saral gyan hidden gem - dec 2012

UNEXPLORED MULTIBAGGER SMALL CAP STOCKS

EQUITY RESEARCH REPORT

BAMBINO AGRO INDUSTRIES LTD.

BSE CODE: 519295

Industry: Consumer Food CMP: Rs. 55.65 (25/12/2012)

Market Cap: 44.57 (INR in Millions) Target Price: Rs. 120.00 Date: December 25, 2012 Time Period: 18 – 24 months

Saral Gyan Capital Services

www.saralgyan.in

An Independent Equity Research Firm

http://www.saralgyan.in/

HIDDEN GEMS – DECEMBER 2012

- 2 - SARAL GYAN CAPITAL SERVICES

TABLE OF CONTENT

S.No Content Page No.

1. Company Background 03

2. Recent Developments 09

3. Financial Performance 10

4. Charts & Graphs 12

5. Peer Group Comparison 14

6. Key Concerns / Risks 14

7. Saral Gyan Recommendation 15

8. Disclaimer 17



1. Company Background

Bambino Agro Industries Limited (BAIL), incorporated in 1982, is one of the largest vermicelli producers in South East Asia which is made out of Duram wheat semolina (suzi/rawa). It is part of the diversified Bambino Group having interests in FMCG Products. After introducing vermicelli products in 1982 in South India, Bambino later made its pan India's presence in a very short time.

Today, Bambino is a household name, and the word has become generic to Vermicelli, which is a part of the daily diet of millions in India. Bambino not only pioneered and introduced vermicelli in India, but has become the market leader and has become a barometer of success story.

India continues to be a high growth economy and a significant portion of this growth comes from FMCG sector particularly consumer product companies. Earlier, the consumption of pasta products was confined to urban population but now slowly with the rising literacy and income levels of rural population; the market for pasta products has expanded to smaller towns. Bambino has intensified product promotion activities by highlighting nutritional values of pasta products.

The awareness amongst the consumers for leading a healthy life also has led to the growth of this food sector. To leverage this, Bambino had introduced an innovative range of products and is continuously adding value-added products to the existing product line. Every product from Bambino is a testimonial of the uncompromising quality standards. These specialties enabled Bambino to emerge a household name in India and globally.

Company’s manufacturing units are strategically situated in four different geographical locations with ultra modern facilities and equipped with sophisticated machinery for self sufficiency in manufacturing and to cater to the ever-growing domestic and overseas needs. The company has contract farming to ensure consistency of agri-products and control on the entire value chain. In addition to that, an able, technical team of procurement personnel takes care of what is sourced for produce. The entire manufacturing is documented to the minutest detail ensuring international quality standards

Bambino has one of the largest distribution networks in the country. It caters to all the consumers' needs from Kashmir to Kanyakumari. The company serves to the stockists through its own depots / carrying and forwarding agents; stockists to retail & wholesale trade—by which the consumers gets the final product. The key to success of distribution



network is company’s associates, who are highly committed and loyal to the company. Bambino has experienced Specialists in each of the Departments. The team consists of experienced engineers, management and finance professionals, food technologists, nutritionists and has many long-term business associates.

Nutrition Department

Bambino Agro Industries has established a separate nutrition department with the aim of building brand image and highlighting the nutritional facts. Below are some of the key facts of nutrition department:

Fully equipped kitchen with latest cooking range

Consists of a team of two eminent nutritionists and four skilled cooks

Has a seating capacity of 30-35 room which serves the agenda of educating different groups of people on health, focusing balanced diet and special counseling on lifestyle disorders-diabetes

Conducts live cookery demonstration on low fat, zero cholesterol, high fiber and healthy recipes high in calcium and iron out of Bambino’s Pasta and Pasta Products is given to public with zero fee facility

Organizes events such as Taste with Health, Bambino pasta products cookery shows, and also conducts cookery demonstrations on healthy recipe

Participates in food courts of various exhibitions to exhibit pasta recipes, directly interacts with consumers on health benefits of the products and provides general health tips

Gives presentations on consequences of junk food and benefit of wheat based pasta products in parent teacher meeting at different schools

Research & Development

Bambino has embarked on aggressive research and development mode and there is considerable research going on new product development activities. Company applies its scientific capabilities and consumer insights to contribute to advances in nutrition, health and wellness of consumers.

Continual development, innovation, concept to commercial, line extensions, cost reduction, improving market share have been the focus of Bambino. Though companies refrain from investing in-house product development laboratory or R&D activity, Bambino identifies the need for in-house R&D for development of products and processes to make its presence strong in this competitive food business.

Bambino strictly follows a robust R&D activity across all stages of the food chain. It starts from initial stage of agriculture and continues till primary processing for delivering the excellent product meeting consumer delights. Today, Bambino is focused on all



these areas to deliver a quality product what consumer expects from their household brand for more than two and half decades.

Domain knowledge of food science has become strong and today every aspect of food and its processing is being addressed by science. There is need to complement contributions of basic research on foods with knowledge of Indian systems of medicine to develop functional foods, nutraceutical etc., and Bambino is focused to develop and launch new foods in this category. Today R&D and product development are imperative for agro, food-processing industries which will help the industry to succeed in the global markets.

Company makes use of modern quality assessment methods and techniques developed for effective quality monitoring of processed foods as per national and international standards. All the products go through stringent quality assurance tests to monitor and control all aspects of quality. Quality controllers ensure that the food does not contain any harmful chemicals/preservatives that would destroy their nutrition value. Company pays attention to maintain the flavor, calorie count, vitamins, nutrients and shelf life of processed food items.

Teams of trained and experienced professionals look after production, delivery and quality targets. The teams that work in company have vast experience in the industry and thorough knowledge of all the involved processes. Company maintains a healthy working environment and executes timely skills development training programs to improve its teams.

Company considers R&D as a support to success and therefore, has invested well into extensive R&D activities. Supported by R&D activities, company achieved benefits and consumer on a global scale. Bambino has a dedicated R&D unit that is manned by a professional team. Company’s R&D facility keeps itself abreast with the latest technology and incorporated the required developments in processes for overall improvement. With the active contribution of R&D unit, company has grown in its sphere of operation.

BAIL has a well laid processing units strategically located across the country. The production units are equipped with hi-tech processing plants to ensure the products are of premium quality. Company units are well equipped and the products confirms to national and international standards. All products are made of high quality ingredients and have longer shelf life, owing to the latest and hi-tech technology used.



Products

Distribution



To ensure that the consumer gets the factory fresh stocks, FIFO (first in-first out) system is maintained in all depots and carrying and forwarding agents and through stockists by which Company ensures that the consumer gets fresh stocks.

Supplies to Canteen Stores Department (CSD)

Bambino supplies to all the CSD's through its various depots / carrying & forwarding agents spread all over the country to millions of people in the Ministry of Defense, ensuring quality and prompt supplies to them.

Exports

Bambino’s products are being exported to various countries including USA, Canada, Australia & New Zealand, South East Asia, Middle East, Far East & Japan, and Africa.

An in-depth understanding of the consumer’s mind and food preferences has helped Bambino develop a marketing philosophy that reflects the needs of customers. With products created bearing in mind both health and taste, company’s products equally appeal to kids and senior citizens as well. Bambino’s value-for-money positioning and nutrition in its products allows people from all classes and age groups to enjoy products to the fullest.

The Company has got a well equipped R&D and Nutrition department, which are in the process of developing healthy foods & functional foods, which are required by everyone in the present day life. These are the products, which are first tested for its efficacy and then only produced by the company. Going forward, the company intends to look into health food market in a big way.

Sales & Marketing

Bambino has got a well-trained team of Field Force comprising Sales Representatives, Territory Sales Incharges, Sales Officers, Area Managers, Regional Managers, Zonal Managers, General Manager & Vice President. They are all well-trained, well informed and they have been molded into an energetic team to reach every part of the country. The team is headed by respective manager in each state and nationally all of them report to the Executive Director of sales & marketing.

Bambino has a separate sales team to look into the needs of Modern Trade, which is spread over various parts of the country, through multi department and shopping complexes. This ensures the products availability in every nook and corner of the country.



Rural marketing

The Company has launched Rs. 5 vermicelli and Rs. 5 macaroni and even instant mixes at Re.1, to ensure that it reaches the smallest person with the lowest income in the smallest markets, through sub-stockists, direct dealers, and retailer coverage to the smaller outlets.

Services to institutions and hospitals

Today, Bambino products are served in many important hospitals, as the products are highly rated as a health food after the surgery, during convalescing period. This is a great recognition for the quality. The company has also been supplying to 5 Star hotels and chain of fast food restaurants. Many of the international chains have started using Bambino products in place of imported products because of its quality, continuous and constant supplies.

Bambino Utsav Women

Bambino has initiated a concept to reach the consumer and empower the unemployed women to earn a reasonable income, by selling Bambino products to consumers. This is a novel idea to make the women self-sufficient for her needs and also to be at the arm's length to the consumer



2. Recent Development Maintains Leadership Position in Pasta Products The domestic pasta industry in India is highly fragmented, with the organized segment accounting for about 28% of market share. It is estimated that the total installed capacity of domestic Pasta Industry is about 3,00,000 TPA, out of which organized sector accounts for about 85,000 TPA only. Industry reports indicate that the domestic industry will have to add further capacity to cater to any further increase in demand. Competitive pricing, expansions, aggressive advertising campaigns, attractive packaging, and offering new value added products are the strategies used by the company to gain market share. Targeting Higher Profitability by Scaling up Business & Effective Cost Management Company’s key thrusts for the current year would be to deliver profitable growth, effective cost reduction management, aggressively scale up the FMCG initiatives including brand building and maintain leadership position, introduce healthier life style products in the pasta range, new offerings that would meet nutrition, taste and health improvement factors. Enhancement of Supply Chain and Sales Distribution Capabilities The company also seeks to enhance supply chain and sales distribution capabilities. Strong management and technical capabilities, good financial flexibility, experience of the group of about 3 decades in manufacturing and marketing the pasta products, all these initiatives are expected to provide sustainable growth by establishing the company as the leading FMCG player in the pasta and other food segments. Declared Dividend of 15% for Financial Year ended Sept 30, 2012 Company has paid dividend of Rs. 1.50 per share on 22nd Dec’12 to share holders. Dividend has been paid by the company after 15 years; last dividend was paid by the company in the year 1997.



3. Financial Performance Bambino Agro Industries reports net loss of Rs 8.1 million in the September 2012 quarter

Net loss of Bambino Agro Industries reported to Rs 8.1 million in the quarter ended September 2012 as against net profit of Rs 0.1 million during the previous quarter ended September 2011. Sales rose 11.49% to Rs 702.6 million in the quarter ended September 2012 as against Rs 630.6 million during the previous quarter ended September 2011.

For the full year, net profit rose 65.05% to Rs 30.7 million in the year ended September 2012 as against Rs 18.6 million during the previous year ended September 2011. Sales rose 10.15% to Rs 2248.1 million in the year ended September 2012 as against Rs 2040.9 million during the previous year ended September 2011

Bambino Agro Industries net profit rises 91.55% in the June 2012 quarter Bambino Agro Industries net profit rose 91.55% to Rs 13.6 million in the quarter ended June 2012 as against Rs 7.1 million during the previous quarter ended June 2011. Sales declined 0.02% to Rs 483.8 million in the quarter ended June 2012 as against Rs 483.9 million during the previous quarter ended June 2011.

1 2 3 4 5 6

Net Sales 483.86 630.64 541.2 520.47 483.84 702.57

Net Profit 7.06 0.13 11.01 14.25 13.55 -8.13

483.86

630.64

541.2 520.47483.84

702.57

7.06 0.13 11.01 14.25 13.55

-8.13-100

0

100

200

300

400

500

600

700

800

Rs in

Mil

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ns

Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12

Last 6 Quarters Net Sales & Profit



Current & Expected Earnings Quarterly Ended Profit & Loss Account

Expected Earnings for FY 2012-13: BAIL has posted highest sales ever in its last quarter results. In last 4 years, BAIL top line has registered growth of 27% and bottom line is increased by 720%. We expect that company with maintain its leadership position in pasta products by adding new range. Company has posted total profit of Rs. 30.68 million with EPS of Rs. 3.82 for FY 11-12. As per our estimates, company can achieve bottom line of Rs. 52 million registering EPS of Rs. 6.5 for FY 2012-13.

Particulars (Rs in Millions)

Dec 2011

Mar 2012

Jun 2012

Sep 2012

Dec 2012 E

Mar 2012 E

Audited / UnAudited UA UA UA UA UA UA

Net Sales 541.2 520.47 483.84 702.57 598.75 602.78

Total Expenditure 493.27 467.49 433.19 674.63 542.61 538.23

PBIDT (Excl OI) 47.93 52.98 50.65 27.94 56.14 64.55

Other Income 0 0 0 0 0 0

Operating Profit 47.93 52.98 50.65 27.94 56.14 64.55

Interest 24.68 28.63 26.53 25.25 31.42 36.12

Exceptional Items 0 0 0 0 0 0

PBDT 23.25 24.35 24.12 2.69 24.72 28.43

Depreciation 9.1 10.1 10.18 3.48 10.31 11.35

Profit Before Tax 14.15 14.25 13.94 -0.79 14.41 16.08

Tax 3.15 0 0.39 7.33 3.23 3.67

Provisions & contingencies 0 0 0 0 0 0

Profit After Tax 11.01 14.25 13.55 -8.13 11.18 12.41

Extraordinary Items 0 0 0 0 0 0

Prior Period Expenses 0 0 0 0 0 0

Other Adjustments 0 0 0 0 0 0

Net Profit 11.01 14.25 13.55 -8.13 11.18 12.41

Equity Capital 80.09 80.09 80.09 80.09 80.09 80.09

Face Value (IN RS) 10 10 10 10 10 10

Reserves 214.3 214.3 214.29 231.01 231.01 231.01

Calculated EPS 1.37 1.78 1.69 -1.02 1.39 1.55

Calculated EPS (Annualised) 5.5 7.12 6.77 -4.06 5.58 6.20

No of Public Share Holdings 2067056 2067056 2067056

2056862 NA NA

% of Public Share Holding 25.81 25.81 25.81 25.68 NA NA



4. Charts & Graphs i) Share holding Pattern: Promoters share holding is 74.32%, increased by 0.13% in last quarter. FII exposure is nil where as DII exposure is negligible at 0.07%.

ii) Share Price Moving Average: Bambino is currently trading above its 50 and 200 day price moving average. Stock has support in range of Rs 50-53 levels.



iii) Performance Chart: Company has shown consistent growth in net sales but net profits were marginal due to high raw material prices and interest paid on debt by the company.

iv) Comparative Graph: BAIL has given positive returns of 95.68% compared to Sensex returns of 25.82% in last one year.



5. Peer Group Comparison

PEER GROUP Bambino Agro ADF Foods DFM Foods Heritage Foods

CMP 55.65 78.00 202.45 491.10

52 W H/L 70.80/23.95 80.90/44.00 289.00/166.10 562.50/133.15

Market Cap 445.69 1586.71 2024.84 43.84

Results (in Million) Sep-12 Sep-12 Sep-12 Sep-12

Sales 70.26 31.33 61.57 402.14

PAT -0.81 2.36 2.19 14.48

Equity 8.01 20.58 10.00 11.53

EPS 3.83 4.56 8.63 26.23

P/E 14.53 17.22 23.46 18.78

6. Key Concerns / Risks There is no entry barrier in the food processing sector, new players can foray into

this segment thereby intensifying the competition leading to price wars and thereby affecting the realizations.

The company’s profitability also depends on vagaries of monsoon which can affect

the availability and price of the raw materials.

Company can continue to face intensified competition from both organized and unorganized sector. Moreover, there is risk of spurious / counterfeit products flooding the market, which can have negative impact on sales volumes and affect the profitability of genuine and reputed players.



7. Saral Gyan Recommendation

Increasing urbanization, changing demographic profile of the Indian population, rising income and propensity towards disposability, rapid economic growth over the last few years is expected to result in sustained increase in per capita income which would further propel the movement of growth of FMCG sector. We believe Bambino Agro Ltd would look to exploit this opportunity for accelerated growth in the coming years by leveraging the company's brand strength.

Bambino has launched Raagi Vermicelli in the health and wellness segment. Also launching Instant Pasta in different flavours in the current year and has plans to launch multigrain vermicelli and different variants of pasta products under nutrition and health platform. The company is looking forward to increase its reach in the rural market with appropriate distribution strategies in place.

The Company is in the process of further strengthening the in-house R & D to focus on development of nutritional, functional foods with added health benefits. Management is confident to deliver improved growth in the current year with better revenue management, cost management and product innovation to fulfill the needs of consumers of different preferences.

Sales turnover of the company has increased by 27% in last 4 years, where as net profits have increased by 720% during same period. PAT Margins increased from 0.21% to 1.36%. Performance ratio’s ROA and ROE also shown consistent improvement in last 4 years.

Particulars Sep 2009 Sep 2010 Sep 2011 Sep 2012

Operational & Financial Ratios

Earnings Per Share (Rs) 0.46 2.01 2.30 3.79

CEPS (Rs) 4.04 3.95 6.41 7.85

DPS (Rs) 0.00 0.00 0.00 1.50

Book NAV/Share (Rs) 26.06 29.09 33.01 36.86

Tax Rate (%) 63.22 34.63 32.61 20.11

Margin Ratios

Core EBITDA Margin (%) 4.97 5.28 7.73 7.95

EBIT Margin (%) 4.79 5.65 6.12 6.38

Pre Tax Margin (%) 0.57 1.29 1.35 1.70

PAT Margin (%) 0.21 0.84 0.91 1.36

Cash Profit Margin (%) 1.83 1.66 2.54 2.82

Performance Ratios

ROA (%) 0.46 1.80 1.74 2.71

ROE (%) 1.73 7.28 7.41 10.85

ROCE(%) 11.14 12.71 14.07 15.66



Higher debt on balance sheet is a concern but we do not see it as a major risk

considering available cash reserves and promoters share holding of almost 75% in the company. Moreover, BAIL operates in an industry which offers huge growth potential, if management decides to dilute its stake to reduce debt burden or for expansion, there is a lot of scope for the company to get rerated from current valuations.

Considering better margins and higher sales turnover, we believe that Bambino Agro can deliver bottom line of 52 million for full financial year Oct’12 – Sept’13 with annualized EPS of Rs. 6.50.

Management has declared dividend of Rs. 1.50 for share holders for the first

time. We believe performance margins of the company will continue to improve in coming quarters considering increase in top line and proper cost management and utilization of resources.

On equity of Rs. 80.09 million, the estimated annualized EPS for FY 12-13 works out to Rs. 6.50 and the Book Value per share is Rs. 38.84. At current market price of Rs. 55.65, stock price to book value is 1.43 with forward P/E ratio of 8.5 which makes stock valuations reasonable with a long term view of 18-24 months.

Considering reasonable valuations and growing demand for ready to eat /fast food with high nutritious value in domestic food industry, we find Bambino Agro Industries Ltd as a good investment opportunity for long term. Saral Gyan Team recommends “BUY” on Bambino Agro Industries Ltd. for a target of Rs. 120 over a period of 18-24 months.

Buying Strategy:

50% at current market price of Rs. 55.65 50% at price range of Rs. 40 - 45



8. Disclaimer Important Notice: Saral Gyan Capital Services is an Independent Equity Research Company. © SARAL GYAN CAPITAL SERVICES

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction.

The information contained herein is from publicly available data or other sources believed to be

reliable but we do not represent that it is accurate or complete and it should not be relied on as such. Saral Gyan Capital Services (www.saralgyan.in) or any of its affiliates shall not be in any

way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is

not intended to be and must not alone be taken as the basis for an investment decision.

http://www.saralgyan.in/

saral gyan hidden gem - dec 2012

Economy & Finance