Sector : Fast Moving Consumer Goods, Industry : Consumer Food

BSE:532143, NSE:SKMEGGPROD

Business Overview:

SKM Egg Products started its journey in 1996, company involves in production and sale of eggs, manufacturing and sale of egg products. It is one of largest egg processing plant in Asia with a capacity of 1.8million eggs per day and produce 6500 tonnes of egg powder annually.

Business Products:

1. Egg Powder
   • Whole Egg Powder – used in formulations where binding and raising properties of egg needed such as Bakery Products
   • Egg Yolk Powder – Emulsifying Properties, Colour and Texture uses like Mayonnaises
   • Egg Albumen Powder – Meat Products and produce stable oil based emulsions
2. Bakery Mix – Egg Powder with Sugar, Salt and Other Ingredients
3. Liquid Eggs
   • Whole Egg Liquid
   • Egg Yolk Liquid
   • Egg Albumen Liquid
   • Customized Egg Liquids with customer preferred ingredients

Business Presence :

• Registered Office in Erode, Tamil Nadu and Plant Location, Cholangapalayam, Erode
• Company have strong presence in Russia, Europe, Far East, South East and Middle East Asian countries
• Major repeat orders from countries like  Russia, Japan, Europe, Indonesia, Thailand, Vietnam, Nigeria, Taiwan, Dubai, etc.,
• Subsidiary and Associate Companies, As of 2023
  • SKM Europe BV, Netherlands – 85% Ownership
  • SKM Universal Marketing Company India Private Limited – 26% Ownership

Industry Overview:

• The market is primarily driven by the increasing demand for egg powder. The growing health awareness regarding the consumption of powdered eggs, such as nutrients, antioxidants, and antibacterial and immune-boosting properties, are contributing to the market growth. Source: AR
• The egg powder market size in India reached US$ 150 Million in financial year 2022-23. Looking forward, the market expected to reach US$ 225 Million by 2028, exhibiting a growth rate (CAGR) of 7.1% during 2023-2028, according to Egg powder fraternity. Source: AR

Does Business Simple to understand?

Financial Statements Overview:

Company 10 years sales growth at CAGR of 10%, 701 Crores in 2024 vs 290 Crores in 2015, no sales growth from 2015 upto 2022. There was sudden jump in sales in 2023 to 662 Crores from 302 Crores in 2022, the major contribution from the sales of Egg Powder & Egg Liquid – Export which stands at 503 Crores. Operating Profit Margin improved from 13% in 2015 to 17% in 2024, this looks very cyclical dropped from 13% in 2015 to lower single digit margin from 2017 to 2020 and improved in recent years. The fluctuation in OPM was mainly due to Material Cost. Other Income stays flat at 13 Cr in 2024. Interest rate stands at 10 Cr though the debt level increased from 42 Cr to 146 Cr in 2024. In past 10 years, company depreciated and amortized in the range of 20% to 30%. The major part of D&A goes in Amortization of Livestock – Birds. Company paying tax as per corporate tax rate in India. Net Profit after Tax stands at 85 Cr in 2024 vs 25 Cr in 2015 at CAGR of 14%. Net Profit Margin stands at 12% in 2024 vs 9% in 2015, but again NPM fluctuates in lower single digit mainly due to material cost. Cash Equivalents stands at 141 Cr.

Does Earning Prospects of Business Looks Good?

Management Overview:

Business Forensic: As of 2023

• Company carries inventories worth INR 118.78 crores out of which holding company carries inventories of INR 114.64 crores.
• As per Independent Auditor Report, They didn’t audit the financial statements of Russian Branch whose revenue worth INR 112.89 crores and 1 subsidiary whose revenue worth INR 4.63 crores.
• As of 2023, the debt stands at 88 Cr. The major portion of debt of current borrowings came from Foreign Currency loan (EUR and USD) – 65.8 Cr at Interest rate of 5.28% p.a.
• Other Related Parties, Entities where Key Management Personnel have significance influence,
  • SKM Animal Feeds and Foods India Private Limited
  • SKM Siddha and Ayurvedha Company India Private Limited
  • SKM Health and Mind Welfare Charity Trust
• There is no major notable transaction with Other Related Parties other than 25Lakhs donation to charity and very less purchase and sale of goods.
• Remuneration paid to KMP INR 4.12 Cr as of 2023 out of this SKM Shree Shivkumar taking INR 3.42 Cr. per annum which increased 112% from 2022.

Does Management Is Strong and Confident about Business?

Business Valuation:

• Considering the business will grow its Net Profit at CAGR of 12% for first five year and 10% for next five years¹, Price to Earnings of 10² as conservative value while selling the business and discount value at 15%³.
• The business can offer good value, if it is in the range of 640 Cr to 710 Cr
• Valuation will vary based on different assumption and expectations.

Does Business be Purchased Significant Discount to Its Value?

Overall Ratings for SKM Egg Products:

Footnotes:

1. I am considering the growth of 12% to 10% Net Profit based on past 10 years growth ↩︎
2. Company Median PE is 15, I consider 10PE because the margin looks very unstable for this business ↩︎
3. Conservatively, I took 15% as discount value, it have uncertain margin and flat sales growth in past ↩︎