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Thursday, March 12, 2009

Jhunjhunwala Vanaspati:-Another blockbuster in the making

Scripscan:JVL Agro Industries Ltd
Traded in:NSE-BSE

Introduction:Jhunjhunwala Vanaspati is engaged into the business of manufacturing vanaspati ghee and refined oil.

Why i like the counter.Just consider:-

The company is the largest single unit vanaspati maker in India today.It is the market leader in Uttar Pradesh and Bihar ;its products are available across 11 states.The penetration of the vanaspati industry is approximately 15% at an all-India level, leaving a huge market to be tapped.The growth of the industry is directly related with the growth in population and there is ample scope of further expansion.Its brand 'Jhoola' which is a household name in Bihar and U.P has been selected as the Fastest Growing Vanaspati Brand and has received Globoil Gold Award.The products are sold in packing of 200 ML, 500 ML, 1 Lt.,in pouches and 2 Lt.,5 Lt., 10 Lt. and 15 Lt. tins, jars.

The production of vanaspati ghee is much lesser compared with the demand in the country. The medium-income group and lower-income group people largely use vanaspati ghee and refined oil as cooking medium therefore the growth of the industry is inevitable.The company uses most modern technology, thereby reducing process loss.It has set up a 3-MW power plant on the factory premises to meet the power requirement and will help to mitigate the power costs of the Company.

Instead of buying Crude Palm Oil and Soya bean oil locally from importers, company has always been directly importing from Malaysia, Indonesia,Singapore,Argentina and Brazil.It leads to significant cost savings by way of lower price,no commission of middlemen etc.Due to huge quantity of imports, company not only saves on sea freight but its cost of local transportation is half the cost than its competitors.

Recently,the company decided to enter in the field of mustard refined oil.The Company has already acquired one unit for manufacturing Mustard Oil at Alwar (Rajasthan).The production has been commenced and marketed under brand name JHOOLA.This unit will sell its products under existing network.Raw material is mustard seed which is abundantly available in Rajasthan.

To emerge as a complete vegetable oils provider the company has already commissioned its mustard and palm oil capacities and has diversified into the refined sunflower,coconut and groundnut oil categories.It is also putting tin manufacturing plant and large section for packaging.The company is looking to acquire some existing units to expand its business aggresively.It is also planning to enter the business of agro-based packaged foods like flour, pulses, packet tea and juices.This will increase non-vanaspati revenues from around 20% of turnover in 2006-7 to 60% in 2009-10.

Conclusion:-Jhunjhunwala Vanaspati has not only emerged as the largest Vanaspati Ghee Company in India,but also has highest profits in the Industry.The company is targetting a revenue of rs 2,500-2700 crore in 2010-2011.Present equity is 7.5crs and it may get diluted a bit by way of preferential allotments but that will only come into effect in 09-10.Anyways lets assume the profit margins at 2% on a most conservative basis.So 2500crs in 08-9 may result in a PAT of around 50crs.Eps comes at 65rs for 08-9.So at 48rs its quoting at a 1 year forward P.E of less than 1 time.Do i need to say more?.Altogether a safe heaven and a great buy.

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