Venky's India (formerly known as Western Hatcheries) is part of the 13 billion-rupee (INR) Venkateshwara Hatcheries (VH) group, the largest and fully integrated poultry group in India, according to India's Economic Times. It cites the recent analysis of ET Intelligence Group, which says that the company is one of the fastest growing small companies with a strong brand equity and pan-India presence. Its strong fundamentals along with good business prospects make the company's stock an attractive bet for long-term investors.

Business

This Pune-based company, incorporated in 1976, has three integrated business divisions – poultry & poultry products, animal health products and solvent extraction. The poultry business is the company's core business and contributes up to 65 per cent of total revenue. The company supplies day-old commercial chicks to poultry farmers and hatcheries, and poultry feed to farms. It also sells processed chicken products and nutritional health products to consumers.

Growth strategy

The company's integrated infrastructure is perhaps its key advantage, says the report. It has built a strong production infrastructure and it has one of the best disease monitoring and surveillance systems in the country. The company is moving into more value-added branded products, and it earns almost 25 per cent of its turnover from institutional clients.

Financial results

The company's net sales have grown at a compounded annual growth rate (CAGR) of 13.3 per cent over the last five fiscal years and stands at 5.69 billion rupees (INR) in the current financial year. The net profits have grown at a subdued CAGR of 20.6 per cent during the same period.

With a three-year average pay-out ratio of 18 per cent, the company's dividend has, however, not kept pace with earnings growth. The fluctuation in prices of feed ingredients like maize and soy – key ingredients of poultry feed – pose a challenge for the company.

While the company has been generating steady cash flows from its operations, its business is vulnerable to external factors affecting its profitability. Seasonality in business – the company’s second half of the fiscal is better than the first one – dependence on availability of raw material at reasonable rates and threat of bird flu are inherent risks built into this business.

Financial year 2009 was difficult for the company because of high raw material costs and an international ban on poultry exports from India due to bird flu. With raw material prices coming down and bird flu scare subsiding, Venky's India is poised to grow.

The company's performance during the first quarter of this fiscal year already hints at a revival in its performance.

Valuations

At the current state of recovering business, Economic Times reports that the company's earnings are estimated to grow by 40 per cent to INR 290 million in the current fiscal year. At current market price, this pegs the company's forward P/E at 5.7, much lower than the current P/E of 7.5. While the stock has already moved up by 21 per cent last month, investors can look at accumulating it on dips.