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Sanwaria Agro Oils Equity Research

HomeCompanySanwaria Agro Oils Equity Research

Date of Research – 21 January 2016

Price – Rs. 5.06

About the Company

Incorporated on 22nd April, 1991, Sanwaria Agro Oils Limited (“Sanwaria” or the “Company”) is an integrated agro food processor and an emerging FMCG company engaged in the business of manufacturing of soy oil, soy cake and other FMCG products.

The Company’s lines of business include:

► Seed processing and Solvent Extraction

► Producing and selling Soy meal (De-oiled cakes), basmati rice and wheat flour in domestic and international markets

► Refining of crude Soy oil to produce refined Soy oil

► Distribution and sale of bulk and branded Soy oil

► Trading of other agro commodities like Wheat, Gram & Pulses etc

The Company’s brand includes ‘Sanwaria’ ‘Sulabh’, and Narmada. Sanwaria exports about 65% of its production of soy meal.

The Company has tie up arrangements with retail chain/malls like Hariyali Kisan Bazar (DCM), Reliance fresh, Pantaloon (Big Bazaar), ITC Choupals, and Vishal Retails etc.

Key Financial Figures

Standalone (Rs. Cr)
Particulars FY 2012 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 1,420.43 2,472.67 2,662.53 2,707.21  3,526.19
Expenses 1,364.66 2,302.92 2,570.45 2,588.35  3,401.85
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 55.77 169.75 92.07 118.86  124.34
Depreciation 6.72 87.98 6.64 7.93  7.27
Finance Costs 28.06 50.50 53.01 71.01  66.91
Other income – 
PBT 20.99 31.28 32.42 39.92  50.16
Tax 2.52 7.21 7.39 5.83  6.18
Extraordinary Items 18.42
PAT (before Minority Interest and share of Associates) 18.48 24.07 25.03 15.68  43.97

Profitability Analysis

Standalone (%)
Particulars FY 2012 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 3.93 6.87 3.46 4.39  3.53 
Net Profit Margin Ratio 1.30 0.97 0.94 0.58  1.25 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2011 FY 2012 FY 2014 FY 2015 FY 2016 
Share Capital 34.81 34.81 34.81 34.81 34.81 
Reserves & Surplus 200.16 220.70 244.77 269.80 285.48 
Share Application Money 50.00
Net worth (shareholders funds) 234.97 255.51 279.57 304.61 370.29 
Long term borrowings 28.25 404.73 37.37 46.30 9.34 
Current liabilities 524.78 309.08 1,001.05 1,055.17 1,080.12 
Other long term liabilities and provisions 6.97 0.20 0.20 0.20 
Deferred Tax Liabilities 16.78 16.06 15.51 16.74 
Total Liabilities 811.75 969.32 1,334.25 1,421.79 1,476.70 

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2011 FY 2012 FY 2014 FY 2015 FY 2016 
Fixed Assets 125.91 131.59 104.87 135.35 114.23 
Noncurrent Investments 5.02 5.04 36.22 36.30 36.30 
Current assets 669.11 832.69 1,179.89 1,233.09 1,305.97 
Long term advances and other noncurrent assets 11.70 13.28 17.05 20.20 
Total assets 811.75 969.32 1,334.25 1,421.79 1,476.70 

Efficiency Analysis

 
Particulars FY 2011 FY 2012 FY 2014 FY 2015 FY 2016
ROCE 21.19 25.71 53.56 26.24 31.31
ROE / RONW 7.86 9.42 8.61 8.22 4.23

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Standalone
Particulars FY 2012 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 1,420.43 2,472.67 2,662.53 2,707.21  3,526.19 
Growth (%) (10.71 %) 74.08 % 7.68 % 1.68 %  30.25 % 
PAT (Rs. Cr.) 18.48 24.07 25.03 15.68  43.97  
Growth (%) (65.42 %) 30.25 % 4.01 % (37.36 %)  180.44 % 
Earnings Per Share – Basic (Rs. ) 0.53 0.69 0.72 0.98  1.19 
Earning Per Share – Diluted (Rs. ) 0.53 0.69 0.72 0.98  1.19 
Price to Earnings 53.87 9.91 9.58 6.24  12.56 

Dividend History

The Company has not declared any dividend over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Sanwaria Agro Oil’s average current ratio over the last 5 financial years has been 1.52 times which indicates that the Company is comfortably placed to pay for its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high long term debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Sanwaria Agro Oil’s average long term debt to equity ratio over the last 5 financial years has been 0.43 times which indicates that the Company operates with very low level of debt and is placed well to withstand economic slowdowns.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Sanwaria Agro Oil’s average interest coverage ratio over the last 5 financial years has been 3.46 times which indicates that the Company can meet its debt obligations without any difficulty.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Sanwaria Agro Oil reported a promoter holding of 71.68 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 0.00 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

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