Agro Dutch Industries - Rs.33.00

Established in 1992, Agro Dutch Industries Ltd. (ADIL) is engaged in the cultivation, processing and canning of fresh white button mushrooms. The company that initially started with an installed capacity of 3000 TPA is today the largest integrated producer of canned mushrooms in Asia and probably the second largest in the world. It accounts for more than 90% of the mushrooms exported from India and more than 85% of the mushrooms being produced in the country. Being a fully integrated producer, it has its own can manufacturing and packing facility with an installed capacity of 10 cr. cans per annum. Notably, the fully automated can unit is the only unit in India to produce resistance-welded cans with high quality coated surfaces. The company has a strong customer base comprising blue chip customers like Uniliver’s Lipton, Rema Foods Inc, ABBY Foods, Goergia Foods etc. The company has also tied up with Leatherhead Food Research Association of the UK to ensure quality compliance for all products prior to shipment.

ADIL’s 100% EOU plant is located in Punjab, which produces over 80% of India’s wheat and wheat straw, which is the most vital substrate needed for growing mushrooms. The mushrooms are grown in climate-controlled farms and processed under sterilized conditions complying with strict quality control norms laid down by the US FDA like HACCP. ADIL has set up 133 climate controlled growing rooms to ensure that mushrooms are available all through the year. In order to become the world’s largest mushroom producer, the company is undertaking aggressive expansion by enhancing its mushroom growing capacity from 36,000 to 50,000 TPA, setting up a Individual Quick Freezing (IQF) plant, new compost making facilities and additional mushroom processing facilities. It is also doubling its can making capacity to 12000 tonnes by way of setting up a new can-making unit with an installed capacity of 6000 TPA near Chennai. The company also plans to set up a 10,000 TPA international scale facility for production of food cans with Easy Open Ends to sell in the domestic and international markets.

To fund this expansion, the company has raised around Rs.36 cr. through a rights issue at Rs.25 per share. The German DEG group gave a term loan of Rs.26 cr. and the company availed of loans from various local banks. Besides, the company has also allotted 1 cr. warrants to promoters and others to be converted into equity shares at Rs.27.50 After reporting not so encouraging numbers over the last two quarters, ADIL recently declared very good numbers for the Dec’06 quarter. Sales increased by 35% to Rs.48 cr. and net profit shot up 70% to Rs.10.85 cr. registering an EPS of Rs.3.70 for the quarter. Notably, its OPM stood at 37% after reporting merely 19% in the preceding two quarters. Accordingly, for the full year it is estimated to report sales of Rs.205 cr. and with net profit of Rs.19 cr. i.e. an EPS of Rs.6 on its current equity of Rs.29.60 cr. For FY08, it may register sales and net profit of Rs.240 cr. and Rs.30 cr. respectively. Investors are strongly recommended to buy at the current level with a price target of Rs.50 (50% appreciation) in 9~12 months.