Lakshmi Energy & Foods

Rice is an important food for the population across the glob. The demand growth is outpaced supply growth on account of changing income & consumption growth. Asian countries account 92% of world’s total rice production. Unusual variations in climate have badly affected corps in many producing countries.

Look at India. It was drought that affected the agri pdoduction a couple of months ago, now it is flash flood. Rice production in Andhra Pradesh, one of the main rice producing state, will also hit badly by the unexpected flood. India is the second largest producer of rice, accounts 1/4th of global output.

Lakshmi Energy & Foods, a Punjab based company, is one of the largest non-basmati rice producer in India, may benefit from the current situation. It is uniquely positioned in two of the fastest growing sectors: Food and Power. It was bumper paddy production in Punjab last year, and there was situation of storage problem in godowns. Deferred offtake had a hit on Lakshmi Energy’s revenue during last FY. At the current situation, the piled up stocks will likely get a better realization for the producers like Lakshmi (remember govt. already increased the minimum support price). The non-basmati rice segment is relatively a much more stable business as the rice is sold to the government at a fixed price minimum support price.
They produce another scarce item in India – electricity- out from husks. Current capcity is 30MW, however the company has plan to increase the same to 105MW in next couple of years time.

Some other valued added products are:
Refined oil
Cattle feeds
Chakki atta

Risks
There are delays in setting up new padding processing capacities
Adverse weather conditions, such as drought or flood
Any change in govt. policy, as the price is constituted based on MSPs fixed by the govt.

Company
Largest producer of non-basmati rice
One of largest food grain processing company in the world
Better utilization of by-products, thereby by adding better realization

Shareholding pattern
Promoters: 45%
FII: 25% (down from 37)
Public holding 11.50% (up from 6%)

Overview
52weeks high-low: 283-63
Book Value: 74.33
Face Value: 2
EPS (TTM): 21.6
PE (Price at 130): 6.01



Conclusion:
At current price this stock looks cheap. Going forward, with their planned expansion, especially power capacity additions, the stock has potential to double in a one year period. Recommended to accumulate 120-110 range.