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Last Updated : Jul 09, 2012 03:11 PM IST | Source: CNBC-TV18

Vadilal Industries a potential multibagger: Ashish Chugh

Vadilal Industries is a potential multibagger, says Ashish Chugh, Investment Analyst & Author of Hidden Gems.

Vadilal Industries is a potential multibagger, says Ashish Chugh, Investment Analyst & Author of Hidden Gems.

Chugh told CNBC-TV18, "Vadilal Industries is a Gujarat based company. This is the third largest ice-cream manufacturer in the country. The largest is Amul and Hindustan Unilever occupies the second position and sells ice-creams under Quality Walls brand. Vadilal has got two manufacturing plants, one is located in Gujarat and the second one is located in Bareli in UP."

He further added, "The company has recently undertaken an expansion project wherein the capacity of the plants has been increased from 2.25 lakh litres a day to 3.25 lakh litres. Their FY12 sales were about Rs 280 crore, up by 20% over FY11. Operating profit was about Rs 40 crore which was up by 14% and profit after tax was Rs 6.25 crore which was up by 23%."

"Company has got a small equity of about Rs 7.2 crore which means an EPS of about Rs 8.7. So, the stock currently trades at a PE of about 13. There are a couple of reasons why we are bullish on this company. First is that the enhanced capacity of processing has gone on-stream from the month of April this year, which will result in increased top-line for the company from this year onwards."

"It has also done a couple of new launches. They have launched new products by the name of BadaBite, Flingo and Gourmet. It has moved into the premium segment where the margins are higher."

"Company currently has about 170 ice-cream parlours by the name of Happinezz, which is operated on a franchise model. It plans to increase it to between Rs 250-300 over the next one to two years and they are expanding aggressively in the northern part of the country."

"There are a few concerns however. This company has got two listed companies which operate in the same space, Vadilal Industries and Vadilal Enterprises. Frankly this leads to a perception of a conflict of interest. So, two companies involved in similar businesses makes no sense to me. In case the company plans to merge these two companies that may lead to the reduction in the conflict of interest and an improvement in the perception about the company and may lead to higher valuation."

"There could be competition from Häagen-Dazs and Nestles of the world tomorrow, but I think that may not be too much of a threat to the company because of its low cost structure and also the fact that these companies would only help expand the Indian market. If I look at two factors first is that the size of ice-cream market in India is about Rs 2,500 crore. It is growing at about 15% annually."

"Secondly, the per capita consumption of ice-cream in India is just about 300 millilitre which is much lower compared to that in western countries which is as high as 24-25 litres per person per annum. It is even lower than Pakistan where it is about 600 millilitre per annum."

"There is a lot of unexplored potential here and Vadilal has got a 18% market share. It’s a well recognized brand. The company has got significant manufacturing capacity and all that is available at a market cap of just about Rs 80 crore. The market cap looks too small given the operations of the company and given the expanding size of the market and the presence which the company has in this market, the stock has all ingredients of a potential multibagger."

Disclosure: I have got investments in the stock of Vadilal Industries.

First Published on Jul 9, 2012 11:30 am