Accumulate Venkys; target of Rs 561: East India Securities

We have been expecting a subdued performance during 2QFY17 on account of weak chicken prices throughout the quarter, especially in the month of Aug and Sept as compared to 1QFY17. However the performance was even below the subdued expectations, especially at profitability levels. The company witnessed 32% higher total revenues on yoy basis, better than our estimates. This was led by Oilseed business which contributed around 46% of the sales, grew by strong 40% during the quarter. Animal Health Products which also witnessed a good growth of 38% and contributed 9% of sales. Poultry & Poultry Products business which contributed 45% of the business, also posted a growth of 25%. This was purely account of volume growth as company cannot keep inventory of broilers, hence kept selling even at loss.

ValuationAfter two quarters of strong performance, this was a disappointing quarter. This was on lower chicken prices during most part of the quarter. The company’s performance depends a lot on volatile chicken prices. During Q3FY17, post demonetization chicken prices cracked and went down way below cost of production. Considering Q2FY17 disappointing performance and expected a bad Q3FY17, we have revised FY17 and FY18 earnings estimates downwards. Our downwardly revised TP is Rs 561 (10x FY2018E EPS). The stock of the company has corrected recently on account of declining chicken prices. Now it offers 26% upside from current levels. Hence, we maintain our Accumulate on the stock of the company.