It's Chicken Season - Those who like MASALA join d party (An analysis of poultry sector)

1. Sector reports higher profits during festive season (Dec. and March) and share prices also high during this period.

2. I saw some people have stated these as JUNK stock. But they are definitely NOT JUNK as can be seen in the analysis.

3. One of the high growth sectors as consumption is expected to increase with the increasing per capita income.

4. Restrictive factor is the restrictions imposed by the government for the import of maze as a measure to encourage the local cultivation. Though last year this was seen as a restriction, now it has become a positive factor as all the companies have established out-grower networks. I think companies are now eager to develop these networks as respective farmers are their future consumers since the market growth in rural areas are higher as they have less access to fresh fish.

5. Prices of maize, the main raw material, ski-rocketed during Feb.2011-Aug.2011, as most of the cultivation were destroyed during massive floods in early 2011. But unlike in the past, all the companies reported significant positive results for the June and Sep. quarters as companies now has more control in raw material prices as they have established out-grower networks and they can now maintain buffer stocks in case of future disasters.

6. Share prices of poultry stocks came down significantly during last two quarters as earnings were less than expected, due to high prices of maize prevailed. But if similar crop disaster didn’t happened next year we can expect more profits from the sector, which will definitely reflect in the share prices.

7. Last year BFL started a modern farm in Puttalam, which is having a 10 year tax holiday. Company reported that they have harvested the first production during Sep. 2011. So we can expect better results in the future.

8. In estimating future share prices, I have calculated minimum price @ 10X PER and maximum price on 15X PER on last four quarters earnings. I think this is conservative as profits of the last two quarters were affected by higher maize prices due to crop loss which is unlikely to happen again and companies may have taken steps to face such a scenario by now (maintaining buffer stocks, etc).

9. One more positive factor in the chicken sector is most institutions and HNWIs has purchased these shares at very much higher prices. Ie: EPF bought GRAN at Rs.228/- and LAGFS bought above Rs.190/-. So people who are entering now definitely in a more advantageous position.


As user space restrictions, I have posted the analysis in the Research Sector.
Please visit and see the Excell Sheet.

http://research.srilankaequity.com/t179-it-s-chicken-season-those-who-like-masala-join-d-party

Good work,thanks for sharing.This is the way to discuss a share price rather than promoting a junk blindly.
I also collecting those gems these days,hope panic sellers will help me.

Thanks hariesha,

Good work

Good research.
I have just one question do u know whether the institutional buyers still hold the shares they purchased at high price?
I think this is the question we all should be answering...
Even if they hold who is again going to push the share price so high in the prevailing market conditions.

Most important thing is the tax for raw materials for chicken feed has gone up this year.

I think chicken farm stocks are going around 10 - 15 PER at the moment and it's a bit overvalued, in my opinion. You have to account for the off season as well as other chicken problems. If the profits go up in the December season then if you like to buy these shares then the best thing to do is avoid buying in the festive season and wait for off season time.

I don't think you can do the same trick so soon. It's not easy to forget your money get halved less than 12 months ago. If everybody buys at the current price expecting to sell at profits, who will buy it later from you.

Good one hariesha, thanks..

Marketinvest wrote:Good research.
I have just one question do u know whether the institutional buyers still hold the shares they purchased at high price?
I think this is the question we all should be answering...
Even if they hold who is again going to push the share price so high in the prevailing market conditions.

The players who didn't exit at the top still holding.

BFL
• ETF has increased their holding from 183,100 to 491,000 june 30th to sep. 30th
• Confifi Management Services is in the buying mode (A related company to chairman of BFL, at the peak of
the rally they were in the selling side)
• Peoples Bank – a new entrant to the top 20 list
• Several HNWIs has entered the top 20 list as new entrants

TAFL

• Philip securities, Perputual Capital and several HNWIs has increased the shareholding during june 30th to sep. 30th

GRAN

• EPF is increasing their holding and Laugf is still holding

*** BFL, TAFL and GRAN no of issued shares are very less compare to their organizational size. BFL only 16M issued shares, TAFL only 23M and GRAN 60M. So the price movement is easy. See the last week and current week price movement. Lot of GRANs were traded between 107-114 last week. Look at month to date high of GRAN 116. Now 95-96. It's 20% gain even in dull month. If GRAN prices didn't move by 31st EPF is reporting more than 50% loss for the investment.

*** In last Jan. these shares had fundermental value for the prices traded. But due to crop disaster, earnings were reduced. Now that impact is over. If market sentiments got changed people who are investing now will get more than 80% return may be within less than a month. I strongly feel these shares will give at least 20% return by year end.

hasi17 wrote:Most important thing is the tax for raw materials for chicken feed has gone up this year.

I think chicken farm stocks are going around 10 - 15 PER at the moment and it's a bit overvalued, in my opinion. You have to account for the off season as well as other chicken problems. If the profits go up in the December season then if you like to buy these shares then the best thing to do is avoid buying in the festive season and wait for off season time.

I don't think you can do the same trick so soon. It's not easy to forget your money get halved less than 12 months ago. If everybody buys at the current price expecting to sell at profits, who will buy it later from you.

** I have discussed the tax case in my study. In last year it had an impact. But now it's not. Because maize crop of Sri Lanka has gone up drastically, and growing continually. All the chicken companies (even unlisted firms) are with grower networks with buy back agreements. So import tax is not relevant now, and companies are with plans for buffer stocks.

** Actually lot of people took these import restrictions on negative note last year. Even I was bit upset as this is one of my favorite sectors in investing. But it's a very good policy decision by the government, as now our maize growers has gone up by about 50%. Even NE farmers are joined in the cultivation of maize. Growth of income of rural community is highly favorable for chicken companies. So it’s a highly commendable decision by the government.

** Your last point is against the fundamental mechanism of share trading. So it's simply irrelevant. If I am answering who will buy when prices go up, “It’s the people who didn't buy when prices are low". When the market is not performing lot of people are not investing. But when it's start to move up, day by day people are coming in. So people who invest in depressed conditions will make profits.

** PER of 10-15 is a very low PER for the chicken sector. One is this PER is based on high maize prices with a crop disaster, and with off season results. Things will change with next quarter results, but then it’s good time to sell not to buy. But if you look at the long term, prospects are very high. Look at the growth in tourism.

Point no.3 is bit questionable?

Is increased per Capita income distributed among population for higher consumption?
Is not that per Capita income abnormally pushed due to unequal revenue distribution absorbed by 5% elite group.

Please comment...

hariesha wrote:

hasi17 wrote:Most important thing is the tax for raw materials for chicken feed has gone up this year.

I think chicken farm stocks are going around 10 - 15 PER at the moment and it's a bit overvalued, in my opinion. You have to account for the off season as well as other chicken problems. If the profits go up in the December season then if you like to buy these shares then the best thing to do is avoid buying in the festive season and wait for off season time.

I don't think you can do the same trick so soon. It's not easy to forget your money get halved less than 12 months ago. If everybody buys at the current price expecting to sell at profits, who will buy it later from you.

** I have discussed the tax case in my study. In last year it had an impact. But now it's not. Because maize crop of Sri Lanka has gone up drastically, and growing continually. All the chicken companies (even unlisted firms) are with grower networks with buy back agreements. So import tax is not relevant now, and companies are with plans for buffer stocks.

** Actually lot of people took these import restrictions on negative note last year. Even I was bit upset as this is one of my favorite sectors in investing. But it's a very good policy decision by the government, as now our maize growers has gone up by about 50%. Even NE farmers are joined in the cultivation of maize. Growth of income of rural community is highly favorable for chicken companies. So it’s a highly commendable decision by the government.

** Your last point is against the fundamental mechanism of share trading. So it's simply irrelevant. If I am answering who will buy when prices go up, “It’s the people who didn't buy when prices are low". When the market is not performing lot of people are not investing. But when it's start to move up, day by day people are coming in. So people who invest in depressed conditions will make profits.

** PER of 10-15 is a very low PER for the chicken sector. One is this PER is based on high maize prices with a crop disaster, and with off season results. Things will change with next quarter results, but then it’s good time to sell not to buy. But if you look at the long term, prospects are very high. Look at the growth in tourism.

quite impressive, excellent post.

worthiness wrote:Point no.3 is bit questionable?

Is increased per Capita income distributed among population for higher consumption?
Is not that per Capita income abnormally pushed due to unequal revenue distribution absorbed by 5% elite group.

Please comment...

When a country is growing it's natural to see elite is growing and gap is widening. You see wealth of businessmen few years back and now, their wealth has heavily increased. Because more the opportunity they will invest. More they invest more they will grow. This is simply what is happening. But we can't say poor are not getting anything. Actually in our country number of poor people are reducing. We can understand by look at political beneficiary schemes. Few years back "SAMUDHI" and "JANASAVIYA" were a big programs. But now no political party is promoting such things. Simply because, no market for those. Reason is growing middle class.

Why Marxist parties had lot of defeats in recent elections in Sri Lanka. Their market (voter base) has reduced and becoming insignificant day by day.

Look at the way clothing outlets and other retail supermarkets are growing outside Colombo. They are not just opening outlets to show off. They have seen the demand and catering to the market.

Clearly the middle class is growing. That is visible every ware. They are the real market. Opportunity is there. More people will join middle class day by day. Some may become elite, depending how they tap the opportunity. See the famous investor deleted, now and elite. Was he there some time back?

I have seen lot of people have read the article, but only very few have seen the excel analysis at the bottom. I can see very few downloads. But that's what readers should look at.

Quite good...

Also I'd like to highlight that the best option as I see is to take the last 2 qtrs and annulise it for the analysis not taking the Dec 2010, March 2011 quarters. The reason is their annual year falls on March qtr.

Now we have 2 qtrs for 2011/2012 FY so the results could be good around December qtr too due to increased consumption on X'mas time..
Another note is there's chance ppl going for Chicken at the cost of vegitable due to the problems faced last week in vegi market.. well its only gonna be momentarily increase if so

good one, thnkx 4 sharing

Hariesha thanks a lot for sharing a valuable document.
Good work.
You are a gem.
Keep it up.

Good work thax.

I'm going through the last quarter results. I don't think there was anything significant happened between the quarters or disasters. Only thing that would change this quarter is the sales would slightly go up. It's not like we only eat chicken for festivals.

Last quarter

Revenue increased by 1%

Costs all gone up
Cost of sales up 10%
Distribution Costs up 36%
Admin expenses up 28%

Hmm, other income down by 55%

I heard the chicken feed costs 40 - 50% from the expenses. Local grain produce is around 40 - 50% of the requirement but say the quality is bad. And the import taxes gone up. Rupee depreciated. Costs go further up.

So I believe this quarter growth will be average only helped by the festive season luck. Heh, I guess the profits could go down comparable to last Dec quarter.

Whatever happens, there will be a Profit, big or small made by stockholders.

bePositive wrote:Whatever happens, there will be a Profit, big or small made by stockholders.

bePositive way....every time be postive !!!