India Equity Research |Edible Oil Result Update (MidCap)

Sanwaria Agro Oils Ltd. INR: 57

Realizations drive sales northwards HOLD

Q3FY10 Results above our estimates - Net sales increased 24% y-o-y (8% q-o-q) to Rs. 333.5 Price Outlook (INR): 63
crore. EBITDA improved by 190% y-o-y to Rs. 15.5 crore and net profit improved by 171% y-o-y
to Rs. 9.3 crore. Better realizations for de-oiled cake and refined soyabean oil led to Market Data Jan 18’ 2010
improvement in sales and margins.
Shares outs (Cr) 17.4
Increase in net sales y-o-y was mainly driven by improvement in realization of De-oiled cakes Equity Cap (Rs. Cr) 17.4
(DOC) by 47% y-o-y, refined oil by 12% y-o-y. Volumes, however declined by 23% y-o-y. As Mkt Cap (Rs. Cr) 991.8
prices of soyabean surged (12%) in the domestic market, price of DOC increased by 23%. 52 Wk H/L (Rs) 98.0 / 14.8
Consequently demand for DOC declined from India (Asia’s largest exporter) and shifted to
Avg Vol (1yr avg) 5,529
South America.
Operating profit improved 190% y-o-y on the back of improvement in realization. OPM Face Value (Rs) 1.0
improved by 266bps y-o-y to 4.6% during Q3FY10. Bloomberg Code SAO IN
Net Profit increased 171% y-o-y to Rs. 9.3 crore and NPM improved by 151bps y-o-y to 2.8% on
account of operating leverage. Market Info:
SENSEX 17,641
Other developments – Sanwaria Agro Oils Ltd. (SAOL) has entered into an arrangement with
Hariyali Kissan Bazar (M/s DCM Shriram Consolidated Ltd.) for marketing of its premium brand NIFTY 5,275
of soya edible oil "NARMADA" on all India basis. This along with its earlier tie-ups with Vishal
Price Performance
Retail, Big Bazaar & ITC Chaupals will help SAOl in increasing its retail presence and thereby
help in improving its branded sales.
400
350

Branded sales have been increasing its contribution to the top line (from 2% of total sales in
300
250

FY08 to 5% in FY09) and SAOL expects to contribute ~20% to top line in next 2 years. 200
150
100
50

Valuations & Views – According to SOPA soybean output in India is expected at 9.73 mn. T 0

Jan-09

Feb-09

Mar-09

May-09

Jun-09

Jul-09

Oct-09

Nov-09

Dec-09

Jan-10
Sep-09
Apr-09

Aug-09
during the oil year 2009-10 (Oct. – Sep) compared to 9.3 mn. T in the previous year. With
prices of soyabean in the domestic market increasing, prices of refined oil and DOC have also Sanw aria Agro SENSEX

increased. SAOL, a leading solvent extraction company is likely to benefit from this increase.
However, since Q3 is the peak year for procurement of raw material (seeds), working capital Share Holding pattern (%)
requirements have gone up and so with higher cost raw material, pressure on margins is likely Particulars Jun-09 Mar-09 Chg
to be there in FY11E. SAOL’s initiative to tie up with retail chains for selling refined soybean Promoters 70.0 70.0 0.0
oil would help in utilizing the capacities further. With this, we maintain our ‘HOLD’ MF/Ins. Co. 0.0 0.0 0.0
recommendation on the stock with a target price of Rs. 63 giving an upside potential of 12% FIIs 0.4 0.5 (0.1)
from its current levels. At the CMP of Rs. 57 the stock is trading at 15.4x FY11E EPS of Rs. 3.7. Bodies
25.4 25.4 0.0
On peer comparison, SAOL is trading at higher P/E based on FY11E as it has presence in only Corporate
Public 4.2 4.1 0.1
soyabean oil and majority of its revenues come from DOC (having higher margins) compared to
refined oil. Total 100.0 100.0

Source: BSE
Key Financials Rs.
Crore
Particulars FY08 FY09 FY10E FY11E
Sales 938.1 1111.0 1155.5 1259.4
EBITDA 72.4 82.1 80.9 94.5
PAT 43.3 53.3 57.8 63.0
EPS 2.5 3.1 3.4 3.7
OPM 7.7% 7.4% 7.0% 7.5%
NPM 4.6% 4.8% 5.0% 5.0%
P/E 22.8 18.6 16.8 15.4
P/BV 4.1 6.6 4.9 3.8
RoE 37% 35% 28% 24%
RoCE 22% 25% 18% 18% Analyst :
Neha Pathak
neha.pathak@krchoksey.com
Source: Company Data, KRC Estimates
℡ 91-22-6696 5572
www.krchoksey.com

KRC Research is also available on Bloomberg KRCS<GO>, Thomson First Call, Reuters, Factset and Capital IQ
Sanwaria Agro Oils Ltd.

Net sales

400 100%
85%

300
50%

Rs. Crore
55%
200 24%
34%
0%
100 -1%
-34% -48%
0 -50%

Jun08Q

Sep 08Q

Jun09Q

Sep09Q
Dec08Q

Mar 09Q

Dec09Q
Net Sales y-o-y Growth%

Source: Company Data, KRC Research

Volume & Realization

Volume Sold - Ref. Soyabean Oil (MT) Volume - DOC (MT)

12000 200% 120000 200%
10000 150% 100000 150%
8000 100% 80000 100%
Tonnes

6000 50% 60000 50%

4000 0% 40000 0%

2000 -50% 20000 -50%

0 -100% 0 -100%

M ar09Q Jun09Q Sep09Q Dec09Q M ar09Q Jun09Q Sep09Q Dec09Q

Ref. Soyabean oil y-o-y (%) q-o-q (%) De-oiled cakes(Tonnes) y-o-y (%) q-o-q (%)

Avg. Realization - DOC (Rs./MT)

Avg. Realization - Ref. soyabean oil
30000 80%
50000 20%
25000 60%
10%
48000 20000
0% 40%
46000 15000
-10% 20%
10000
44000
-20%
5000 0%
42000 -30%
0 -20%
M ar09Q Jun09Q Sep09Q Dec09Q
M ar09Q Jun09Q Sep09Q Dec09Q
Ref. Soyabean oil y-o-y (%) q-o-q (%)
De-oiled cakes y-o-y (%) q-o-q (%)

Source: Company Data, KRC Research

2 KRC Equity Research

Sanwaria Agro Oils Ltd.

Segment wise revenue (Rs.Crore)

Particulars Jun08Q Sep 08Q Dec08Q Mar 09Q Jun09Q Sep09Q Dec09Q

Sales Break-up 274.3 312.2 268.0 256.4 143.0 308.1 329.9

Solvent Extraction & Refining 272.3 310.1 267.5 255.8 140.9 306.1 329.5

Power Generation 2.1 2.1 0.5 0.7 2.1 1.9 0.4

Less: Inter Segment Transfer 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Segment Revenue 274.3 312.2 268.0 256.4 143.0 308.1 329.9

Segmental Break-up 28.5 27.2 7.6 17.1 14.7 19.9 14.0

Solvent Extraction & Refining 27.0 25.6 7.1 16.4 12.6 18.5 14.2

Power Generation 1.5 1.6 0.5 0.7 2.1 1.4 -0.2

Interest 3.6 0.9 2.5 4.8 2.7 3.5 3.4

other un-allocable exp. (net) 0.0 0.0 0.0 0.0 0.0 0.0 0.0

PBT 24.9 26.2 5.1 12.3 12.0 16.4 10.6

Source: Company Data, KRC Research

Operating Profit & Net Profit

35 12%
30 10%
25
8%
Rs. Crore

20
6%
15
10 4%
5 2%
0 0%
Jun08Q

Sep 08Q

Jun09Q

Sep09Q
Dec08Q

Mar 09Q

Dec09Q

Operating Profit PAT OPM NPM

Source: Company Data, KRC Research

3 KRC Equity Research

Sanwaria Agro Oils Ltd.

Q3FY10 Result (Rs Crore)

Particulars Q3FY10 Q3FY09 y-o-y Q2FY10 q-o-q Comments

Improved Realizations from DOC and ref. soyabean
Net Sales 333.5 268.0 24% 309.0 8%
oil lead to increase in sales
Expenditure 318.0 262.7 21% 287.6 11%
Consumption of Materials / Purchase 302.7 239.6 26% 275.5 10%
(Increase) / Decrease In Stocks -5.6 -1.1 389% -9.6 -42%
Staff Cost 1.0 0.9 12% 0.9 11%
Other Manufacturing Expenses 0.0 9.5 0.0
Other Expenditure 19.9 13.8 44% 20.8 -5%
Operating Profit 15.5 5.3 190% 21.4 -27% Improved realizations increased operating profit
Other Income 0.0 3.7 0.0
Interest 3.4 2.5 37% 3.5 -3%
Depreciation 1.5 1.4 7% 1.5 2%
PBT 10.6 5.1 107% 16.4 -35%
Provision for Tax 1.3 1.7 -23% 2.3 -45%
Lower tax provisioning and better operating
PAT 9.3 3.4 171% 14.0 -34%
leverage improved net profit
EPS 0.5 0.2 171% 0.8 -34%

Margins
OPM 4.6% 2.0% 266 bps 7% -226 bps
EBIT 3.2% 1.9% 127 bps 5% -213 bps
NPM 2.8% 1.3% 151 bps 5% -176 bps

Source: Company Data, KRC Research

4 KRC Equity Research

Sanwaria Agro Oils Ltd.

Annexure

De-oiled Cakes (Rs./Tonne)

25000
DOC Prices (Rs./T)

20000

15000

10000
Jul

Aug

Nov
Feb

Sep
Apr
Jan

Jun

Dec
May
Mar

Oct
2008 2009 2010

Source: Bloomberg, KRC Research

Ref. Soybean Oil Prices – Spot (Rs./MT)

750

700
Ref. soyabean oil (Mumbai)

650
600

550
(Rs./T)

500

450
400

350

300
Jul

Aug

Nov
Apr
Feb

Sep
Jan

Jun

Dec
May
Mar

Oct

2008 2009 2009

Source: Bloomberg, KRC Research

5 KRC Equity Research

Sanwaria Agro Oils Ltd.

Rajiv Choksey Co-Head Institutional Equities rajiv.choksey@krchoksey.com +91-22-66535135

Anuj Choksey Co-Head Institutional Equities anuj.choksey@krchoksey.com +91-22-66965500

Maulik Patel Head Research maulik.patel@krchoksey.com +91-22-66965574

SAOL RatingLegend

100 Our Rating Upside

90
80 HOLD
70 HOLD HOLD
Strong Buy Morethan25%
60
50 Buy 15%-25%
40
30
20
Hold 10%-15%
10
0 Reduce Nil–10%
Nov-09
Jan-09

Jun-09

Jul-09

Jan-10
Feb-09

Mar-09

Apr-09

May-09

Aug-09

Sep-09

Oct-09

Dec-09
Sell Lessthan0%

Other Stocks in the sector under our active coverage: FMCG

Ticker Company Recommendation As of Return Bmk Outper BARR

CLGT IN Colgate-Palmolive India Ltd reduce 11/03/09 14.46% 30.01% -15.55%

NEST IN Nestle India Ltd hold 11/03/09 0.00% 25.61% -25.61%

TT IN Tata Tea Ltd buy 10/29/09 67.11% 39.40% 27.70% 2nd

SKB IN GSK Consumer Healthcare Ltd hold 10/26/09 13.45% 71.22% -57.77%

ITC IN ITC Ltd hold 10/23/09 10.51% 17.69% -7.18%

SAO IN Sanwaria Agro Oils Ltd hold 10/15/09 188.15% 188.15% 0.00% 1st

RDSD IN Riddhi Siddhi Gluco Biols Ltd hold 08/12/09 -60.85% 31.00% -91.86%

HUVR IN Hindustan Unilever Ltd hold 07/30/09 0.00% 1.29% -1.29%

6 KRC Equity Research

Sanwaria Agro Oils Ltd.

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7 KRC Equity Research