Stock Pick from Other Agricultural Sector

Here Is Why:

• Strong brand value in edible oil business.
• Strong demand from local and export markets for chemical products.
• Asset light model and not a single share of the company is pledged indicating the company’s financial strength.

There always are a few companies that usually go unnoticed despite offering high potential investment opportunities. Tirupati Industries is one such company which opens a window for growth but has been lying low at lower valuations. Moreover, the counter seems to be well-placed at its current levels. But let us understand its business first. Tirupati Industries is currently operating mainly in two product categories - vegetable oil and chemicals and laboratory reagents. The company has strong brands like Monopoly and CocoBel in edible oils and GEMChem in chemicals and laboratory reagents with both segments strongly poised to cater to the expected demand boom.

The company is well-positioned in Maharashtra for its edible oils and is currently working on an asset light model whereby it only refines and creates its own brand. It thereby maintains stringent quality checks for its brands. It serves customers with an entire bouquet of edible oil offerings under the Monopoly brand – mustard, soybean, sunflower, rice bran, sesame and palm oil. Meanwhile, it is planning to increase its range to include various specialty oils like olive oil, sesame and canola.

For its chemicals and laboratory reagents’ segment it has established state-of-the-art packaging lines and quality checks along with R&D laboratories to offer customised solutions to its clients. In spite of the challenging economic climate, the company’s success story has continued unabated. It crossed the Rs 42-crore turnover mark in FY2013-14, registering steady growth for the past three years. With expansion plans and increased focus on brands we expect consistent topline and bottomline growth going ahead. One factor that may affect investor sentiments is the company’s increased debt. However, this is mainly for its working capital needs. Its long-term debt equity has been under tolerance levels.

On the financial front, the performance looks consistent on a yearly basis; there has been significant improvement on the EPS’ front. One important factor to be noticed is the improvement in its operating profit margins (OPM) which, over the past five years, has increased to 7.20 per cent in FY14 from just 1.12 per cent in FY10. The return on net worth for FY14 also stands strong at 16 per cent, having increased from 14.98 per cent in FY13. The earnings per share (EPS) of the company for FY13 and FY14 were at Rs 2.37 and Rs 3 respectively.

Taking all this into consideration and expecting the company’s production facility to cater to a rising demand from both domestic as well as international markets along with strong financial performance for FY15 and FY16, we recommend a buy in this particular scrip with a target price of Rs 91 and an investment perspective of one year.