one side there are risks involved as SKML does not have a consistent track record of growth before FY23. On the other side there is a margin of security given that PE is at 8. Most importantly the disclosures by SKMEGGPROD are limited to the disclosures made to the exchanges.
9. Join the ride
If I am looking to enter SKMEGGPROD then
SKMEGGPROD has delivered PAT growth of 236% and revenue growth of 32% in H1-24 at a PE of 8 which makes the valuations quite attractive.
Additionally, SKMEGGPROD generated free cash flow of Rs 34 cr as of Q2-24 end on a market cap of less than Rs 1,000 cr, implying a 3.4% free cash flow yield (not annualized) which also makes the valuations look attractive.
Absence of a consistent track record of growth is a definite negative and increases the risk.
If the growth momentum is maintained for FY24 of which the first quarter was very strong, the potential for not only earnings growth but also the potential of rerating of PE multiple will create a strong upside for the stock and open up opportunities for making money in the stock.
Absence of a consistent track record of growth before FY23 is a definite negative and increases the risk.
The disclosures by SKMEGGPROD are limited to the disclosures made to the exchanges. In the absence of any public information about SKMEGGPROD, making a big entry into SKMEGGPROD is quite a difficult decision.
Previous coverage of SKMEGGPROD
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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