CHHOTA (to) MOTA ideas: Venky's (India) Ltd - BUY - TP Rs.2150 - Kotak

Venky's India suffered a five-year stagnation/ decline in earnings through FY11-FY15, as a result of weakness in gross margins (a result of a demand-supply mismatch in poultry) as well as significant capex (higher interest expenses) in the midst of the demand slowdown. Since FY15/16, measures taken by the industry to correct the supply-demand mismatch in poultry have begun to impact chicken prices positively. In addition, the company also stands to gain from external factors - such as restrictions on cow slaughter and decline in raw material prices (soya prices down 30% y/y as of May, corn prices down 10%). We project 42% CAGR in earnings through FY17-FY19; expect significantly improved return ratios and reduction in debt, going forward, which builds a case for greater investor attention/ re-rating. Near-term (FY18) earnings visibility is high, especially following sharp rise in poultry prices already witnessed in 1QFY18. On a two-year investment horizon (assuming trailing multiples sustained), we believe Venky's stock could potentially double, on high likelihood of strong gross margins running through to FY19. BUY, with a March'18 price target of Rs 2150 (~15x FY18E PER).

Shares of VENKY'S (INDIA) LTD. was last trading in BSE at Rs.1692.1 as compared to the previous close of Rs. 1623.85. The total number of shares traded during the day was 137880 in over 10132 trades.

The stock hit an intraday high of Rs. 1730.1 and intraday low of 1633. The net turnover during the day was Rs. 233462565.

Source : Equity Bulls

Keywords