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Saturday, October 31, 2009

Bambino Agro Industries Ltd:Future growth prospects and outlook,results/recomendation and analysis

Scripscan:Bambino Agro Industries Ltd

Story:Bambino Agro manufactures pasta, macaroni and noodles.The company has a strong brand and an excellent distribution network. Products from the company are available not only at super marts but also at neighbourhood general stores. The brand equity and distribution network of the company is excellent.The food-processing sector has seen a number of deals in the recent past. Orkla Foods of Norway has acquired MTR Foods for a total consideration of about Rs 400-450 crore. MTR Foods posted revenues of close to Rs 150 crore and is a profitable company.Some private equity investors have purchased stakes in companies like Capital Foods, which manufactures the Ching’s Secret brand of Chinese products, and Punjab-based Cremica. There’s a good appetite for investors taking a stake in the food procession industry.Bambino Agro faces two major negatives. First, the company has got a high debt in the balance sheet. Secondly, the company is into low value-add products.I am not comparing MTR with Bambino Agro for the simple reason that MTR is into ready-to-eat foods, which has a very high value add, whereas Bambino Agro would be among the lowest rung in value addition. For Bambino to move into the high value-added segment may not be a difficult task as the biggest challenge is distributing that product. The company has a good distribution network and brand for selling that product. Its foraying into higher value-added products and sales may not be such a big deal. Herein lies an opportunity for the company. Bambino Agro already has a private company that is into high value addition, so the company could directly foray into high value-added products or may be merger with that company to grow shareholder valuations. The high debt in the balance sheet may not be difficult to handle as today you have private equity investors who are ready to fund companies where they see potential.Given these two factors you may have a multi bagger in Bambino Agro. The biggest risk lies in whether the management will be able to grab this opportunity and turn it in its shareholders favour. In case they accomplish this you have a multi bagger in Bambino and if they fail the stock may continue to languish at Rs 15-20 levels.

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