CARE assigns valuation grade of 5/5 to REI Agro

Top-line flat, margins drive profit growth
While, RAL’s top-line remained almost flat at around Rs. 3724 crores in FY11, EBITDA witnessed an increase of 28 per cent from Rs. 602 crores in FY10 to Rs. 769 crores in FY11. The EBITDA margins hence, improved by 436 bps y-o-y owing to an increased share of branded rice in the overall sales mix and higher realizations. With improvement in EBITDA margins and lower interest cost on account of reduction in debt, PAT margins too rose in FY11. The PAT margins for the company stood 7.6 per cent in FY11 as against 4.3 per cent in FY10 – up 330 bps y-o-y.

Rice trading supports revenue
While the company saw a decline in revenues from the processed rice segment - down 11 per cent in FY11, the trading in rice increased. Rice trading exhibited an increase by 89 per cent, thereby supporting the revenues for the company.

Valuation
The CARE Equity Research assigns valuation grade of 5/5 to REI Agro Limited. (RAL) based on the Current Intrinsic Value (CIV) of Rs 36 as against Current Market Price (CMP) of Rs 27.7, indicating that shares of RAL have ‘Considerable Upside Potential’, says CARE Equity Research report

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