Venkys: A value Investing story

 The Company is in poultry sector that includes production of 

• SPF eggs (primarily used in vaccine making), 
• chicken eggs processing, 
• animal health products, 
• Poultry feed & equipment, 
• soya bean extract and many more. 
• The Company sells its product primarily in India. 

SPF is Specific Pathogen Free eggs. In Oder to produce an SPF poultry flock one has to select pure lines on the basis of characteristics like disease resistance, egg shell quality, feed intake, superior production and maximum livability. These birds are then cleaned for any type of disease for three generations. This process take 6-7 years. So producing these kind of egg is very rare and its only done by this company in India. They produce this egg at half the price of world.

Apart from this they supply chicken and egg to Quick service restaurant like KFC in India. They also supply to 5 star restaurant in India. Normally poultry is unorganized sector in India. As time passes and per capita income of India increases protein consumption will increase. Protein consumption comes from soya bean but in same area protein production from chicken can be of 5 times. This company has great monopoly due to its technology advancement. They call themselves as protein production house.

Currently company margins are suffering due to disrupt supply chain due to Covid. The maize and soya price which is its raw material is seeing sharp rise in price. But according to management India is importing soya bean and in September 1st week soya crop will be ready to cut. So as soya supply will increase these prices will go down. As raw material price will go down we will see rise in margin of business. 

Company has done all capital expenditure, now they will utilize their available capacity to grow the production. 

Some important data's of this company includes.

• Company has good book value of 784. 
• They have shown sales of 14% CAGR for last 10 years. 
• They have shown profit growth of 14% CAGR.
• Recently it has achieved ROCE of 30%.

According to buffet we should look for company which has big moat and has competitive advantage. A company should be market leader. A company should be slow growing boring industry. Dividend sharing is less than 10% of earning. Continuous growth of cash flow from operating activities. last year it produced 2420 million of cash.

From last quarter FII and DII are increasing their share. Promoter has 56% of share. Its founder is awarded with 4rth highest civilian award in India for his work in poultry sector.

The technology they have in this field is great moat. As poultry business is very risky business. When you deal with poultry industry if you are not able to sell your product at right time your birds will die and hence huge losses. So running those business require high level of intelligence needed which can only be acquired by experience which they have.

India is a protein deficient country and the Company, being in the business of poultry, strives to provide protein rich sources of food at affordable prices. This is the foregoing objective of the Company resulting in promoting wellbeing of the society. This initiative will help them to improve ESG value too.

It is a known fact that the vast gap between India’s per capita consumption (79 eggs and 4.5 kgs of meat prior to outbreak of Covid-19 pandemic) and National Institute of Nutrition (NIN) recommended level (180 eggs and 11 kgs of meat) offers high potential for the growth of poultry industry for the next two decades or so. The industry’s growth rate is expected to resume once the normal life returns. This gives immense growth opportunity for this company as market leader.