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Multi Baggers

Aashish Tater

12.00 AM Jul 21st 2015

EID Parry

BSE ID : 500125     NSE ID : EIDPARRY

RECOMMENDED PRICE 153.60

PEAK FROM RECO 313.50 104.10%

CURRENT PRICE 307.90 100.46%

EID Parry is one of the flagship companies of South based Murugappa Group. The largest sugar producer in South India and is one of the top five sugar producers in the country. We recommend this stock to BUY at Rs 153.60 with a target price of Rs 240.

EID Parry (India)

Sugar Sector is soon going to be sweet for Southern Players.

UP sugar mills have been cutting down production and moving to ethanol because of operational inefficiencies where as Sugar Companies are doing well in south despite sugar price trades at multi year lows.

The realizations is set to go up for South Based sugar mills and we expect outperformance from Bannari Aman and EID Parry which are relatively insulated due to a better efficiency ratios compared to its peers.

The Big Bet: EID PARRY is available at a market cap of 2700 crores. The company is sitting on 60.83% stake in Coromandel International worth 4250 crores.

The company also has other investment in subsidiaries which will augur well for company in the long term.

EID PARRY has three division and all are expected to deliver better margins going ahead.

For Sugar & Allied Divisions: Realizations Recovery efficiency has gone up yo-y for last year company did 9.84% of recovery and for current year they did 10.1% which will go and stabilize around 10.41% for this fiscal.

Company recently launched branded sugar under a flgship name of VITA.

For Bio Pesticide Division there has been a de-growth last year, which we expect will again be on upswing a volume growth of ~5% for the year and company AZA and NEEMAZAL brands together for the division will clock 100 crore with EBITDA margin of appx 27% one of the highest in the industry.

Such unique high growth companies command EV EBITDA multiple of 8-9 times. This can be an additional trigger for the stock going forward. We expect the division to be worth 500 crs in 3-4 years from current 225 crores.

Nutraceutical Division: Global market has a huge potential pegged at 180 billion USD. EID division is doing business of just 73 crores last years. We sense the Nutraceuticals division will grow leap and bounds and would be soon clocking 100 crores. The focus on high margin is visible.

EBITDA margins in 2013 after take over was just 6% which has improved further to 21% ( even if one adjusts the forex loss it stands at 21% from previous year of 12%).

The scope of all the three divisions are bright. Murugappa group is a brand in South and there focus is shifting to Retail segment and Institutional sales where margins are roughly 12-14% more. The thrust on better product mix differentiate it from a regional sugar play.

If one goes by SOTP valuation of the three division the market cap of 2700 odd crore is justified . But if one adds EID Parry's investments in Coromandel and other investments the stock looks terribly underpriced. Once sugar sector comes into focus as it has been 5th year of underperformance and already UP mills are shutting down the capacity will definitely rerate companies with stronger foothold with slight change in fundamentals.

Other key trigger is clarity on ethanol. The more UP based mills shift to ethanol there will be transition for southern players as there will be demand mismatch. As per recent media reports too UP government has also asked companies to focus on ethanol. If there is duty cut on ethanol which is already proposed it will rerate sugar stocks from balance sheet perspective EID PARRY fits the bill.

About the Company:

EID Parry is one of the flagship companies of South based Murugappa Group. The largest sugar producer in South India and is one of the top five sugar producers in the country. The company has three Divisions Sugar Bio Organic and Nutraceuticals.

Sugar

E.I.D-Parry along with its subsidiaries has nine sugar plants spread across South India of which four are in Tamil Nadu, one in Puducherry, three in Karnataka and one in Andhra Pradesh. The Company has sugarcane crushing capacity of 34, 750 TCD and coegeration capacity of 146 MW across its sugar mills. The integrated sugar units have been designed to optimize process efficienecies, increase sugarcane recovery ratio and increase energy efficiency through reduced steam and power consumption.

E.I.D-Parry continues to be one of the low cost producers of international quality sugar, through its innovative process and farmer centric practices.

The Bio-Products Division of E.I.D-Parry is committed to helping farmers produce profitable agricultural produce through safe and sustainable agricultural inputs.

The Division has a state-of-the-art Azadirachtin manufacturing facility in Tamil Nadu, to produce Neemazal, an Eco-friendly botanical Bio-pesticide. The ISO-14001 certified manufacturing unit is the world’s largest Azadirachtin extraction plant.

Parry Nutraceuticals is a world leader in nutritional food supplements - the only producer of 100% Vegetarian Certified Organic Spirulina. It is the only one in the world to commercially produce three different species of micro algae on a large scale. Parry Nutraceuticals exports to over 38 countries, the main markets being North America, the EU, Japan, Korea, Malaysia, Russia, Australia and New Zealand.

Disclosure (SEBI Registration Number for Aashish Tater :  INA300001206)
 
Stock Ownership - No
Stock traded in Last 30 days ( No trading or investment activities done) - No
Stock Recommended to Clients - Yes
Remuneration/Benefits received from company in 12 months - No
Merchant Banking Market Making activities / projects - No
Any arrangement with co. to affect the report write up - No

Disclaimer: Aashish Tater is an investment adviser based in Kolkata, INDIA. At the time of writing this article, he, his firm and dependent family members have no position in the stocks mentioned above. The author invites readers to send him email and welcomes comments, feedback & queries at query@fortunewizard.com. This report has been prepared solely for information purposes and the information contained herein may not be deemed to be an investment advice. Such information is impersonal and not tailored to the investment needs of any specific person. The information contained herein is not a complete analysis of every material fact representing any company, industry or security. The views expressed may change. While the information contained herein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Investors are advised to satisfy themselves before making any investments and should consult with and rely upon their own advisors whether and how to use such information in making any investment decision. Neither the author nor his firm accepts any liability arising out of use of the above information/ article.

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