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Thursday, 10 August 2017

Kwality Ltd: Quality Multibagger for Long-Term

Kwality Ltd: CMP: 139, P/e: 17, Industry P/e: 56.32, P/bv: 2.94, Dividend Yeild: 0.07%


About Company: 

Kwality Dairy (India) (KDIL) India’s premier dairy foods company, focuses on building leadership positions in branded and added value markets across the dairy sector. KDIL specializes in the storage of milk and related products.

KDIL is ideally situated in the city of Faridabad, in the state of Haryana in Northern India. With a distance of around an hours drive from Delhi, KDIL operates from six and half acres of complex. Located in a milk rich belt of India, the company follows a well-formulated and comprehensive strategy for the procurement of milk on a daily basis.

It has the most ultra modern State of the Art Dairy Machinery and have incorporated the latest technology to provide its customers the best in India and abroad .To ensure the best quality KDIL has procured dairy design and key equipment from Alfa Laval India Ltd (Tetra Pack Group) with design back up from APV Anhydro Pasilac AS Denmark.


The plant has a capacity of processing 4,50,000 litres of milk per day and with its ongoing expansion programme is soon going to be increased by another 4,00,000 litres per day. The plant has a ghee  capacity of 1000 Mt per month. The people at KDIL are clearly focused on quality, efficiency and continual improvement. Each function has been designed with our customers' interests in mind. By improving our own processes, services and products we transfer advantages to the people who use our products. 
KDIL specializes in the storage of milk and related products. The temperature in the warehouse remains at -1°or below, which is ideal for its storage. An identifying number is assigned to each load as it arrives at our dock. As it is moved to a specific location for storage, it is assigned a locator or row number.
It has supplied its goods and won appreciation from renowned companies like Nestle India Ltd, Hindustan Lever and Mother Dairy, Vadilal Industries Ltd and Smith Kline Beecham to name a few. The company also exports its products to various countries. With quality, integrity and technology being the hallmark of its growth the company is today perfectly poised to face all challenges and obstacles and strive for greater success in the years to come.

Their business philosophy is simple: Serve the needs of the customer by providing them Kwality products.
In 2010 KDIL launched 'Dairy Best Ghee'
In 2012 Kwality Dairy Launched new dairy products - Paneer, Curd & Milk.

Product range of the company includes:
  • Skimmed milk powder 
  • Whole milk powder 
  • Dairy whitener 
  • Dairy mix 
  • Ice cream mix 
  • Ghee
Achievements/ recognition:

ISO 9001-2000 and HACCP certified company

Financial & Growth Standings:  


Market Cap:       3314

Growth Aspects:
Sales Growth:    TTM 7%, 3 Yrs 16%, 5 Yrs 29%
OPM Growth:    TTM 7%, 3 Yrs 7%, 5 Yrs 7%
PAT Growth:      TTM 14%, 3 Yrs 14%, 5 Yrs 26%
NPM%:                 TTM 3%, 3 Yrs 3%, 5 Yrs 3%
Div. Growth:      3 Yrs 5%, 5 Yrs 3%

Valuation Aspects:
P/e:       TTM 20.2, 3 Yrs 9.2, 5 Yrs 17.5
P/b:       2.94

Financial Aspects:
ROE:      TTM 21%, 3 Yrs 29%, 5 Yrs 39%   
ROCE:    TTM 17%, 3 Yrs 18%, 5 Yrs 19%
CWIP:    TTM 195 Cr., 3 Yrs 335 Cr., 5 Yrs 344 Cr.
D/E:       TTM 1.8, 3 Yrs 2.1, 5 Yrs 2.6

Misc:
Dividend Yield: 0.1%
PEG:                      0.55
Earnings Yield:   8.49%

Positive: 

  • Low P/e compared to Industry and Peers
  • High ROE
  • High  ROCE
  • D/e: reducing YoY and historically
  • Sales growth YoY and historically
  • PAT Growth YoY and historically
  • Operating margins improving YoY and historically

Negative:  

  •  Although p/b is lower compared to peers but high at 3
  • Dividend yield less compared to peers
  • Although company investing actively, but debt is high now
  • Net profit Margins need to improve
  • Interest paid in High 
 Key Highlights: 

  • Kwality got a good client base
    • Nestle India Ltd.
    • Hindustan Lever Ltd.
    • Metro Dairy (Kolkata)
    • Mother Dairy (Kolkata)
    • Vadilal
    • Cadbury's
    • Mother Dairy (Delhi)
    • Parle Products Pvt. Ltd
    • Britannia
  • Capital Infusion in march 2016 is Trice to the Fixed Assets
  • Company launching new products YoY
    • Rasgula Tin (400 gm) (Sugar Free)
    • Gulab Jamun Tin (400 gm) (Sugar Free)
    • Fresh Paneer (200 gm & 400 gm)
    • Fresh pasteurized milk in poly packs
    • Flavored milk
    • Malted foods
  • Company aims to increase the share of retail sales to 70% from a current 32% of its turnover in 3-4 years.
  • Migration of B2B to B2C segment
  • With enhanced focus on B2C, Company aim to launch 10-12 variants of value-added products such as UHT, Flavoured milk, paneer, cheese, table butter, cream and yoghurts, amongst others over the next 12-18 months.
  • The dairy industry outlook is promising with Indian dairyconsumption expected to surpass production by 2021. The dairy industry in value terms is growing at a healthy rate of 15% year-on-year. The organised sector is expected to grow at a CAGR of 19.5 % during 2015-2020 as against 13.2% for the unorganised sector during the same period
  • Kwality has undertaken an expansion plan at its plant location at Softa, Haryana which will result in increase in the production capacities by 9.0 lakh litres/day.
  • To enhance international presence and expand to newer geographies, Kwality established its 100% subsidiary, Kwality Dairy Products, FZE (KDPF) at Jebel Ali Free Zone, Dubai.
  • The subsidiary imports the dairy products from India,Australia, New Zealand and Eastern European Countries including Turkey, Ireland, Holland, Poland and Ukraine, New Zealand which are sold both domestically and exported to GCC, Middle East, Far East, Bangladesh, China, Thailand and Africa, among others. In 2015-16, the Subsidiary clocked revenue of ` 6,902 mn with a profit of  294 mn. 
  • Company aim to increase our direct procurement share from the current ca. 20% to ca. 50% on back of continued expansion of our existing farmers network.


 
 


CONCLUSION:

  Considering the Financial performances, New products, Scope of Growth, Expansion plans, We strongly believe that Kwality Ltd, is a best stock for Long-Term investment, considering the present valuation in comparison to peers.


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