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Nifty View: 30th June 2014 and Ahead

NIFTY Daily Chart
On the daily charts, NIFTY has entered a time wise correction after 19th June since breaking the upward sloping trendline. This sideways correction could go on for a few days more. 7450-7600 is the range for the index till any of this level is broken which can start off a fresh move. The market is showing no sign of any weakness and we expect a fresh upmove post the budget which comes on 10th July, 2014. Nifty has strong support at 7480-7485 levels at it's 21EMA.
For this week traders can sell both 7400PE and 7600CE at 94 & 130 and collect the premium of 224. Hold till the index closes above 7400 or 7600.

AVT Natural: A Long Term View


Background:
AVT Natural established in 1925 hails from the AV Thomas group and is a strategic diversification from the traditional plantation business. The company specializes in extraction of colours and flavours from natural sources. The company's business consists off:
i) Marigold Oleoresins
ii) Spice Oleoresins and Essential Oils
iii) Value Added Teas

Products:
Marigold has traditionally been the company's main product but off late the company has diversified into decaffeinated tea and spice oleoresins segments which now contribute more than 35% of the company's revenues. The company has a presence in the eye health care segment with it's partner Kemin Human Nutrition and Health Division which has a strong presence in this market. After done by the National Eye Institute (USA), the company expects the demand for Marigold Oleoresins to boost up. It also plans to expand into a second product in the eye care segment. The company is giving increased importance to the instant tea segment whose capacity was increased in the latter half of 2013 and the company expects a significant increase in it's sales from 2014-15.
Note: Kemin is one of the largest consumer of Marigold in the world and also the largest client of AVT. Kemin is en-route a phase where it targets a high growth period from 2015 post the trial results of the National Eye Institute. Post the trials, as per the results of earlier results of the trial, the use of Lutein and Zeaxanthin will increase. Marigold (Food Grade) is the richest source of both and AVT is the largest producer of Food grade Marigold.

Risk:
The segment in which the company operates is vulnerable to failure of monsoon and volatility in the prices of marigold. The company has 3 cropping areas and 3 cropping seasons and carries sufficient inventory to mitigate the risk of crop failure. This strategy ends up burdening the working capital requirements of the company. For marigold flowers, the company operates under a contract farming model where agreement with the farmer exists for rights and obligations of each party and the flower price is pre determined. The prices of marigold had rocketed in 2011-12 but the last year saw it return to normal levels due to over production in China.

Opportunities:
The company is seen as a world leader in Food grade Marigold Oleoresins, India's 2nd largest exporter in Spice Oleoresins and Essential oils and the third segment is relatively a new segment with high growth potential. Of the 3 major Marigold producing countries: India, China and Peru, the company has a production base in India and China. In the Value Added teas segment, the company is one of the few players in the world who have decaffination facilities. Players like lipton tea outsource their decaffination requirements to companies like AVT at a fixed processing fee. This business is a capital intensive and high skill requiring one and currently in Asia, there are only 3 companies who offer this facility.

Financials:
The consolidated sales of the company for the year ended 31st march, 2014 stood at Rs. 289.50 Crores up by 7.8% when compared to Rs. 267 Crores for last year. The company's sales have grown by a CAGR of 27% over the past 5 years rising from Rs. 87 Crores in 2010 to Rs. 289 Crores in 2014. The operating profit has risen from Rs 19 Crores in 2010 to Rs 67 Crores in 2014. Year on year, the company's operating profit has fallen from Rs. 78 Crores to Rs 67 Crores on account of higher marigold prices. The net profit of the company has risen from Rs 6 Crores to Rs 42 Crores in the last 5 years. The company's operating profit margins vary from 17%-30%  and in 2012 the margin was as high as 39%, in 2013 it was 30% and in 2014 close to 23%. The net profit margin stood at 17.5% in 2013 and 14.5% in 2014. The standalone net profit of the company has been stuck at around Rs. 50 Crores since FY 11-12.
The reserves of the company stand at Rs 152.45 Crores for FY 13-14 against Rs. 130 Crores in FY 12-13. The debt of the company stands at around Rs. 5 Crores as on 31st March, 2014 down from Rs 32 Crores as on 31st March, 2013. The finance cost on account of lowering of debt has fallen from Rs. 5.4 Crores to Rs. 1.4 Crore. The company aims at being a "ZERO-DEBT" organisation in the future.

Valuation:
The company trades at around Rs 35 and has a paid up value of Re. 1. At the current levels and EPS of Rs. 3.36 (Standalone) the company trades at a P/E of 10.5 and Dividend Yield of 1.77%. The company has been through a phase of development with healthy margins and growth and the coming years could see all the 3 divisions perform at their maximum. With the company known to be maintaining healthy margins, this stock is a must add for your portfolio with a view of 5 years and it could, with time turn out to be a decent 20%-25% annual growth stock.

Nifty View: 16th June, 2014 and ahead

The party at Dalal Street seems to have hit brakes. Crude Oil prices have shot up and it has hurt the ongoing bullish sentiments in the market. After briefly touching 7700 levels, Nifty has now fallen near 7540 levels.

Nifty Spot Chart
The above chart is of Nifty (Spot Levels) - Daily TF. Nifty is approaching an important support zone of 7470-7500. The support of the previous swing high which Nifty broke is at 7500, the 14EMA is at 7480 and the rising trendline support is also near the 7480 levels. If Nifty breaches these levels, expect it to head lower to 7395 levels where the 21EMA is the next support level. Expect Nifty to take support at the 7480-7500 support zone. The immediate resistance for the index is 7580. If Nifty manages to break above 7580, it can head higher for 7670 which is the next resistance. Above 7670, the index can retest 7700. We don't see the index breaking 7700 this week however. It will be interesting to watch how the index reacts to the trendline support and the 21EMA. If Nifty closes below 7390, expect it drift lower towards 7200 levels. In brief, important levels to watch:
Support: 7480-7500 / 7390.
Resistance: 7580 / 7670 / 7700
Expected Range: 7390-7700

Risky Trade: Sell 7400PE and 7700CE at 30 each, Total Cost: 60, SL: 90. Risk: 1500 PER LOT.

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