Stock Pick from Other Food Products Industry

Here Is Why:

• Post the merger of PFL, expected capacity will be 1,10,000 MTPA, higher by 300 per cent.
• It is a debt-free company at the net debt level.
• Expanding capacity to get exposure in new geographies.

From the last two financial years i.e. FY13-15, shrimp aquaculture has registered tremendous growth and achieved its highest production in India. Seafood exports recorded a growth of 6.86 per cent over the last year in quantity, 10.69 per cent in rupee terms, and 10.05 per cent in US’ dollar earnings. Vannamei grown in aquaculture farms was the main item under shrimps. Of the overall seafood exports, shrimps comprised 3,57,505 MTPA (34 per cent of total sea food export) valued at around USD 3.7 billion. Therefore, we have picked up a stock from this space, which is expected to show steady growth during the coming years due to rapid expansion taking place on the production front through shrimp farming.

Waterbase is one of India’s leading aquaculture companies. It was the first to introduce feed for the Vannamei species in India and today has a very dominant share of the Vannamei species feed market. Its shrimp feed brands enjoy strong acceptance in the shrimp farming community in India. Its processed shrimp is marketed across Europe, Japan and US. It has been showcasing excellent set of numbers over the last few years on the back of capacity expanded from 20,000 MT in FY12 to 35,000 MT in FY15. It has witnessed healthy growth in topline at a CAGR of 57 per cent from Rs 46.8 crore in FY11 to Rs 277.6 crore in FY15.

The operating efficiency has also improved and the EBITDA margin improved by 220 bps from 9.7 per cent in FY11 to 11.9 per cent in FY15. The company is showing better asset turnover, decreased receivables days, and improved inventory turnover. The company has also become debt-free at the net debt level from 0.33x net debt equity ratio in FY11. Further, the outlook for FY16 remains positive as the company is working on further capacity addition. The company is also looking to scale up its utilisation by expanded capacity to get exposure in West Bengal, Odisha and the western coast in addition to enhancing its presence in the key markets of Andhra Pradesh and Tamil Nadu.

It has set a target to increase dealership network from 100 to more than 130. The company has plans to set up hatcheries to supply good quality seeds for shrimp farming and plans to undertake forward integration from its current set-up of toll manufacturing (packaging of processed shrimp) into direct exports. The company’s Board of Directors has granted in-principle approval for the scheme of amalgamation of Pinnae Feeds Limited (PFL) with the company. Post this merger of PFL, the expected capacity will be 1,10,000 MTPA, higher by 300 per cent. Also, operational synergies will be leveraged for better sourcing terms, reduction of costs, etc.

On the valuation front, Waterbase is trading at a PE ratio of 13.70x with an EPS of Rs 5.06 in FY15. We recommend buying the scrip with expectation of 25-30 per cent upside from the current market price in the next one year.