Hold REI Agro: FinQuest Securities

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Hold REI Agro: FinQuest Securities

Broking house, FinQuest Securities has recommended hold rating on the stock REI Agro.

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Rei Agro BSE | NSE 01/06/12 Are Mutual Funds betting on Rei Agro?

Broking house, FinQuest Securities has recommended hold rating on the stock REI Agro with a 12-month target price of Rs 170.

FinQuest Securities report on REI Agro

REI Agro has reported a marginal dip in the performance during Q2FY2007.

Result analysis

"Sales of the company decreased by 12% in the present quarter on YoY basis. REI has been able to improve on the margin front as a result of better relisations per kg. The operating margin for Q2FY2007 stood at 17.6% as against 14.5% for the corresponding quarter in the previous year. The company's EBIDTA margin grew by 307 basis points. Profit after tax decrease by 2% YoY to Rs 167mn. The primary reason for the dip in profits was due to an increase in interest and depreciation charges. REI had carried out expansion activities and had set up third wind mill as a result an increase in these expenses were witnessed for this quarter."

Updates

"In Q2FY2007 REI has made additional investments in its wind farm business by commissioning 12 turbines of an aggregate capacity of 6 MW in Tamil Nadu. The capacity addition from 49 tph to 61 tph at the Bawal unit helped the company to increase its own porduction of basmati rice. Rei thus has discontinued trading of rice, by increasing its owm production. To service its retail and F&B initiatives, the company intends to set up REI Retail Limited and REI Foods and Beverages Limited, both 100% subsidiaries. In the first phase, the company plans to set up neighbourhood convenience stores of 2,000 sq. ft each across North India in FY2006-07 with plans to increase their number over the foreseeable future. The company is also planning to acquire the assets of a reputed juice manufacturer in Western India, representing an attractive diversification into the growing food and beverages (F&B) sector."

Valuation

"At the CMP of Rs 145, the stock discounts 7.1x FY2007E EPS of Rs 21 and 4.7x FY2008E EPS of Rs 31. We maintain Hold on the stock with a 12-month target price of Rs 170."