Accumulate Venky's; target of Rs 619: EIS

We have been expecting a strong performance during 1QFY17 on account of strong chicken prices throughout the quarter. However the performance was way above expectations. The company witnessed 15% higher total revenues on yoy basis, better than our estimates. This was led by Poultry business which contributed around 50% of the sales, grew by strong 21% during the quarter. Oilseed business witnessed a moderate growth of 9% and contributed 43% of sales. Animal Health Products business which contributed 7% of the business, also posted a growth of 16%.

A strong performance of Q4FY16 was maintained and Q1FY17 was a very strong quarter with many positive surprises. The company posted a set of strong performance on higher chicken prices during most part of the quarter despite cost of production has been going up in recent times. The company’s performance depends a lot on volatile chicken prices. Venky’s (India) has been taking steps towards production rationalization for a long time and that seems to be working now. Going forward, we expect chicken prices to stabilize at improved levels on yearly basis with volatility during the year due to seasonality. And this will help margin expansion on full year basis in coming years as cost of production is still in control. We have revised FY17 and FY18 earnings estimates upwards taking strong 1QFY17 into account. Our upwardly revised TP is Rs 619 (10x FY2018E EPS). The stock of the company witnessed a good rally recently. Now it offers ~16% upside from current levels. Hence, we change our rating from Buy to Accumulate on the stock of the company.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.