Hold McLeod Russel India; target of Rs 296: SKP Securities

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Hold McLeod Russel India; target of Rs 296: SKP Securities

SKP Securities has recommended hold rating on McLeod Russel India with a target of Rs 296, in its March 10, 2011 research report.

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SKP Securities has recommended hold rating on McLeod Russel India with a target of Rs 296, in its March 10, 2011 research report.

"The flagship tea company of the B M Khaitan group, McLeod Russel India Limited (MRIL) was originally incorporated as Eveready Company India Private Limited on 5th May 1998. MRIL is the world's largest tea plantation company, which produces over 70 million kgs of high quality tea from its 53 tea estates in Assam and West Bengal. As India's largest tea exporter, MRIL maintains strong connections with buyers in United Kingdom and Europe. MRIL's tea is marketed under the registered Elephant trade mark. MRIL has the certification for various credentials to its products from Fairtrade Labelling Organisation International (FLO), Hazard Analysis Critical Control Point (HACCP), Suppliers Ethical Data Exchange (SEDEX) and Ethical Tea Partnership (ETP)."

"Assam region faced a shortfall in crop due to erratic weather conditions and severe pest attacks. The high concentration of McLeod's tea garden in Assam will be beneficial for the company as it will be able to command higher prices for its large volume of tea that come from the Assam valley. MRIL, in the recent past, has been acquiring tea gardens in Africa and Vietnam. These acquisitions will enable MRIL to substantially ramp up production. Indian tea is widely sought in the export market. India will be facing a 100 million kgs. deficit in tea production at the starting of the new season in April leading to increase in export prices. Mcleod has been successful in reducing its interest cost from 19.91% in FY09 to 11.88% in FY10. The interest cost has dropped 43% in FY10 over FY09. This has been achieved by converting its rupee loans to foreign currency convertible loans. Capacity expansion to increase production, enhance quality and lower the cost of production."

"We expect bouyant tea prices in near term. Moreover, recent rally in MRIL prices seems to have factored in most of this bouyancy. MRIL holds a pole position in tea industry. Stock is currently trading at a PE of 9.88x FY12E and 9.24x FY13E EPS. We recommend HOLD rating on the stock with a 18 months target price of Rs 296, at 11x FY13E earnings, giving it a limited upside of 19% from the current levels," says SKP Securities research report.

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To read the full report click on the attachment