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JITENDRA KUMAR GUPTA | Sunday, January 28, 2007 at 0034 hours IST

Edible oils that add taste

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A healthy growth in volumes driven by deficit in domestic edible oil supply and aggressive retail foray of its products have been the major drivers for the growth of KS Oils. With its strategy of focusing on brand building, integration of plants and expansion of its distribution network into new markets are some of the promising attributes of its future growth.

In order to meet its product demand the company also has plans to enhance capacities through the organic and inorganic route. The increasing preference for packaged and quality edible oil coupled with the implementation of the VAT is advantageous for the company.

"The Indian edible oil industry is expected to grow at about 6%. We have targeted our market share to be 10-15% over the next three years as compared to 3% currently and Rs. 3,000 crore revenue by 2010," says, Sanjay Agarwal, managing director, KS Oils, while sharing his plans.


KS Oils (KSO) is one of India's leading manufacturers of mustard oil, along with a strong position in the refined oils and vanaspati. The company has a good market share in eastern and north-eastern India, accounting for 3% of the total market and about 25% of the organised market. The domestic edible oil market is characterised by the presence of large number of organised and unorganised players. India is a net importer of edible oil and ensures firm oil prices. Besides, there is a growing market for packaged and quality edible oil in the country.

KSO, which is targeting 10-15% market share in the next three years, focuses on packaged oil. For FY05, 48% sales came from sale of packaged oil and for FY2007, the contribution is expected to be 61% of the total revenue. For the future the company has committed funds for brand building of its products and distribution efforts. The company added about 300 distributors this year, which it aims to increase to 1,000 over the next 15 months.

To achieve growth in the long term, the company is investing about Rs 131crore for the overall development of the business. It will also increase its current capacities by 65%, which it will achieve through investments in green field projects and 2-3 acquisitions. It has already started identifying some of these businesses and is expected to close the deals in the times to come.

Besides the growth in volume, the company has the challenge of improving its margins. Most of these companies are regional in nature and are volume players, not concentrating on brand and quality of the product. It also causes a price war. However, for the quality-conscious KSO, the future looks positive as VAT is implemented. This brings the advantage to the extent of 4% over the unorganised players. Also, with its integration and cost cutting measures in place, it is expecting the EBITDA margins to improve from current 10% to 12-13% and net margins from 6.6% to 8-9% over the next two years.


On the share price front, post its preferential allotment at Rs 180 to Citigroup Venture Capital and promoters, the share prices have gone up significantly. At the current market price of Rs 328 the stock discounts about 12 times to its annualized earnings of FY07. Considering its future plans and expansion of current capacity over the next 2-3 years the valuations are reasonably attractive with a view of longterms growth in earnings.