Satnam Overseas – Leveraging its KOHINOOR

Satnam Overseas (CMP Rs 78.00) is India’s largest basmati rice producer. The company is known for its Kohinoor brand of basmati rice. Over the past two years Satnam has made concerted efforts in becoming a global food company. Over the years Satnam is cutting down on its unbranded sales and is increasing exposure to the branded and ready to eat market

Satnam exports its products to 57 countries worldwide The company entered into a tie up with TESCO, the largest retail chain of UK to sell various product lines like Kohinoor Basmati Rice, Rice & Curry, Cooking Pastes, Chutneys & exotic Indian spices and seasonings. Other associations include Tiger Foods (South Africa), Hankyu, Daimaru, Takashimaya, Mitsukoshi (Japan), Coles & Woolworth (Australia) and Seven Eleven (Singapore). The company also started its supplies to Malaysian Airlines.  

Leveraging the Kohinoor brand the company has ventured out into in the Ready to eat market. The domestic ready to eat market is showing explosive growth and surveys suggest that this segment could grow at more then 200% CAGR the over the next two years

The company has set up basmati rice processing unit at unit at Felixtowe, UK with a capacity of 8MT per hour. This unit shall initiate supplies to the European retail chains.

The domestic market is witnessing significant expansion due to rising disposable incomes, changing consumption patterns, growing consumer class, organized retail and rising average realizations. 

While the company has taken a lot of initiatives over the past three years the revenues growth has been lackluster. Satnam has been moving out of its commodity businesses and replacing it with branded food items The contribution of the high margin processed food business is quite low but growing very fast.

Three years down the line, the company is looking at a turnover of Rs 1000 crore. Out of that, 90% of the top line should be from branded variety.

The company has also tied up with Reliance Retail and is expected to initiate partnerships with other Retailers also. The advent of organized retailing will give a huge fillip to the branded and processed food market.

Recommendation: Satnam Looks like a value cum growth stock and investors who are willing to play the Great Indian consumer boom could take positions. However the only worry is the low proportion to processed and branded food in the company’s total business but that seems discounted in the price. At a PE of 11 times trailing and a market cap to sales of 0.28 times the downside seems well protected.