It's Chicken Season - Those who like MASALA join d party

1. Sector reports higher profits during festive season (Dec. and March) and share prices also high during this period.

2. I saw some people have stated these as JUNK stock. But they are definitely NOT JUNK as can be seen in the analysis.

3. One of the high growth sectors as consumption is expected to increase with the increasing per capita income.

4. Restrictive factor is the restrictions imposed by the government for the import of maze as a measure to encourage the local cultivation. Though last year this was seen as a restriction, now it has become a positive factor as all the companies have established out-grower networks. I think companies are now eager to develop these networks as respective farmers are their future consumers since the market growth in rural areas are higher as they have less access to fresh fish.

5. Prices of maize, the main raw material, ski-rocketed during Feb.2011-Aug.2011, as most of the cultivation were destroyed during massive floods in early 2011. But unlike in the past, all the companies reported significant positive results for the June and Sep. quarters as companies now has more control in raw material prices as they have established out-grower networks and they can now maintain buffer stocks in case of future disasters.

6. Share prices of poultry stocks came down significantly during last two quarters as earnings were less than expected, due to high prices of maize prevailed. But if similar crop disaster didn’t happened next year we can expect more profits from the sector, which will definitely reflect in the share prices.

7. Last year BFL started a modern farm in Puttalam, which is having a 10 year tax holiday. Company reported that they have harvested the first production during Sep. 2011. So we can expect better results in the future.

8. In estimating future share prices, I have calculated minimum price @ 10X PER and maximum price on 15X PER on last four quarters earnings. I think this is conservative as profits of the last two quarters were affected by higher maize prices due to crop loss which is unlikely to happen again and companies may have taken steps to face such a scenario by now (maintaining buffer stocks, etc).

9. One more positive factor in the chicken sector is most institutions and HNWIs has purchased these shares at very much higher prices. Ie: EPF bought GRAN at Rs.228/- and LAGFS bought above Rs.190/-. So people who are entering now definitely in a more advantageous position.

Really a good one.keep it up.+rep

Hi hariesha,
Thanks for sharing a valuable document.
You are a star.
Really appreciate your effort.
Keep it up.
God bless you.
Have a good trade.
+ rep from myself