Venky’s India: A Stark Contrast To Blackburn Rovers, The Club Its Promoters Own

I don’t normally write on a specific stock, but thought I will make an exception here. That exception is only because this isn’t really an opinion piece, but a collection of notes and opinion that I got from other people and brokerage houses. That’s made this pure vegetarian write a piece on the performance of one of India's leading poultry players, Venky’s (India) Ltd. I also don't follow football, but yes, Venky’s India promoters own the Blackburn Rovers Football Club, which has not been doing well.

There are apparently some strong points in the company’s favour. The stock has delivered an 18 percent compounded annual growth rate (CAGR) since listing. Most of the gains have come in the last 12 months and the signs seem to be strong for the near term.

But that only led the stock to trade at sub-average valuations. After the run up that we have seen in the last five sessions, the stock trades at par or slightly above long-term valuations.

The company is improving not just on the sales and margins front, but also on its balance sheet, reducing debt by Rs 200 crore in the financial year that ended in March 2017. The EBIDTA margin moved up to 11 percent in FY17 from 6.4 percent a year earlier. Brokerages such as Kotak Securities expect a sharp jump in earnings in FY18 and FY19, with estimates pegged at more than 40 percent CAGR in earnings. Benign raw material prices, robust poultry prices, conclusion of peak capital expenditure and reduction in debt contributed to this optimism.

Can the promoters do with the company what they couldn’t do with Blackburn Rovers? Silly question, because while the run up in the stock is for all to see, the uphill climb for Blackburn Rovers is even steeper than the stock’s rally.

Niraj Shah is Markets Editor at BloombergQuint.