Vadilal Industries - Rs.36.00

Incorporated in 1982, Vadilal Industries Ltd. (VIL) is the flagship company of the Vadilal Group engaged in the business of Ice-creams and Food Processing. Starting as a one man show with hand cranked machines and a small retails outlet, VIL is today the leader in the Indian ice-cream market with 25% market share. It has the largest range with 80 flavours and a product matrix of over 200 SKUs comprising of cones, cups, candies, family and party bricks and bulk packs. Its processed foods division processes and markets a wide variety of fruits, vegetables and ready-to-eat Indian foods.

Prominent processed items are fruit pulps and juices, frozen fruits and vegetables, fruit based ready-to-serve beverages, canned fruits and vegetables and ready to serve foods like samosas, parathas, pav bhaji, dal makhani, Punjabi chhole etc. Currently, 75% of its revenue comes from the ice-cream division while the rest 25% comes from processed food.

Presently, VIL has two ice cream plants and one food processing plant. Its ice-cream facilities are located at Bareilly-UP and Gandhinagar-Gujarat having an installed capacity of 60000 and 85000 litres per day respectively. Its food processing unit in Valsad-Gujarat is equipped with fruit pulping, canning, storage and Individually Quick Freezing (IQF) facilities and has an installed capacity to process 2 tonnes of fruits/vegetable per hour. This unit enjoys ‘Export House’ status and the products are exported to USA, UK, Japan, Europe, South-East Asia, Middle East etc. VIL has also initiated discussions with various supermarkets in Australia (Woolworth), France (Auchan), UK (Tesco, Safeway), USA (Krogers, Walmart), where it intends to make its frozen products available in the near future. It has the largest cold chain network in India backed by a strong distribution network of 22 C&F Agents, 450 distributors, over 40,000 retail dealers and a large fleet of refrigerated vehicles. The company has already opened around 25 exclusive ice cream parlours by the name ‘Happinezz Parlours’ and intends to open more going forward. And to capture the eastern India market it is setting up a new ice-cream manufacturing plant in Kolkata with a capacity of 35,000 litres per day. Moreover, to increase its market share it is also expanding the capacity of its UP plant from 60,000 litres to 90,000 litres a day and is also enhancing the capacity of its processed and frozen food plant at Valsad. It is in the process of introducing a few new products such as ready meals, Nann/Kulcha, Microwavable Samosas, ready-to-serve foods in resort packs and other South Indian frozen products. The capex for all this expansion and development is Rs.40 cr., which will be funded through a mix of debt and internal accruals.

In its recent policies, government of India has recognized the importance of processed food sector and decided to boost this industry through various policy measures. The sector has also been accorded priority sector status for lending by banks, which will result in increased credit flow to this industry segment. Incidentally, around 3% stake is held by the legendary Mr. Rakesh Jhunjhunwala as a long-term investment. For FY07, VIL is expected to register total sales of around Rs.125 cr. with net profit of Rs.4.50 cr. This works out to an EPS of Rs.6 on its equity of Rs.7.20 cr. and the company is expected declare 10% dividend for FY07. Due to the expansion effect, its FY08 revenue may bloat to Rs.150 cr. and PAT may be around Rs.6 cr. i.e. EPS of Rs.8. The scrip, therefore, is trading at a P/E multiple of merely 4 of FY08E earning. Investors are recommended to buy at current levels for 50% gain in 9-12 months.