Buy Venky's; target of Rs 541: East India Securities

Venky's Q4FY16 EBITDA margin was 7.6%, way above as compared to 3.7% in Q3FY16 and 6.1% in Q4FY15. The YoY margin expansion was on higher realizations. On YoY basis, lower other expenses and employee costs during the quarter negated the impact of higher RM costs (all as % of sales). Poultry business contributed huge at operating level, with margin of 10.9% vs just 2% in Q3FY16 but it was flat on YoY basis. Oilseed business margin was also good at 4.1% vs 2.6% seen during same period last FY. Animal Health products margins were slightly disappointing at 13.6% vs 21.5% in Q4FY15. Higher margins on YoY basis led to a good growth of 50% YoY at EBITDA level.

We have revised FY17 earnings estimates upwards and introduced FY18 earning estimates. We have rolled over valuations to FY18E EPS. Our upwardly revised TP is Rs 541 (10x FY2018E EPS) which suggests 32% upside from current level. Hence, we upgrade our rating from Accumulate to BUY on the stock.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.