Thursday, June 16, 2016

Ravalgaon Sugar Farm Ltd (BSE : 507300) FV INR 50 – CMP 4500

Ravalgaon Sugar Farm Ltd (BSE : 507300) FV INR 50 – CMP 4500

The Ravangaon Sugar Farm Ltd was founded in 1933 as part of the Walchand Group but operates independently today. The Company's registered office and manufacturing facilities are situated in Ravalgaon, in the Nasik district of Maharashtra.

The company has 3 Divisoin, viz.. Sugar, Confectionery & Machinery.

Sugar : The Sugar Division has a capacity of 2,000 TCD and is situated in the Nasik belt of Maharashtra. The factory produces S-30, M-30 and L-30 varieties of white sugar. The factory is automated and monitored by computerized operations control. Ravalgaon's operations are run in an environmentally responsible manner. The plant is energy independent and supplies the excess energy it generates to the township. Water for production is drawn from the cane itself and treated water is discharged back into the earth. The Ravalgaon factory complex has planted thousands of trees in an around the plant as part of its green initiative.

Confectionery : The confectionery division has been operational since 1942 and has a strong pan India presence. It produce hard-boiled sweets and toffees under the Ravalgaon brand. Company own innovative and timeless products, including Pan Pasand, Mango Mood, Coffee Break, Choco cream besides the all time favorites cherries & che( strawberry, orange, lime flavours ), Supreme (cardamom, rose & butterscotch). , which are marketed throughout India by in-house sales force, and are available in traditional and modern trade retail outlets. The state-of-the-art factory has multiple high-speed cooking, forming and packaging lines for hard-boiled sweets and toffees.

Machinery : Ravalgaon's Industrial Machinery Division (IMD) started producing best-in-class machinery for the sugar, confectionery and other allied industries since the 1950s. Ravalgaon branded hoppers, graders, silos and double-twist candy wrapping machines manufactured in the early years of IMD's operations are functional even today across the country.

Valuations : The company has a tiny equity of Rs. 34 Lakhs only, divided into 68,000 Shares of Rs 50 paid up, of which the management holding is 53.3%. The numbers are bad like all Sugar companies  looking at downward trend in sugar industry since last few years.

Rationale : This 8 decade old closely held company having good assets in the books is engaged in turning around sugar sector, confectionery and sugar machinery is traded at a market cap of only Rs 30 crore. While other sugar stocks have multiplied 4 to 5 times, Ravalgaon, the hidden gem has not even doubled in last 12 months, thus leaving good scope for future appreciation. Few years back there were acquisition of confectionery business at a very high valuation (Nutrine was acquired by Hersheys at  270 Cr & Lotte bought 60% stake in Parrys valuing the company over 100 cr, share price of Sampre Nutrition which produce confectionery for big brands multiplied 15 times in last 1 year, so till when Ravalgaon will remain undiscovered?) Looking at these Confectionery division of Ravalgaon, which has well accepted strong brand can easily fetch close to 150 Cr, which comes to Rs 22000 per share, plus sugar biz should be valued at atleast 75 cr, which is another Rs 11000 odd per share, while Current market price is just Rs 4500, making it grossly undervalued. Only concern is liquidity which can be taken care of if by splitting the Face Value and by issuing bonus shares. A very small exposure of few odd shares is warranted as buy and forget type of investment for multifold returns in long term.