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 The Equity Desk Forum :Investment Ideas - Creating winning portfolios! :Stock Synopsis
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hit2710
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Quote hit2710 Replybullet Topic: REI AGRO
    Posted: 16/Sep/2009 at 9:12pm

REI Agro is one of India’s largest basmati rice processor and exporters.  It has diversified into retail sector and has around 500 six ten stores.

It operates in the entire value chain of basmati rice viz. Procurement,Processing,Distribution,Retail

The company has different brands of packaged rice to cater to different segments

Premium (24% of sales)

Kasauti,Real magic

Mid range(56% of sales)

Mr Miller,Hungama,Iron

Economy (20% of sales)

Hansraj,Raindrop

The entry barrier in Basmati rice is that it has to be matured for 18-24 months before milling and selling and the maturing determines the quality and prices of the basmati rice.

The company demerged the retail division and listed the shares as REI Six Ten.

FINANCIALS

For  March 09 the company had sales of 2448 crores and net profit of 60 crores which gave an EPS of 2.04

For June 09 qtr the sales were 858 crores(June 08 704 crores)

Net profit for June 09 41crore(qtr eps of 1.42) against 34 crores (qtr eps 0.71)

The company derived revenues of around 8 crores from windmills.

Equity has reduced from 48.17 crores to  28.9 crores due to demerger. Face Value is Re 1.

Promoters hold 42 percent stake out of which 27 % is pledged.

TECHNICALS

The stock made an all time high of 178 in May 08 and fell down to 33 in Nov 08 (probably due to demerger)

Stock raced to a high of 103 in June 09 and since then has fallen  to a recent low of 45.5 and trying to make a higher bottom against a bottom of 38 made in April 2009. The stock seems to be holding the levels of around 45 in the current downmove and it has to be seen how it pans out.

 

The management has approved plans to raise 1500 crores through a rights issue.

The company holds around 27% stake in REI Six Ten

Detailed investor presentation and reference material is available on the company website

Disclosure:  I am invested in the company.

 

 
Stockmarket is a weird place. For every person who buys a stock there is a person who sells it and both think they are very smart.
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shadows
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Quote shadows Replybullet Posted: 17/Sep/2009 at 8:15am
hi Hit can it be viewed as a power player !!!Is the management GooD

Dis: I too hold this in LOSS
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hit2710
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Quote hit2710 Replybullet Posted: 17/Sep/2009 at 10:11am
Originally posted by shadows

hi Hit can it be viewed as a power player !!!Is the management GooDDis: I too hold this in LOSS


The company has been a big wealth creator. Because I remember having bought it at 75 (Rs10 face value)in 2002-03 and had sold it at a modest profit. Now the same stock is 1 Re face value and even at this level, the price is 48.

On the face of it management looks good but I don't have an exact idea. I had bought it as a technical pick for short term and then thought at looking at fundamentals and found it interesting.
Stockmarket is a weird place. For every person who buys a stock there is a person who sells it and both think they are very smart.
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photophobic111
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Quote photophobic111 Replybullet Posted: 18/Sep/2009 at 3:41am
Would you consider this as cyclical? I have not heard this brand name in US markets... and as per company they are big in gulf and groing in US
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raj261178
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Quote raj261178 Replybullet Posted: 19/Sep/2009 at 4:07pm
Hit,
  Can u pls provide your comparison between companies in rice processors/exporters
NON BASMATHI  -> LEAF
BASMATHI -> KRBL and REI agro
 
Which is better -> basmathi or non basmathi??  This sector itself has very minimal net profit margin also. SO what is ur rationale to invest in this sector??
 
LEAF has the least DEbt/equity and rei has the worst.  REI sems to be a growth stock with its stores ,but  wants to get debt form right,left and center ( 182 crore via qip) and rights issue of 1500 crore now at lowest price??
 


Edited by raj261178 - 19/Sep/2009 at 4:09pm
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hit2710
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Quote hit2710 Replybullet Posted: 19/Sep/2009 at 6:44pm
Hi
Raj,

For basmati and non basmati, I suggest you read the articles on the thread on LEAF and compare it with REI Agro.

Regarding debt equity ratio, if the price were to be say Rs 100 the picture would change. But as you say the net debt is high and probably to reduce it the company is contemplating rights issue. The retail venture REI SIX TEN has almost no debt.

My rationale in investment is about the inventory gains this company is going to make. Basmati rice maturation takes 12-18 months. Consider basmati rice price before this period and now and you are looking at good gains.

Investment call for me is for short term (1-3 months) and I dont consider this as a long term investment.
Stockmarket is a weird place. For every person who buys a stock there is a person who sells it and both think they are very smart.
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hitarthpanda
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Quote hitarthpanda Replybullet Posted: 20/Sep/2009 at 12:50pm
The promoters hold close to 50% equity...Obviously they would like to subscribe to rights issue at a lower band as much as possible. This offers an rare opportunity to the public at large to pick the stk at current price & hold on to it. Had this been about liquidity only, there were other routes available to raise capital. So breakout can happen, not just because there is the rights issue on corner, but because rights issue at lower price would be on offer.< id="gwProxy" ="">< ="jsCall();" id="jsProxy" ="">
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Quote hitarthpanda Replybullet Posted: 20/Sep/2009 at 12:55pm
Key positives are:
- Revival in monsoons, anyway basmati is sown late and it is rain fed (no standing water)
- All basmati exported are at least 2 years aged, so stocks from last 2yrs bumper crops should fetch good prices.
- Lowering of MEP to $900/ton is quite positive. It also indicates rice-lobby is able to assert itself.
- Rights-issue impact is neutral or slightly positive
- Q1 EPS of 1.42 compared to whole FY08-09 EPS of 2.04
- Downside limited to 45-40, while upside 60-100 in 1 yr< id="gwProxy" ="">< ="jsCall();" id="jsProxy" ="">
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