Tuesday, January 24, 2012

Umang Dairies - reaffirm among my top 10 investment buys

GOT MILK ? 
Umang Dairies ( cmp 32.2 +10% upper Circuit) posts great results again.
YoY Revenues up 1.2x, EBITDA up 8x, PAT up 25x 
Stock seems all set to retest recent lifetime highs of 43 made in 3 Nov 2011 and seems to be a good 2x multibagger potential from these levels. Details below
Had first posted Umang Dairies on watchlist in 8 Aug 2011 when it was 17 and broke above 200 DMA.Finally one month later,rated an investment buy at 25.Post here.

It crossed it previous high of 30 and made lifetime /all time highs.Touched 43 on 3 Nov 2011 and then saw a sharp correction to 22 on 20-Dec-2011. ( took support at 22 =200 DMA).No clear reason for the sharp correction but it seems collateral damage due to promoter manipulation and SEBI issues with another dairy stock KWALITY DAIRY affected the sentiment. Kwality Dairy fell from 180 to 30 in ~ 1 month. It was also held by some India Consumer ETF`s.
Okay now , GOT MILK ? 
  Umang Dairies Q3 Dec`11 ending results vs YoY same quarter last year.
  • YoY Revenues up 118%
  • EBITDA up 692%
  • EBITDA margin at  10.2% vs 2.8%
  • PAT up 2426% or 25x
Umang Dairies Seq. QoQ i.e Q3 Dec`11 vs Q2 Sep`11
  • YoY Revenues up 118%, EBITDA up 175%, PAT up 233%,EBITDA Margin at 10.2% vs 8.1%
Umang Dairies 9 Months Dec 2011 vs 9m Dec`10
  • YoY Revenues up 94%, EBITDA up 467%, PAT up 2927% i.e 30x ,EBITDA Margin at 9.4% vs 3.2%
Management attributes key reasons for stellar results to due to increase sales of branded products.
Results snapshot below ( click to zoom)

For past results and relevant news,refer here
  • Milk Macro - CRISIL says India will continue to see milk deficit for next 5 years.
  • Crisil says “Milk prices are expected to continue their upward trend over the next three to five years as domestic demand for milk and dairy products is expected to outpace supply.” 
  • The demand for milk and value-added dairy products in the domestic market has been growing at over 6 to 8 per cent per annum because because of increasing income, rising aspirations and consequent growth in per capita milk consumption.
  • CRISIL, however, believes that growth in milk production will continue to lag at around 4 to 5 per cent per annum over the next five years
  • CRISIL report release here  ( .doc opens in google docs)
  • As per WPI available data in Nov`11,milk prices was up +11% YoY. But since Nov`11, retail milk prices have been hiked by 20% to 35% in most states. So milk inflation is poised to say in double digits for 2012. Retail milk prices are at all time / lifetime highs.
  • Milk sector could see M&A by new entrants such as Jaypee Group,Reliance,MNC Danone. News here
  • Promoter holding at highest level of 75%
  • Peer Sector Relative valuation shows UMANG DAIRIES best of the lot.
    • Comparison with listed peers Hatsun Agro (Arun Ice creams),Heritage Foods,Milk
    • Vs sector average debt to equity of 3.4x ,UMANG has ZERO debt.
    • Vs sector average PE of 23x,Umang is trading at PE of 6.5x or discount of ~70%
    • Vs sector average EV/EBITDA of 16x,Umang is trading at EV/EBITDA of 5.5x or ~65% discount.
    • Vs. sector latest quarter EBITDA Margin of 6%, Umang has the HIGHEST margin of 10.2%
    • Umang is trading at PSR of 0.47.
    • Summary in below table ( click to zoom)

  • Technicals -  
    • YTD 2012 performance +40% vs Sensex +7%. 
    • 1 year performance +114% vs Sensex (-13%). 
    • Up 8x from Mar`09 low of 4.2
    • Stock at 32.2 firmly above 200 DMA of 24  and 50 DMA of 27.
Annotated Chart below
  • Umang Dairies all set to post all time high revenues and profits in FY12. 
  • So stock should see re-rating as a growth stock i.e a play on domestic retail consumption + Food Inflation hedge.
  • Target - 100% upside  / 2x from these levels or 60 target in one year.
Disclosure - I hold Umang and intend to buy more.

2 comments:

Anonymous said...

Umang has negative book value

Anonymous said...

Umang Dairies had Negative Book value to due to past debt default and restructuring.
Latest Dec`11 quarter,Networth is positive as per Mgmnt Note.
“The investor of today does not profit from growth of yesterday”- Warren Buffet.
Similarly,future Earnings growth and future valuation ratios are more imp.than past.
What about other positives on Umang? No comments ?
I`m used to see negative comments on such picks.Promoter could be chor,Accounts could be fudged. Well my response,same thing applicable for any large cap.
~ The Fixer