|KS Oils : Reco Price Rs. 72.50 CMP: Rs.80.55|
|At the CMP of Rs 72.50, KS Oils is trading at commodity valuations of EV/Sales of about 1.6x and EV/EBITDA of abou 14.9x its TTM Sales, which is extremely low compared to its peers in the FMCG industry
KS Oils Ltd is the one of the reputed players in the domestic edible oil industry with major presence in Mustard Oil. It is the largest Rapeseed crusher in the country with largest crushing capacity of 1225 MT/day in India. Its manufacturing facilities have close proximity to raw materials and consumption markets i.e. Rapeseed growing and Mustard Oil consuming regions of Madhya Pradesh and Rajasthan.
This provides the company an edge over its peers by ensuring uninterrupted raw material supply and ready market for its products. KS Oils earns majority of its revenues from Crude Mustard Oil (otherwise known as Kachhi Ghani Mustard Oil, which has special preference in cold regions of India – North, East and North-East. KS Oils through its Double Sher and Kalash brands of Mustard Oil dominates the North-Eastern region with 50% market share.
After the recent expansion, the Company’s total installed capacity stands at:
The Company operates through three divisions, namely:
We are extremely bullish on the domestic packaged edible oil sector in general and companies like KS Oils in particular. We like KS Oils for the following compelling reasons:
Capacity expansion to fuel volume growth – KS Oils may go for inorganic growth or setting up Greenfield projects in order to capture increased market share. At the same time it may increase its capacity utilizations. The company has created a war chest of Rs 650- 750 crore which will be used to fund capacity expansion in new projects, acquisitions as well as the company’s foray into the exciting wind power generation. Its expansion plan includes five plants out of which three are located in Madhya Pradesh and the other two in Rajasthan. The company expects to commission the projects over the next 24 months. The expansion will add 4000 tonnes per day to the company’s oil seeds crushing capacity — 3000 tonnes per day in solvent extraction and 1000 tonnes per day in refining.
Transition from loose oil player to branded player – With strong brands under its fold, KS OILS has ascended from manufacturing & selling loose oil to manufacturing & selling branded oil in bulk and retail packs. Branded sales are likely to increase with higher contribution in revenues from small retail packs. The management’s vision to become a Rs3000 crore company in next three years by increasing the share of its branded products would enable it to exercise pricing power as well as command higher margins compared to
Edible Oil sector at crossroads – Indian packaged edible oil industry is expected to continue its high growth rate due to lower per capita consumption of oil, rising population, increasing disposable income from buoyant economic conditions, growing health & hygiene awareness promoting demand for packaged products and a boom in organized retail fuelling demand for branded products.
Economies of scale – KS Oils with its huge capacities and world class state of the art plant benefits from economies of scale as well as has an efficiency of more than 33% compared to other crushers. This improves its profitability from increased operating efficiencies. Diversification into bio-diesel business – KS Oils with spare capacities at its disposal plans to foray into lucrative high margin bio-fuels and palm plantation business in near future, placing it on a different growth trajectory.
Key Developments and Impact
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