Renowned investor Porinju Veliyath increased his stake in Kerala Ayurveda last week after which the stock has been on a roll. On October 5, block deal data showed that Veliyath had increased stake in the company to 4.16 percent from 3.18 percent earlier.
With a vintage of 70 years, Kerala Ayurveda is a unique, full-spectrum Ayurveda company with a host of assets, products and services including wellness resorts, clinics, and academies across India and the US. It has over 350 classical and proprietary formulations, apart from herbal farms with 1200 medicinal herbs, and own manufacturing as well and R&D facilities.
For FY23, the company clocked a revenue of Rs 89 crore crore and net loss of Rs 0.56 crore.- based on trailing 12 months, ended June 30, 2023, the company recorded revenue of Rs 93 crore and a miniscule profit. The company clocked a sharp decline in revenue because of COVID 19 clocking a loss in FY21 but has bounced back ever since. Yet its profitability and return ratios thus far have been nothing to write about; in fact, it has been abysmal with a peak ROCE of 8.95 percent clock in FY16 over the past 10 years.
Why should any investor be attracted towards a company that is deep in debt and making losses? Veliyath says he is betting on the company’s future potential. “It’s a beautiful company as the name suggests,” says Veliyath. Only because it hails from God’s own country? That is part of the appeal, but Veliyath has his more solid reasons.
The company has a rich heritage that gives it authenticity – it was established on the banks of the Periyar river in Kochi, Kerala in 1945 by the renowned Ayurvedacharya, Vaidyan K G K Panicker. It has over the years transformed into a modern company, blending tradition with advanced technology.
Besides, Veliyath counts three factors that make him bullish on the company. First is the fact that Kerala Ayurveda Academy in the United States offers courses to Americans, who subsequently establish clinics and distribute Kerala Ayurveda products across the country. This strategy aims to stimulate demand for the company's offerings in the world’s biggest market.
Ayurveda courses
Started before the pandemic, the certification business suffered during COVID 19 as the US FDA brought in a rule wherein the course had to offer a minimum of 30 percent offline classes. But now, the company has adapted to this, says Veliyath.
Currently, the company sells its products in the US under the food category. The products are available on Amazon – a scroll through Amazon throws up dozens of products from liquid supplements (kashayam), special oil (tailam) for various purposes from skin and hair care to those for pain management. In fact, Kerala Ayurveda was the first company to get FDA license in food category, according to Veliyath.
“Currently, for a big company like Dabur, which makes ayurvedic products, majority of revenue comes from FMCG businesses. Kerala Ayurveda has great potential to leverage its ayurvedic capabilities – the company can sell ayurvedic products, lifestyle and food products,” says Veliyath. “Ayurveda goes beyond medicine into wellness products that have a large market.”
Veliyath says he takes a call on stocks based on the big picture, that is not represented in the balance sheet. “We are talking about a company with a small market-cap of Rs 100 crore to Rs 200 crore which has a large potential,” says Veliyath. As of October 13, Kerala Ayurveda had a market-cap of Rs 215 crore. The stock however has already run up more than 100 percent over the past one year. Year-to-date it has risen 44 percent.
Cutting debt
Second, Veliyath feels that the company’s financial troubles are over. One positive signal is the factor that the promoter pledge in the company was 100 percent, which is down to 46.55 percent as of June 2023.
Kerala Ayurveda is currently owned by Katra Holdings, which holds a majority 61 percent stake in the company. Katra is owned by Ramesh Vangal, who was the president of Asia Pacific for PepsiCo who bought stake in the company in 2006.
Vangal now wants to direct resources behind marketing, building a digital platform, and creating a global push through its academy work. For this, the company is creating funds for investments and finding ways to reduce its high leverage.
In its latest effort to cut down on debt, Kerala Ayurveda partially repaid Rs 8.14 crore to its promoter group company, Katra Petrochem Limited. Kerala Ayurveda had taken a loan of Rs 19.24 crore from the promoter group company, which it partially paid after selling an unused land in Bengaluru. In order to pay the rest, Kerala Ayurveda alloted 5.5 lakh equity shares to Katra Petrochem for an issue price of Rs 125. However, the company was not absolutely able to repay the debt as the above transaction garnered Rs 6.94 crore, leaving Rs 4.16 crore still unpaid. As of March 31, the company has total borrowings of Rs 72 crore.
The company’s sales increased 24 percent YoY to Rs 15 crore in the April-to-June quarter. It made a profit of Rs 21 lakhs as compared to a loss of Rs 16 lakhs in the same quarter a year before.
New leadership
Third, the company seems to be preparing itself for the next innings. In October, Kerala Ayurveda appointed Vivek Sundar as its Chief Executive Officer (CEO). Sundar was heading Cuemath as a CEO before and with Swiggy and P&G before that. As a Chief Operating Officer in Swiggy he added 500 cities in a span of 18 months. He operated Swiggy in times of lockdown and phases of re-opening and made the company leaner.
The global Ayurvedic market is expected to grow at a CAGR of 11.8 percent, reaching $10 billion by 2028, said the management in its annual report. It further said that the Indian government's efforts to promote Ayurveda through AYUSH will contribute to this growth trajectory.
The company is taking efforts to overhaul its business, however the same is not visible in their profits, plus the company has a lot of debt on its books.
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