KSE Ltd ( Good potential Multibagger )

KSE is a 50-year-old company that makes a range of livestock feed in high volumes, coconut oil from coconut oil cake and refined edible oil. It is the largest manufacturer of cattle feed in India. As forward integration, in 2000, KSE entered milk procurement, processing and marketing of milk and milk products selling under the name of KS PAAL, KS ghee, KS curd and butter milk which became popular in Trichur, Ernakulam, Malappuram and Alleppey districts by 2002. In 2008, it started ice-cream production in Tamil Nadu. In 2010, KSE started ice-cream production in Vedagiri Kottayam (Kerala) to cater for the Kerala market.




In a normal year, almost 62% of the company’s profits come from the cattle feed business, 29% from copra processing and solvent extraction business and about 9% from dairy business. For the quarter ended 30 September 2014, KSE’s net sales were Rs234.40 crore (Rs199.03 crore) and the net profit was Rs17.49 crore (Rs1.67 crore). For the year ended March 2014, net sales were Rs807.20 crore (Rs698.25 crore) and net profit was Rs15.37 crore (Rs4.65 crore).

According to KSE, its strengths include nearly half a century of experience, market leadership, consistent quality, wide distribution network and financial strength. The threats, as it sees, are possible entry of multinationals, subsidy on animal feed being granted by government, indirect price control by government over milk, switching of crop by farmers from oil seeds and grains, severe shortage of manual labour (cattle feed and solvent extraction are highly labour-intensive) and import of cheaper oils for industrial consumption.



Over the past five quarters, the average growth in sales was 12% and the growth in average operating profit was 172%. The average operating margin is 4%. The debt-equity ratio is 0.34. Cash earnings per share were Rs59.78. The book value of the share is Rs150.84. However, income and profits are volatile quarter-on-quarter.
 
The dividend distributed for FY13-14 was a golden jubilee dividend of 200%; in the previous two years, the dividend distributed was 100% and 110%. The share price rose from a 52-week low of Rs181.15 on 15 January 2014 to a 52-week high of Rs 585.00 on 21 November 2014, thanks to a large jump in profit in the September quarter. The share was trading at a price of around Rs 570.00 on 19 December 2014.

The shareholding pattern for KSE includes 32.53% with the promoters and 67.47% with the retail investors and general public. Despite the recent run-up, the valuation is low.



The market-capitalisation is 0.15 times sales and 2.91 times operating profit, based on trailing four quarter results ending September 2014. For FY13-14, the return on net worth was 32% and the return on capital employed was 39%. The stock is worth buying for the long term, even though profits may be uneven and stock price may disappoint, in the short run.




Note: This share is strictly for long term purpose. Do not expect any short term fireworks. The volumes are very low because of  100% DELIVERABLES.

Sources: Annual report, Money control & Crisil.